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Brazil’s Supreme Court halts anti-money laundering investigations

Maíra Martini

Suspicious funds

The son of President Jair Bolsonaro, Flávio Bolsonaro, has been the subject of financial intelligence reports produced by the Brazilian financial intelligence unit — the Council of Control of Financial Activities (COAF).

These reports, leaked to the media earlier this year, reveal that Flávio Bolsonaro received 48 cash deposits made on five days in a one-month period. The total worth of these deposits was close to 100,000 reais (US$27,000).

Flávio was a member of the Parliamentary Assembly of Rio de Janeiro during the time. Prior to that, in December 2018, federal financial investigators had reportedly already discovered that in 2017 about 1.2 million reais (about US$327,000) had been moved to and out of a bank account belonging to Fabrício Queiroz, Flávio Bolsonaro’s former assistant.

These reports were made based on suspicious transactions reports (STRs) submitted by banks to the COAF. According to Brazil’s anti-money laundering rules, financial institutions are required to report to the COAF any transactions where there is serious evidence of money laundering or predicate crimes.

In this case, the fact that money was deposited in smaller amounts — a practice known as structuring — may have created grounds for the bank to submit a report. Structuring cash deposits is considered a red flag for money laundering.

Flávio Bolsonaro denies any wrongdoing. According to him, the money relates to real estate transactions.

Unexpected step backwards in Brazil

The COAF shared these reports with the Brazilian Public Prosecutor’s Office investigating the now Senator and his assistant. However, this week, one of the Brazilian Supreme Court justices, Dias Toffoli, granted Flávio Bolsonaro’s defence’s petition and temporarily suspended all investigations in progress in Brazil that are based on confidential data shared by the COAF and the Federal Treasury without prior authorisation from a court. The Supreme Court will pick up the matter again in late November.

According to Judge Toffoli, the COAF could only share generic data, such as the name of the account holder and total amounts received, but not details of the transactions without a court order due to bank secrecy rules.

Frozen anti-money laundering investigations

If there are irregularities regarding the type of information shared by the COAF or other authorities, that should be investigated on a case-by-case basis.

Paralysing most money laundering investigations in Brazil under the premise that sharing detailed reports about suspicious transactions from financial institutions is illegal without a court order, is disproportionate and goes against international anti-money laundering standards.

What are financial intelligence units and what do they do?

A financial intelligence unit (FIU) is a country’s central national body tasked with three core functions to: i) collect (receive and request); ii) analyse; and iii) disseminate financial information relating to potential financial crimes, such as general money laundering, associated offences, such as corruption, and terrorism finance.

The FIUs, therefore, function as intermediaries between the private entities that are subject to anti-money laundering obligations and law enforcement agencies.

In Brazil, the COAF is tasked with these functions.

Unlike other investigative bodies, FIUs produce intelligence analysis based on suspicious transaction reports submitted to them by financial institutions and other entities or professionals that have money laundering obligations.

This means that the FIU does not have access to the whole banking information of an individual, but only to information related to transactions deemed by financial institutions as suspicious.

FIU intelligence reports that are shared with law enforcement describe anomalies that could be connected to money laundering and related crimes and, therefore, require further investigation. These reports are subject to strict confidentiality rules.

Based on FIU reports, competent authorities deliberate whether to start investigations and whether lifting bank secrecy or gaining access to other types of the information through a court order is necessary.

International standards and practice for FIUs

To ensure FIUs can perform their duties and support the fight against money laundering, the Financial Action Task Force (FATF), the inter-governmental body responsible for setting and monitoring the implementation of standards against money laundering and terrorist financing, has specific recommendations on the role, functions and powers they should have.

Many of these recommendations are relevant to the upcoming discussion that the Brazilian Supreme Court will hold in November.

Dissemination of information from FIUs

To fulfil its mandate, it is critical that the FIU be able to share information and the results of its analysis with the relevant authorities, including law enforcement promptly and whenever there are grounds to suspect money laundering, associated offences or terrorist financing.

Similarly, the FIU should be able to respond to information requests from competent authorities. When the FIU receives such a request from a competent authority, the decision to conduct analysis and/or share information with the requesting authority should remain with the FIU.

The FATF also stresses that the FIU should be independent and autonomous. This includes autonomy over deciding to analyse, request and/or disseminate specific information. In all cases, this means that the FIU has an independent right to forward or disseminate information to competent authorities.

Given how fast the corrupt and other criminals are able to move assets, the ability of FIUs to share relevant information with law enforcement authorities quickly is critical.

Access to information

According to the FATF recommendations, the FIU should also be able to “actively request new or additional information from reporting entities.”

If a financial institution submits an STR, the FIU should be able to ask further questions regarding that specific (set of) transaction(s) — and not of any other — without the need for an authorisation from the court or any other body.

In fact, a 2018 study by the World Bank Stolen Assets Recovery Initiative (StAR) shows that in the great majority of countries surveyed for the report, FIUs produce intelligence reports that go beyond the initial information provided in STRs. They include, for example, additional information collected from reporting entities such as banks, open and public sources, and administrative and law enforcement datasets, among others.

Source: Stolen Asset Recovery Initiative — The World Bank and UNODC (2018). Financial Intelligence Units Working With Law Enforcement and Prosecutors.

Back to Brazil

While international standards are clear regarding the role of FIUs in combatting money laundering, recent events in Brazil put their effectiveness at risk.

In June 2019, the Financial Action Task Force (FATF) issued a statement conveying its concerns about Brazil’s delays in implementing the recommendations put forward in the country’s latest mutual evaluation report, particularly related to terrorism financing.

Despite recent legislative changes in the country, the FATF announced that it continues to see the delay as a membership issue that it will consider during the October 2019 plenary meeting.

A decision that weakens the country’s anti-money laundering framework could send a negative message regarding Brazil’s commitment to implement the FATF standards.

In 2018, Brazil’s COAF produced more than 10,000 financial intelligence reports and shared information with national authorities more than 7,000 times. COAF financial intelligence reports have been critical in investigations conducted as part of the Lava Jato investigation and other corruption cases, but also in investigations related to drug trafficking and organised crime.

Limiting the ability of COAF to analyse, produce and share quality reports in a timely manner will certainly hamper the ability of Brazilian authorities to investigate and punish corruption and other crimes in the country. Such a limitation also goes against anti-money laundering international standards and could have severe consequences for the country.

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