The key challenges of AML compliance in Latin America and the Caribbean

Whether conducting risk assessments or reviewing client due diligence, it is vital to understand the risks and responsibilities of money laundering challenges for different jurisdictions.

In this article, VinciWorks considers the key AML challenges and laws in Brazil, and what organisations should consider when assessing customer, geographic or matter risk.

For more on the key AML risks and challenges in Latin America and the Caribbean, download our free guide to compliance.

Click here to download a free copy.

Key risks

• Terrorist financing – organized crime groups are known to have links with terrorist entities, in particular the FARC and Hezbollah. Proceeds from drugs, robberies and kidnappings have been funneled into terrorist activities. 
• Corruption – the decentralized public procurement system differs state by state, creating vulnerabilities in tackling crime and corruption. Political interference in corruption investigations and institutions has also set back efforts to tackle financial crime. 
• Information sharing – this varies in quality and state to federal information sharing, and coordination between authorities in different states is not seen as being particularly effective. 
• State-owned enterprises – key sectors of the economy including energy, banking and construction are in public ownership, creating opportunities for public corruption and bribery in awarding contracts.
• Drug trafficking – the Tri-Border Area between Brazil, Argentina and Paraguay is a key area of financial crime, where organized crime traffics drugs, minerals and people with impunity. 

Criminal proceeds

An estimated $25.8 billion – $64.4 billion is laundered every year in Brazil.

AML policy summary

Brazil is seen to be weak in AML knowledge of obligated entities, and weak in prosecution. Although it is stronger in prevention and investigation. 

Legal summary

Brazil has a mature money laundering framework with a strong institutional basis for financial intelligence and information sharing across state and federal enforcement agencies, although in practice it may sometimes lag.

Brazilian authorities, including the Private Insurance Superintendence have formed a working group to prepare an NRA. 

The main money laundering laws in Brazil are:

• Law 9.613/1998 – this designates money laundering laws
• Law 13.260/2016 and Law 13.170/2015 tackle terrorist financing
• Law 13.810/2019 enforces terrorist asset freezing measures
• Central Bank of Brazil Circular 3.978/2020 promotes AML/CTF frameworks

Weaknesses

Lawyers are seen as the top facilitators of financial crime in Brazil. Real estate, gas stations and shell companies are key conduits for money laundering. While prosecutors and authorities often have political will to tackle financial crimes, powerful business interests and politicians can obstruct the justice system. Jurisdictional delays can result in justice disappearing. Operation Car Wash is an important example of Brazil’s ‘many moving parts’ justice system which can hinder effective law enforcement. 

Brazil has a very low conviction rate for financial crimes. Out of nearly 5,000 investigations in a two-year period, only 11 resulted in a conviction. State-owned companies remain a hotbed of corruption, with some states having significantly less technical capabilities and resources to tackle financial crime. 

Prosecutors can only target individuals for money laundering crimes, not legal entities. This creates loopholes for wrongdoing to go unpunished. A lack of independent and neutral pathways to report wrongdoing in the government or private sector is also hampering progress. 

Strengths

Brazil has been strengthening its legislation in recent years. It established a risk-based approach for financial entities, along with comprehensive monitoring and money laundering regulation.

New procedures for identifying and freezing terrorist assets have demonstrated to the FATF that Brazil is making substantial progress and addressing its deficiencies. The National Strategy for Combat Against Corruption and Money Laundering (ENCCLA) has toughened accountability requirements for lawyers and accountants who are otherwise not subject to AML obligations. 

More information

VinciWorks has created a guide designed to support businesses that currently operate in Latin America and the Caribbean, or are planning to, or seeking to expand to new countries in the region. This guide provides an overview of some of the key AML challenges and issues and includes a country-by-country assessment of AML risks and laws. 

Click here to download a free copy.