US embassy cable - 03BRASILIA3937

UNCLAS SECTION 01 OF 02 BRASILIA 003937 
 
SIPDIS 
 
DEPT FOR INL, WHA/BSC 
DEPT PLEASE PASS TO AID:  AA/LAC AND LAC/SAM 
JUSTICE FOR OIA, AFMLS, NDDS 
TREASURY FOR FINCEN AND OFAC 
DEA FOR OFL 
 
E.O.  12958: N/A 
TAGS: EFIN, SNAR, BR 
SUBJECT:  BRAZIL 2002-2003 INCSR:  PART II - FINANCIAL 
CRIMES AND MONEY LAUNDERING 
 
REF:  A) STATE 240035 
 
      B) BRASILIA 4415 
 
1.  Following is the Financial Crimes and Money Laundering 
section of Brazil's 2002-2003 INCSR.  Ref B transmits post's 
submission of the non-money laundering portion. 
 
2.  Due to its great size and large economy, Brazil is 
considered a regional financial center.  It is not, 
however, an offshore financial center.  Brazil 
maintains adequate banking regulation, retains some 
controls on capital flows and requires disclosure of 
the ownership of corporations.  Brazilian authorities 
report that money laundering in Brazil is primarily a 
problem of domestic crime, including contraband goods 
smuggling and corruption, both of which generate funds 
that may be laundered through the banking system, real 
estate investment or financial asset markets.  The 
proceeds of narcotics trafficking and organized 
criminal activities are laundered in like fashion.  The 
authorities have not uncovered any evidence of 
terrorism-related money laundering.  Money laundering 
is a criminal offense in Brazil. 
 
3.  According to Brazilian authorities, Brazilian 
institutions do not engage in currency transactions 
that include significant amounts of U.S. currency, 
currency derived from illegal drug sales in the U.S., 
or that otherwise significantly affect the U.S.  The 
authorities believe that organized crime groups use the 
proceeds of domestic drug trafficking to purchase 
weapons from Colombian guerilla groups. 
 
4.  Brazil's 1998 money laundering law (Law 9613 of 
March 3, 1998) and related regulations make money 
laundering a criminal activity and require financial 
entities and other appropriate organizations to 
maintain records and report suspicious financial 
transactions.  Money laundering is a criminal offense 
if engaged in to conceal the proceeds of narcotics 
trafficking, terrorism, weapons trafficking, 
kidnapping, acts against the public administration 
(corruption), acts against the financial system and 
acts committed by a criminal organization. 
 
5.  Brazilian Financial institutions, real estate 
agents, currency exchanges, stock brokerages, lottery 
game operators and dealers in fine art and antiquities 
are required by the 1998 law to know their customers 
and to maintain adequate records of transactions and of 
the parties involved.  They must report suspicious 
transactions.  Financial entities and their managers 
that fail to meet these requirements can be 
administratively punished.  These sanctions include 
fines and revocation of operating licenses.  A 2001 law 
(Complementary Law 105 of January 10, 2001) requires 
financial institutions to provide law enforcement 
agencies full access to financial transactions 
information, including information on the ownership of 
client companies, in cases of investigations into money 
laundering, terrorism finance, narcotics trafficking, 
weapons trafficking kidnapping, corruption and 
organized crime. 
 
6.  The Council for the Control of Financial Activities 
(COAF) is responsible for coordinating the governmental 
agencies addressing money laundering and is also the 
central recipient of required reports regarding suspect 
financial activities.  Any suspicious transaction or 
transaction above 10,000 Reals must be reported.  COAF 
receives from 300 to 500 suspicious transaction reports 
a month, about 2% of which lead to formal 
investigations by law enforcement.  A number of bank 
accounts and other funds were blocked because of 
suspicion of money laundering.  In some instances, 
funds were forfeited following judicial decisions.  In 
2003 Brazilian courts handed down their first criminal 
conviction for money laundering.  The case involved 
illegal transfer of money overseas through a currency 
exchange in Foz do Iguacu.  A flood of new 
investigations (1,043 in 2003, up from 345 in 2002) has 
led to a sharp spike in the number of money laundering 
cases going to court (132 in 2003, up from 34 in 2002). 
To deal with the flood of cases, the authorities have 
created seven special money laundering courts and 
expect to create one more.  The judges in these courts 
generally have received some specialized training to 
deal with money laundering cases. 
7.  Brazilian authorities do not believe cross-border 
transportation of illegal source currency to be a 
significant problem in Brazil.  Cross-border movement 
of more than 10,000 Reals of currency or negotiable 
instruments must be reported. 
 
Terrorism Finance 
 
8.  In July 2003, President da Silva signed legislation 
that criminalizes terrorism financing (Law 10.701 of 
July 9, 2003, which amends Law 9.613 of March 3 1998), 
making it a predicate offense under the money 
laundering law.  The legislation clarified previously 
existing authority under the money laundering law and 
presidential decrees implementing U.N. Security Council 
resolutions that gave the government the authority to 
search for and block terrorist financial assets. 
Brazilian authorities have cooperated in searching for 
assets of individuals and organizations identified as 
terrorists by the UNSCR 1267 sanctions committee.  As 
of December 2003, the GoB had not located any terrorist 
financial assets in Brazil.  Brazil is a signatory of 
the 1999 International Convention for the Suppression 
of the Financing of Terrorism, but has not yet ratified 
the agreement. 
 
International Cooperation 
 
9.  Brazil is a full member of the Financial Action 
Task Force (FATF) and has chaired the regional sub- 
group, FATF-South.  The Council for the Control of 
Financial Activities (COAF) exchanges information with 
other countries.  Brazil has bilateral information 
exchange agreements with 12 other countries, including 
Belgium, France, Portugal, Spain, Bolivia, Guatemala, 
Panama, Paraguay, Colombia and Russia and is 
negotiating agreements with nine more.  Brazilian law 
allows information exchange on a reciprocal basis 
without need for a bilateral agreement and conducts 
such exchanges with many countries.  Brazil also is a 
member of the Egmont Group of financial intelligence 
units (FIUs) and is connected to the group's secure 
network, which facilitates information exchange among 
member FIUs worldwide.  As a matter of government 
policy, neither Brazil nor any of its representatives 
engages, encourages, or facilitates laundering of 
proceeds from illegal transactions of any kind. 
 
10.  Brazil has cooperated with appropriate law 
enforcement agencies of the USG and other governments 
investigating financial crimes. 
 
11.  Brazil has established systems for identifying, 
tracing, freezing, seizing, and forfeiting narcotics- 
related assets.  These systems are managed jointly by 
COAF and the Justice Ministry.  The judicial system has 
the authority to forfeit seized assets.  Police 
authorities, customs, and Brazilian revenue service are 
responsible for tracing and seizing assets, and have 
adequate police powers and resources to perform such 
activities. 
 
12.  Brazil's money laundering law permits the sharing 
of forfeited assets with other countries.  Traffickers 
have not taken any retaliatory actions related to money 
laundering investigations, government cooperation with 
the USG, or seizure of assets. 
 
HRINAK