VZCZCXRO5621
PP RUEHRG
DE RUEHBR #1343/01 3270945
ZNR UUUUU ZZH
P 230945Z NOV 09
FM AMEMBASSY BRASILIA
TO RUEHC/SECSTATE WASHDC PRIORITY 5404
INFO RUEHSO/AMCONSUL SAO PAULO 0095
RUEHRI/AMCONSUL RIO DE JANEIRO 0051
RUEHRG/AMCONSUL RECIFE 0123
RUEHAC/AMEMBASSY ASUNCION 0054
RUEHBU/AMEMBASSY BUENOS AIRES 0009
RUEHMN/AMEMBASSY MONTEVIDEO 0008

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. 
 
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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. 
 
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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). 
 
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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.) 
 
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Comment 
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¶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