Brazil: New guidelines for anti-money laundering and prevention of terrorist financing
On 5ht December 2019, the Brazilian Securities Exchange Commission (Comissão de Valores Mobiliários – “CVM”) enacted a new instruction No. 617 (“ICVM 617”) (http://www.cvm.gov.br/legislacao/instrucoes/inst617.html) providing new guidelines for the prevention of money laundering and terrorist financing in the Brazilian securities market, revoking the previous ruling related to this matter (i.e., CVM Instruction No. 301/1999). Note that ICVM 617 is applicable for individuals and legal entities which render securities market services related to the distribution, custody, intermediation or portfolio management; organized market managing entities and infrastructure operators of the financial market; securities market independent auditors; and capital markets advisors, rating agencies, securitization companies, non-resident investors’ representatives and bookkeeping agents, as per its Article 3 (“Agents”). The main purpose of ICVM 617 is to establish the adoption of a risk-based approach, a new parameter of customer identification and registration - “know-your-client” - KYC rules, monitoring and reporting of suspicious transactions provided at ICVM 617 to competent authorities (i.e., CVM, Ministry of Justice and Public Security and Unidade de Inteligência Financeira – UIF, formally COAF), provision of sanctions and internationally cooperation by using the recommendations of Financial Action Task Force on Money Laundering and Terrorist Financing (FATF) (https://www.fatf-gafi.org/) – that Brazil has been a member of since 1999. Additionally, ICVM 617 provides for certain new rules and definitions related to anti-money laundering and terrorist financing policies, as follows:- the implementation by Agents of an internal corporate governance aspects, including a risk-based approach and classification for clients and services and/or products provided by Agents (e., low, medium and high levels) and a periodic reporting to competent authorities to prevent money laundering and terrorist financing. The internal controls must be effective and consistent with the nature, complexity, and operational risks performed by Agents;
- KYC’s rules to (i) identify Agents’ clients; (ii) register it; (iii) due diligence after the registration; and (iv) to identify its final beneficiaries (e., as provided by ICVM 617 as a natural person or natural persons who jointly own, control or significantly influence, directly or indirectly, a customer on whose behalf a transaction is being conducted or benefits from) and identifying who has a significant influence over the clients (i.e., a natural person, controller or not, actually influences decisions or is the holder of more than 25% of the share capital of legal entities or the net worth of investment funds and other entities);
- a detailed provision of duties and liabilities of statutory manager of Agents (that could be the same for the financial conglomerate regulated by CVM) who will be responsible for coordination and supervision of the internal KYC rules and to comply with anti-money laundering and terrorist financing compliance policies;
- acceptance of an alternative system (simplified) for registration of non-resident investors when they are registered by a foreign entity which attends standards and regulations, guarantees the protection of customer's information, as well as the maintenance and traceability of such information;
- sets out the procedures for reporting and provides information regarding the monitoring, analysis and comunication of money laundering “suspicious transactions”; and
- the breaches of Articles 4th to 6th and 17 to 28 of ICVM 617’s rules are considered serious by the Federal Law No. 9,613 of March 3, 1998, as amended (“Anti-Money Laundering Act”), and may result in penalties of (a) warning; (b) pecuniary fine; (c) suspension for a period of up to 10 years from holding management position in certain legal entities; (d) cancellation of the authorizations for functioning.