2/28/19 - Promontory Currents: Brazil Takes Steps to Strengthen Its AML/CTF Regulations
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2/28/19 - Promontory Currents: Brazil Takes Steps to Strengthen Its AML/CTF Regulations

By Cynthia Shea and Lorena Valente

On Feb. 20, 2019, the Federal Senate of Brazil approved an initiative to update and strengthen the country’s anti-money-laundering/counter-terrorist-financing rules.1 The initiative will aim to streamline the decision-making process for blocking suspected terrorist funds, which will now fall under the purview of the executive branch of the Brazilian federal government. Under the previous legislation, blocking assets was a lengthy process that required judicial action.

To comply with the new rules, financial institutions will need to assign responsibility for the process of blocking assets — including receipt of the order, communication with authorities, and prompt blocking of designated assets — to a member of senior management, such as a Bank Secrecy Act/anti-money-laundering or compliance officer. The Chamber of Deputies approved the initiative last week, and President Jair Bolsonaro is expected to provide final approval in the coming days.

The Financial Action Task Force informed Brazil of its AML/CTF deficiencies relative to international standards in 2010. Then, in 2012, it called special attention to inefficiencies in Brazil’s process for blocking assets related to terrorism. In 2018, Brazil was warned by FATF that if it did not implement changes to its laws, it risked being added to FATF’s blacklist of countries with deficient AML regimes. By addressing the deficiencies of its regime, Brazil aims to avoid potential economic, political, and diplomatic sanctions from the U.S. and EU, as well as a FATF suspension. FATF had originally set Brazil’s compliance deadline for February 2019.

Beyond addressing its counter-terrorist laws, Brazil is working to strengthen the requirements of financial institutions’ AML programs. In January 2019, the Central Bank of Brazil issued a public consultation to strengthen institutions’ AML/CTF procedures.2 One new proposed requirement would be for institutions to establish a risk-based approach to internal AML/CTF controls, including performing a risk assessment every two years and submitting the risk assessment for approval to senior management and the board of directors. Institutions would also be required to conduct risk assessments and compile risk ratings of customers, products, staff, and service providers. In addition, institutions would be expected to establish mitigating controls and procedures based on identified money-laundering and terrorist-financing risk exposure, as well as on the complexity and size of their organization.

Establishing a risk-assessment requirement would allow financial institutions to:

  • Identify business elements — such as geographies, products, customers, and transactions — that may pose money-laundering, terrorist-financing, and sanctions risks
  • Assess the number of risks and the controls in place to mitigate those risks
  • Identify areas where a stronger control environment is needed
  • Balance risk and reward tolerances according to the risk appetite of the AML program
  • Provide senior management and the board with information to assess the impact of the AML program on business performance and to set levels of risk tolerance and compensation

Other topics in the public consultation proposal include governance, know-your-customer issues, suspicious-activity reporting, transaction monitoring, know-your-employee issues, effectiveness evaluations, and internal auditing. The public consultation will run until March 18, 2019. 

Authors

Cynthia Shea is a director in Promontory’s New York office, and Lorena Valente is an associate in Promontory’s Washington office. 


FOOTNOTES

  1. Luiz Felipe Barbiéri, “Senado aprova projeto que busca acelerar bloqueio de bens de investigados por terrorismo,” Política (Feb. 20, 2019).
  2. BC submete à consulta pública proposta de aprimoramento da regulação de prevenção à lavagem de dinheiro,” Central Bank of Brazil (Jan. 17, 2019).