Cablegate: Brazil's Money Laundering and Terror Finance System:

DE RUEHBR #1343/01 3270945
P 230945Z NOV 09



E.O. 12958: N/A

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.


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.

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).


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

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.)

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.


© Scoop Media

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