Mattos Filho attorneys Paola Lorca and Renato Portella unpack the implications of Brazil's anti-money laundering legislation for luxury traders in the country.
The fight against money laundering is a worldwide concern that has generated several coordinated initiatives by governments and international organizations. Multilateral treaties establishing recommendations, regulation measures and cooperation policies for anti-money laundering are the basis of local laws and regulations constantly updated by governments, in order to provide more effective and coordinated enforcement actions against black money.
Three multilateral conventions stand out when talking about combating money laundering. Those are the United Nations Convention (i) Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (1988), (ii) Against Transnational Organized Crime (2000) and (iii) Against Corruption (2003). All of the three conventions have been incorporated in the Brazilian legal system and have directly influenced the implementation of local laws.
Brazilian federal Law No. 9,613 of March 3, 1998 (“Brazilian AML Law”) was the first Brazilian law criminalizing money laundering. Further amended in 2002, 2003 and 2012, the Brazilian AML Law provides rules regarding the administrative controls applicable to legal entities and individuals exposed to the risks of money laundering, sets forth the elements of the related crimes and penalties, as well as special criminal proceedings rules for money laundering cases, including measures to freeze and seize suspicious assets.
This article provides an overview of the private parties’ duties and obligations under the Brazilian AML Law, particularly those applicable to individuals and legal entities that market or intermediate luxury goods other than jewelry, luxury cars, fine art and antiquities (“Luxury Goods Traders”).
Luxury Goods Traders and the COAF
Luxury Goods Traders operate in a market sector considered vulnerable to money laundering. Obligations such as the identification and maintenance of accurate records of customers and their transactions (know your customer), and communications of suspicious transactions to the regulatory bodies, that may encompass money laundering, have an important role in diminishing the criminal networks.
In this context, the Council of Financial Activities Control (“COAF”) enacted Resolution No. 25, of January 16, 2013 (“Resolution No. 25/2013”), establishing procedures to prevent money laundering and terrorism financing applicable to Luxury Goods Traders. Traders of jewelry, luxury cars, fine art and antiquities, which are also considered luxury items, are subject to other regulations.
The COAF is the Brazilian administrative body bound to the Ministry of Finance that was created by the Brazilian AML Law with the purpose to prevent and combat money laundering and terrorism financing. Among its attributions, the COAF is responsible for receiving, examining and identifying suspicious occurrences of unlawful activities, and for applying administrative sanctions, coordinating and proposing mechanisms of cooperation and exchange of information in order to enable quick and efficient actions against the concealment of goods, rights and values.
Obligations for Luxury Goods Traders
Luxury Goods Traders that perform transactions of R$10,000.00 (ten thousand reais) or more, or the equivalent in other currency, have the obligation to establish and maintain a register of their customers and other persons involved in these kind of transactions, such as representatives and attorneys-in-fact. In addition, Luxury Good Traders have to keep records of customers’ identification, details of the luxury goods involved, the transactions value and the payment method.
Any transaction or series of transactions of a same customer within a period of six months that involve the payment or receipt of amounts in cash equal to or greater than R$30,000.00 (thirty thousand reais), or the equivalent in another currency, must be communicated by Luxury Good Traders to the COAF. Further, any transaction that may present serious evidence of crime provided in the Brazilian AML Law or appear to be related to it, regardless of the amount, payment method or parties involved, must also be communicated to the COAF.
It is important to highlight that all information submitted to the COAF will be treated as confidential, and the entities submitting information to the COAF in good faith shall not be liable for disclosing information. The obligations of identifying clients and keeping record of transactions shall last for five (5) years, as from the completion of the transaction.
Violations to the Resolution No. 25/2013 shall subject Luxury Good Traders to administrative sanctions set forth in the Brazilian AML Law, which may include: (i) warning; (ii) fines of up to R$20,000,000.00 (twenty million reais); and (iii) prohibition of carrying on activities. Violations may also subject individuals to criminal liability under the Brazilian AML Law.
The Brazilian AML Law further requires Luxury Goods Traders to have a compliance program in place. Policies, procedures and internal controls are needed to ensure that Luxury Goods Traders meet with their obligations regarding money laundering prevention, and that ethical and integrity principles are properly followed. An effective compliance program aims to avoid the imposition of administrative, civil or criminal sanctions and helps mitigating reputational damages that may arise from violations of the Brazilian AML Law.
Although the Brazilian AML Law and Resolution No. 25/2013 do not set forth specific parameters that should be adopted by Luxury Goods Traders when developing a compliance program, the policies, procedures and internal controls encompassed therein shall be appropriate to their business profile and to the money laundering risks they are exposed to.
An organization may design its compliance program according to its particular needs and resources. It may, for example, integrate its compliance program to any other risk management plan, and put it under the supervision of the legal, audit or other department of the organization. It is crucial, however, that the department responsible for developing, applying and monitoring the compliance program has autonomy, independence and impartiality to perform its activities in an effective manner and ensure that suspicious transactions be communicated to the COAF.