BRAZIL 2002-2003 INCSR: PART II - FINANCIAL

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