Brazil

Sanctions

No

FATF AML Deficient List

No - but FATF have published statements regarding concerns over Brazil's continued failure to remedy the serious deficiencies identified in its third mutual evaluation report adopted in June 2010

Higher Risk

US Dept of State Money Laundering Assessment 
Not on EU White list equivalent jurisdictions
Serious deficiencies identified in the enacting of counter terrorist financing legislation

Medium Risk

Non - Compliance with FATF 40 + 9 Recommendations
Weakness in Government Legislation to combat Money Laundering
Corruption Index (Transparency International & W.G.I.)
World Governance Indicators (Average Score)
Failed States Index (Political Issues)(Average Score)

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ANTI-MONEY LAUNDERING

 

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 by the Financial Action Task Force (FATF) in 2010. According to that Evaluation, Brazil was deemed Compliant for 3 and Largely Compliant for 21 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for all 3 of the 6 Core Recommendations.

 

Statement on Brazil’s progress in addressing the deficiencies identified in its mutual evaluation reports, since the FATF’s statement of October 2016

 

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, especially those related to terrorism and terrorist financing. The FATF called for actions to address those deficiencies. The FATF reiterated its concern in October 2016, and again called on Brazil to address these shortcomings.

 

The FATF recognises that Brazil has taken several significant steps to improve its CFT regime; however deficiencies remain regarding targeted financial sanctions.

 

The FATF calls on Brazil to fulfil its FATF membership commitment by taking actions that fully address these shortcomings.

 

FATF Statement on Brazil’s considerable progress in addressing the serious deficiencies identified in its mutual evaluation reports, and the important issues that remain unresolved (June 24 2016)

 

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 fullfil 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 would not be enacted by this FATF Plenary, the FATF would consider the next steps in the follow-up process.

 

Since February 2016, Brazil has taken significant steps towards improving its counter-terrorism (CFT) regime by enacting a law on the criminalisation of terrorist financing. The FATF welcomes this significant step made by Brazil, which improves the country’s compliance with the international standards. As a consequence, the FATF has decided not to consider the next steps in the follow-up process.

 

In spite of this positive step, there still remain a number of shortcomings in the Brazilian counter-terrorist financing regime. Brazil must address these shortcomings in order to reach a satisfactory level of compliance with the FATF standards.

 

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 was the second largest in the Western Hemisphere in 2018 and among the 10 largest in the world.  Brazil is a major drug transit country, as well as one of the world’s largest drug consumers.  Transnational criminal organizations operate throughout Brazil and launder proceeds from trafficking operations and human smuggling.  A multi-billion dollar contraband trade occurs in the Tri-Border Area (TBA) where Brazil shares borders with Paraguay and Argentina.  Networks in the TBA provide financial support to Hizballah, a U.S. Department of State-designated Foreign Terrorist Organization.  Public corruption is law enforcement’s primary money laundering priority, followed by narcotics trafficking. 

 

A June 2018 FATF statement notes Brazil risks suspension if it fails to remedy remaining CFT deficiencies related to the implementation of targeted sanctions for terrorist financiers designated by the UN Security Council.

 

 

SANCTIONS

There are no international sanctions currently in force against this country.

 

BRIBERY & CORRUPTION

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           35

World Governance Indicator – Control of Corruption             36

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

 

ECONOMY

Characterized by large and well-developed agricultural, mining, manufacturing, and service sectors, and a rapidly expanding middle class, Brazil's economy outweighs that of all other South American countries, and Brazil is expanding its presence in world markets. Since 2003, Brazil has steadily improved its macroeconomic stability, building up foreign reserves, and reducing its debt profile by shifting its debt burden toward real denominated and domestically held instruments. Since 2008, Brazil became a net external creditor and all three of the major ratings agencies awarded investment grade status to its debt.

After strong growth in 2007 and 2008, the onset of the global financial crisis hit Brazil in 2008. Brazil experienced two quarters of recession, as global demand for Brazil's commodity-based exports dwindled and external credit dried up. However, Brazil was one of the first emerging markets to begin a recovery. In 2010, consumer and investor confidence revived and GDP growth reached 7.5%, the highest growth rate in the past 25 years. GDP growth has slowed since 2011, due to several factors, including overdependence on exports of raw commodities, low productivity, high operational costs, persistently high inflation, and low levels of investment. After reaching historic lows of 4.8% in 2014, the unemployment rate remains low, but is rising. Brazil's traditionally high level of income inequality has declined for the last 15 years.

