BRAZIL'S MONEY LAUNDERING AND TERROR FINANCE SYSTEM:

UNCLAS SECTION 01 OF 02 BRASILIA 001343 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: KTFN ETTC PTER PINR EFIN KCRM PREL BR SUBJECT: BRAZIL'S MONEY LAUNDERING AND TERROR FINANCE SYSTEM: STATUS AND OUTLOOK ¶1. (SBU) Summary: Brazil has established generally adequate anti-money laundering mechanisms but lacks basic legislation criminalizing the financing of terrorism as an autonomous crime. The Financial Action Task Force evaluating Brazil this year is expected to make recommendations regarding the effectiveness of Brazil's anti-money laundering and countering the financing of terrorism (AML/CFT) system, compared to prior evaluations which focused on the existence of a legal framework. While the Brazilian financial intelligence unit (COAF) is open to receiving Post's demarches on terrorist financial designations, the GOB generally maintains that terrorism and terrorist financing are not among its primary law-enforcement priorities. End summary. -------------- LEGISLATIVE FRAMEWORK -------------- ¶2. (U) Law 9613 of 1998 provides the legislative framework to address money laundering in Brazil. The law defines the crime of money laundering, creates a financial intelligence unit (COAF),sets forth procedures for preventive measures (including suspicious transaction reports) and international cooperation, and establishes predicate offences (including terrorism). Later laws have relaxed bank secrecy (Complementary Law 105 of 2001) and broaden the range of predicate offenses for money laundering to include terrorist financing (Law 10701 of 2003) and bribery of foreign public officials (Law 20467 of 2002). ¶3. (U) Although terrorist financing is an established predicate offense for money laundering, Brazil lacks legislation criminalizing terrorism or its financing as autonomous offenses. The 2005 National Strategy against Money Laundering (ENCLA) created a working group (composed of representatives of ministries involved in CFT, the judiciary, and the federal prosecutor's office) charged with drafting legislation to criminalize terrorism and its financing. The draft legislation was never forwarded from the executive branch to the Brazilian Congress. ¶4. (SBU) One legacy of Brazil's military dictatorship, which ended fewer than twenty-five years ago, is sensitivity regarding what constitutes terrorism and a fear that a terrorism law could be used against domestic leftist social movements (such as indigenous groups or the well known and very active MST landless movement, or indeed in previous years, President Lula's own Workers' Party). Law 7170 of 1983 is the only law that could be interpreted to be used against terrorism. It criminalizes the support of any group whose goal is to change the current regime or undermine the rule of law by violent means. Associated with repression during the military dictatorship, often targeting activists who are among today's political leaders, this law is unlikely to be invoked against modern terrorism. -------------- COAF -------------- ¶5. (U) COAF, embedded in the Ministry of Finance (Fazenda),plays a central role in the Brazilian AML/CFT system at both a policy and operational level. Representatives of twelve Brazilian ministries and agencies (including the Central Bank, the Ministry of Exterior Relations, the national intelligence agency, and the federal police) sit on COAF's plenary council, which meets on an ad hoc basis. Through COAF, Brazil is a member of the Financial Action Task Force (FATF) and the Financial Action Task Force of South America (GAFISUD). The President of COAF, Antonio Gustavo Rodrigues, served as President of GAFISUD in 2006 and President of FATF from July 2008-July 2009. ¶6. (SBU) In addition to developing and coordinating Brazil's AML/CFT policies, COAF's main functions are to identify and examine suspicious financial transactions; regulate and issue instructions for sectors without a specific monitoring agency (e.g. bingos, real estate, credit and payment card administrators); and apply administrative sanctions. Entities regulated by COAF, as well as the insurance sector, send Suspicious Transaction Reports (STRs) directly to COAF. The securities sector first sends STRs to Brazil's Securities and Exchange Commission (CVM),which then forwards the STRs to COAF for entry into COAF's database. Bank STRs are entered into the Central Bank database, where COAF has full access to them. COAF accepts Post's demarches regarding financial designations of terrorists, but has not encountered Brazilian financial holdings or transactions by designated terrorists or terrorist organizations (ref A). -------------- FATF MUTUAL EVALUATION BRASILIA 00001343 002 OF 002 -------------- ¶7. (SBU) FATF is currently conducting a mutual evaluation of the AML/CFT system in Brazil, and had an FATF team in-country to conduct interviews from October 26 to November 6. The results of the evaluation will likely be presented at the FATF and GAFISUD plenary sessions in the summer of 2010. FATF last evaluated Brazil in 2003 and found the Brazilian system "compliant or largely compliant with all of the FATF 40 recommendations requiring specific action." However, the report urged Brazil to "quickly adopt and implement more comprehensive anti-terrorist financing measures." The report also recommended that Brazil more clearly demonstrate the effectiveness of its AML/CFT system through prosecutions and convictions. ¶8. (SBU) Since the 2003 assessment, FATF has implemented a new methodology to focus more on implementation and effectiveness of AML/CFT measures. Brazil is aware it will likely receive lower ratings under the new methodology. (Note: COAF President Antonio Gustavo Rodrigues, during his time as President of the FATF, was involved in implementing the new methodology and noted that countries had all done less well on evaluations conducted with the new methodology than on older evaluations that focused more on the adoption of laws and regulations. End Note.) -------------- Comment -------------- ¶9. (SBU) The FATF mutual evaluation of Brazil's AML/CFT system comes at an opportune time, since COAF President Rodrigues' term as President of FATF should have thoroughly exposed COAF to the expectations and likely outcomes of such an evaluation. Post can use FATF's results and recommendations as a positive starting point for conversations with the GOB, without appearing to be passing judgment unilaterally. This broader international context will be more effective than direct U.S. pressure. ¶10. (SBU) In the time leading up to the October 2010 elections, Post anticipates little progress on politically difficult issues with no electoral payoff - and the passage of comprehensive legislation criminalizing terrorism is a prime example. In addition, in high-level discussions such as the 3+1 Forum, the Ministry of Exterior Relations (MRE) has not been receptive to specific conversations about terrorist financing vulnerabilities in Brazil (ref B). The refrain from MRE continues to be that they participate in terrorism discussions out of solidarity with the United States, but that terrorism is not a Brazilian problem. ¶11. (SBU) While working-level relationships with Brazilian law enforcement counterparts are relatively cooperative and productive, the Brazilian law enforcement community does not view terrorist financing as a priority among their responsibilities. Cooperation attempts are generally more successful when targeting Brazilian equities as well as U.S. priorities. In this vein, working with the Brazilians to detect and deter the illegal movement of money (for example, lost tax revenue from trade-based money laundering) may be more productive at this time than focusing on labeling certain activities as specific to countering terrorist financing. ¶12. (SBU) Over the last month, we have seen signs that some sectors of the Brazilian government might take a more constructive approach toward counterterrorism cooperation in the future. In recent training sponsored by S/CT, for example, Brazilian judges and prosecutors were interested in training on terrorism financing. While cautioning that the subject is difficult, Brazilian legislators have also been willing to engage. Moreover, Brazilian officials appear to understand that the country's selection as the host of the 2016 Summer Olympics increases the possibility Brazil could become a target of terrorist groups. Nonetheless, while continuing to engage in higher-level encouragement of Brazil's efforts to implement legislation criminalizing terrorism, the more pragmatic working-level approach may be more successful in the near term. End comment. KUBISKE