FATF Status

18 October 2019 - Statement on Brazil’s progress in addressing the deficiencies identified in its mutual evaluation reports

In February 2016, the FATF released a statement conveying its deep concerns about Brazil’s continued failure to remedy the serious deficiencies identified in its June 2010 mutual evaluation report, especially those related to terrorism and terrorist financing. The FATF reiterated its concern on a number of occasions and in June 2019, raised this as a membership concern for the October Plenary to consider.

Following the passage of Law No 13.810 in February 2019 and Decree No 9.825 in June 2019, the FATF reviewed Brazil’s new framework for identifying and freezing terrorist assets.

Overall, the FATF is satisfied that Brazil has made substantial progress and addressed most of its targeted financial sanctions deficiencies, which concludes the process. The FATF no longer considers this a membership concern for the FATF.

However, the FATF expresses its serious concerns regarding Brazil’s ability to comply with international standards and combat money laundering and terrorist financing that result from the limitation placed by a recent provisional injunction issued by one judge of the Brazilian Supreme Court on the use of financial intelligence in criminal investigations. The FATF is also concerned that the court decision is impacting Brazil’s FIU to share information with law enforcement authorities.

The FATF is following this situation closely and it looks forward to timely updates and reassurances from Brazil in this regard.

FATF Statement -  October 2016

Brazil is not currently on the FATF List of Countries that have been identified as having strategic AML deficiencies, however, in February 2016, the Financial Action Task Force (FATF), the international standard-setter for combating money laundering, the financing of terrorism and proliferation of weapons of mass destruction, released a statement conveying its deep concerns about Brazil’s continued failure to remedy the serious deficiencies identified in its third mutual evaluation report adopted in June 2010. Brazil had not criminalised terrorist financing since 2004, when Brazil’s second mutual evaluation report was adopted. And while the FATF welcomed progress by Brazil on the freezing of terrorist assets, further improvements were required to fully satisfy the FATF standards. The FATF called on Brazil to fulfil its FATF membership commitment by enacting counter terrorist financing legislation that would adequately address these shortcomings in line with the FATF Recommendations. If adequate legislation was not enacted by the June 2016 FATF Plenary, the FATF would have considered the next steps in the follow-up process.

On 16 March 2016, Law 13.260 was enacted to criminalise terrorism and terrorist financing[1]and “deal with investigative and procedural provisions and to reformulate the concept of a terrorist organization” and which covered most of the elements of former SR.II, thereby addressing that Recommendation sufficiently (with minor deficiencies). The FATF welcomed that important development and decided not to consider the next steps in the follow-up process.

Since June 2016, Brazil has taken additional steps towards improving its counter-terrorism (CFT) regime by preparing several ordinances which would in principle contribute to fully implementing UNSCRs 1267 and 1373. These however, are yet to be enacted.

There still remain a number of shortcomings that Brazil must address in order to reach a satisfactory level of compliance with the FATF standards. If sufficient progress is not made by February 2017, the FATF will consider taking other measures, including issuing another Public Statement.

[1] Among the provisions included in the new law, article 5, paragraph 1 establishes penalties to the agents, who with the purpose of practicing acts of terrorism, recruit, organize, carry or equip individuals traveling to a country other than that of their residence or nationality. This is an important provision in line with UNSCR 2178 (2014).

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Brazil was undertaken in 2023. According to that Evaluation, Brazil was deemed Compliant for 10 and Largely Compliant for 19 of the FATF 40 Recommendations. It was deemed Highly Effective for 0 and Substantially Effective for 2 with regard to the 11 areas of Effectiveness of its AML/CFT Regime.

US Department of State Money Laundering assessment (INCSR)

Brazil is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes

Overview

Brazil’s economy is the second largest in the Western Hemisphere by purchasing power parity. 

Brazil is a major drug transit country and one of the world’s largest drug consumers.  Transnational criminal organizations operate throughout Brazil and launder proceeds from trafficking operations and contraband smuggling.  A multi-billion-dollar contraband trade occurs in the Tri-Border Area (TBA) where Brazil shares borders with Paraguay and Argentina.  Illicit networks in the TBA are known to provide financial support to Hizballah, a U.S. Department of State-designated Foreign Terrorist Organization and Specially Designated Global

Terrorist.  Organized crime, including public corruption, is law enforcement’s primary money laundering priority, followed by weapons and narcotics trafficking.  