Brazil’s fiscal and current account balances have eroded during the past four years as the government attempted to boost economic growth through targeted tax cuts for industry and incentives to spur household consumption. After winning reelection in October 2014 by a historically narrow margin, President Dilma ROUSSEFF appointed a new economic team led by Finance Minister Joaquim LEVY, who introduced a fiscal austerity package intended to restore the primary account surplus (before interest expenditures are included) to 1.2% of GDP and preserve the country's investment-grade sovereign credit rating. LEVY encountered political headwinds and an economy facing more challenges than he anticipated. The target for the primary account surplus fell to a deficit of 2%, and two of the three main credit rating agencies downgraded Brazil to “junk” status.

Brazil seeks to strengthen its workforce and its economy over the long run by imposing local content and technology transfer requirements on foreign businesses, by investing in education through social programs such as Bolsa Familia and the Brazil Science Mobility Program, and by investing in research in the areas of space, nanotechnology, healthcare, and energy.

Agriculture - products:

coffee, soybeans, wheat, rice, corn, sugarcane, cocoa, citrus; beef

Industries:

textiles, shoes, chemicals, cement, lumber, iron ore, tin, steel, aircraft, motor vehicles and parts, other machinery and equipment

Exports - commodities:

transport equipment, iron ore, soybeans, footwear, coffee, automobiles

Exports - partners:

China 18.6%, US 12.7%, Argentina 6.7%, Netherlands 5.3% (2015)

Imports - commodities:

machinery, electrical and transport equipment, chemical products, oil, automotive parts, electronics

 

Imports - partners:

China 17.9%, US 15.6%, Germany 6.1%, Argentina 6% (2015)

Investment Climate  -  US State Department

Brazil is the second largest economy in the hemisphere behind the United States, and the ninth largest economy in the world. According to the United Nations Conference on Trade and Development (UNCTAD), Brazil was the eighth largest destination for global Foreign Direct Investment (FDI) flows in 2015. Brazil typically receives close to half of South America’s total incoming FDI. The United States is a major foreign investor in Brazil; according to the Brazilian Central Bank (BCB), the United States had the largest single-country stock of FDI (US$ 112 billion) in Brazil in 2014. The Government of Brazil (GOB) has made attracting private investment in infrastructure a top priority for 2016.

Brazil’s GDP fared worse than almost any other major economy in 2015, contracting by 3.8 percent and setting GDP back to 2011 levels. Economists are expecting GDP to shrink a further 3.5-4.0 percent in 2016, marking the country’s longest and deepest recession since Brazilian Institute of Applied Economic Research (IPEA) records began in 1901. In 2015, GDP per capita decreased almost 5 percent; unemployment hit a six-year high of 9 percent; inflation ended the year at 10.7 percent, a 12-year high; the Brazilian real shed a third of its value against the dollar; investment levels dropped over 14 percent; industrial output contracted by 8.3 percent; and the fiscal deficit rose to a record 10.3 percent of GDP.

Despite the difficulties from the current recession, Brazil’s large economy and vast middle class continue to make the country a destination for long-term investment, particularly in consumer products, albeit not without challenges:

Large Consumer Base Attracts Investment: With a US$ 1.8 trillion economy, a population of over 200 million, and a large middle-class consumer base, Brazil is a top 10 destination for global FDI. The GOB investment promotion strategy prioritizes the automobile, 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. Foreign investment is restricted in the health, mass media, telecommunications, aerospace, rural property, maritime, and air transport sectors.

Domestic Environment Presents Challenges: In addition to current economic difficulties, since 2014, Brazil's anti-corruption oversight bodies have been investigating allegations of widespread corruption involving state-owned energy firm Petrobras and a number of private construction companies. A separate tax bribery investigation announced in 2015 is also ongoing. Analysts contend that slowing domestic demand, a strong terms of trade shock caused by plummeting commodity prices, and – above all – negative market reactions to ongoing political uncertainties have hampered investment in Brazil. Foreign investors also cite concerns over poor existing infrastructure, rigid labor laws, and complex tax, local content, and regulatory requirements; the so-called “Custo Brasil” (Brazil Cost).

 

​Country Links

 

Central Bank of Brazil

Council for Financial Activities Control (COAF )

Brazilian Financial Sector Regulatory Structure - CVM

Other Useful Links
FATF
US State Department
Transparency International
World Bank
CIA World Factbook

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