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           36

World Governance Indicator – Control of Corruption             32

Corruption represents a severe constraint to business in Brazil. Brazil is currently being roiled by a number of large corruption cases including the ‘Operation Car Wash’ case involving Petrobras and Odebrecht in elaborate kickback and bribing schemes that has embroiled hundreds of politicians and led to the impeachment of former president Dilma Rousseff. Corruption is especially likely in the tax administration, public procurement and natural resource sectors. The Clean Companies Act is one of the toughest anti-corruption laws in the world, but its enforcement is inconsistent. Under the Act, bid rigging and fraud in public procurement, direct and indirect acts of bribery, and attempted bribery of Brazilian public officials and of foreign public officials are illegal. The Act holds companies liable for the corrupt acts of their employees. Brazilian law makes no distinction between bribes and facilitation payments. Giving gifts is illegal and uncommon when doing business and establishing relationships. Businesses are advised to consider the Portal's compliance guide for Brazil’s Clean Company Act. For further information - GAN Integrity Business Anti-Corruption Portal

Brazil is the second largest economy in the Western Hemisphere behind the United States, and the twelfth largest economy in the world (in nominal terms) according to the World Bank. The United Nations Conference on Trade and Development (UNCTAD) named Brazil the sixth largest destination for global foreign direct investment (FDI) flows in 2021 with inflows of $50 billion, an increase of 78 percent in comparison to 2020 but still below pre-pandemic levels (in 2019, inflows totaled $65.4 billion). In recent years, Brazil has received more than half of South America’s FDI inflows, and the United States is a major foreign investor in the country.

The Brazilian economy resumed growth in 2017, ending the deepest and longest recession in Brazil’s modern history. However, after three years of modest recovery, Brazil entered a recession following the onset of the global pandemic in 2020. The country experienced a recovery in 2021, with its Gross Domestic Product (GDP) growing 4.6 percent, but slowed down again in 2022, increasing only 2.9 percent. As of March 2023, analysts forecast 0.89 percent GDP growth for the year. The unemployment rate was 7.9 percent at the end of 2022, with around one-quarter of the labor force unemployed or underutilized. The nominal budget deficit stood at 4.68 percent of GDP ($89.39 billion) in 2022 and Brazil’s debt-to-GDP ratio dropped to 73.5 percent. Analysts expect the debt-to-GDP ratio to grow in 2023 with the new administration.

President Luiz Inácio ‘Lula’ da Silva (Worker’s Party/PT) assumed office on January 1, 2023. Among his campaign priorities, President Lula highlighted the need for tax reform to simplify the complicated Brazilian code, to attract investments, and to reindustrialize the Brazilian economy. The previous administration was able to advance some, but not all, reforms to reduce the cost of doing business in Brazil. Analysts foresee more favorable conditions with the Lula administration to complete tax reform, although they remain skeptical of the Government of Brazil’s (GOB) ability to pass reforms that would reduce the country’s primary deficit. The administration is also prioritizing the establishment of a new fiscal framework for controlling public debt to replace the current spending cap rule. It is expected that the new rule will be less stringent than existing rules since previous PT administrations have prioritized government spending.

Brazil’s investment promotion strategy traditionally prioritizes the automobile manufacturing, renewable energy, life sciences, oil and gas, and infrastructure sectors. Foreign investors in Brazil receive the same legal treatment as local investors in most economic sectors; however, there are foreign investment restrictions in the health, mass media, telecommunications, aerospace, rural property, and maritime sectors. The Brazilian congress is considering legislation to liberalize restrictions on foreign ownership of rural property. The new administration has stated support for public-private partnerships and concessions instead of privatizations.

Analysts contend that high transportation and labor costs, low domestic productivity, and ongoing political uncertainties hamper investment in Brazil. Foreign investors also cite concerns over poor existing infrastructure, rigid labor laws, and complex tax, local content, and regulatory requirements; all part of the extra costs of doing business in Brazil.

The impact of Russia’s war of aggression against Ukraine exposed some of Brazil’s fragilities in its production of certain commodities. Brazil’s strong dependence on imported fertilizers, particularly from Russia and Belarus, temporarily caused agricultural production concerns at the start of the war and impacted global food prices, boosting inflation. In addition, although Brazil does not rely directly on Russian energy commodities the hike in international energy prices contributed to the continuing rise in inflation locally.

​Country Links

Central Bank of Brazil

Council for Financial Activities Control (COAF )

Brazilian Financial Sector Regulatory Structure - CVM