BC hurries cryptocurrency regulation to contain billionaire fraud

BC hurries cryptocurrency regulation to contain billionaire fraud

The Central Bank is evaluating the development of guidelines to impose supervision of financial transactions with cryptocurrencies in Brazil, such as bitcoin, and define penalties to contain the explosion of scams and fraud.

The initiative was reported by the president of the monetary authority, Roberto Campos Neto, to presidents of important banks in the country, heard by the sheet under the condition of anonymity.

According to the bankers, the proposed regulation should be sent to Congress in the first quarter. The idea is that the rules come into effect by the end of this year.

For this, a bill must be presented by President Jair Bolsonaro (PL), at the request of the BC. Sought, the agency did not want to detail the plan and preferred not to comment.

The numbers of this market in Brazil arouse the attention of the authorities. According to information from the Internal Revenue Service passed on to the BC, the sector moves around R$ 130 billion in the country per year.

The lack of supervision opens the way for theft and fraud. According to the Federal and Civil Police of São Paulo, they have already totaled around R$ 6.5 billion in less than two years.

The idea, according to bankers’ reports, is to frame crypto assets as “investment vehicles”.

In this way, digital brokerages would need to follow the rules of other investment funds regulated by the CVM (Securities and Exchange Commission) and be headquartered in Brazil, in addition to keeping transaction records and documents.

Today the sector does not follow regulation. The IRS currently only monitors financial transactions of brokerage firms headquartered in Brazil, and the normative instruction of the Tax Authorities applies for tax purposes.

Although the BC is considering launching a digital currency (the digital real), it is not currently on the table to allow cryptocurrencies to be used as a means of payment. This measure is in effect in a few countries, such as El Salvador.

In addition to giving full powers to the BC to grant operating authorization to companies in the sector, the idea of ​​the bill is also to update the Penal Code by creating “stelionate with virtual currencies”. The prison sentence should vary between four and eight years.

The BC also wants to update the Money Laundering Law, including crypto-asset fraud in the list of crimes with an aggravating sentence — between one-third and two-thirds more than the three to ten year prison sentence.

All transactions carried out will still have to be recorded and documents kept on file if requested by law enforcement or judicial authorities.

For lawyer Fabio Braga, a partner at Demarest, legislation with guidelines for this market, defining the powers of bodies such as the BC and CVM, would increase investor safety.

“This is because it becomes possible to identify and segregate providers of products and services of good and bad technical and operational quality, with greater transparency and accountability”, said Braga.

Recent cases illustrate the need for the measure proposed by the BC. Santander, for example, went to court against Binance, the world’s largest cryptocurrency broker and leader in Brazil.

The bank accused the company of maliciously hampering the investigation of a diversion of around R$30 million from a Gerdau bank account.

According to the process to which the sheet had access, Binance argued “technical inability” to present a report containing the identification of those responsible for digital wallets held by the exchange that served as a destination for part of the allegedly stolen money, in April 2020.

Santander appealed, and seven months later, Binance lost. Although the broker said it was not technically able to provide the data, it presented the information less than two hours after the court decision.

Based in Malta, Binance is considered irregular in several countries precisely because it does not have a real physical address and acts without regulatory approval.

In Brazil, its founder, the Chinese Changpeng Zhao, registered B.Fintech, Binance’s branch in the country, with a false phone and email, according to a tax document to which the sheet had access. Binance has already received an order from the CVM not to trade securities in the country.

In a note, Binance stated that it has collaborated with the authorities in responding to requests for information and clarifications, in addition to reaffirming its commitment to Brazilian Justice. “Security is the number one priority at Binance,” the company said.

The company also stated that the action filed by Santander is ongoing. “The process brings allegations that have not yet been proven and, so far, there has been no final decision.”

Gerdau and Santander declined to comment.

The legal invisibility of cryptocurrency exchanges opens the door for companies of the genre to avoid judicial and regulatory charges.

This is the case of Atlas Quantum, which holds about 15,000 bitcoins from more than 200,000 customers worldwide.

The brokerage negotiated R$4 billion in collective investment agreements without authorization, according to the CVM. In Brazil, customers have tried unsuccessfully to withdraw money since 2019.

In July 2021, BWA Brasil, accused of using bitcoin scams, caused a loss of almost BRL 300 million after closing its doors without reimbursing investors. When asking for judicial recovery, the company drew up a list of 1,897 creditors who lost money after the investment.

Almost a month later, the PF launched an operation against the brokerage GAS At the time, Glaidson Acácio dos Santos, known as the “bitcoin pharaoh”, was arrested.

He is accused of using cryptocurrencies to attract investors who supported a billion-dollar Ponzi scheme. The deviations reached R$ 1.5 billion, according to the PF. Sought after, Atlas Quantum, BWA and GAS did not respond.

A recent survey by the CVM shows that cryptocurrency swindlers already account for 43% of all financial scams in the country. Almost a third (30%) of the cases involved operations with foreign digital currencies and a quarter of investors invested between R$10,000 and R$50,000.

The massification of these investments has been basically taking place through “word of mouth” advertising or through referrals via social networks, according to the survey, which left BC directors worried.

This situation led Campos Neto to ask the municipality’s technicians to prepare the bill with the guidelines for the regulation of the crypto-assets market – currencies and other types of investment through digital means.

In conversations with bank executives heard by the sheetCampos Neto said that, last year, investments in crypto assets — bitcoins are the most sought after modality — were the ones that most attracted investors in the country with promises of profitability well above the capital market average.

Another justification for the bill to be rushed is the increasingly frequent use of this type of investment for money laundering.

In the United Kingdom, two police operations were launched in less than two years with the seizure of digital currencies used to launder money from criminal organizations. In July 2021, London police seized 180 million pounds, equivalent to R$1.2 billion at Friday’s quotation (18).

With the submission of the bill, Campos Neto wants to accelerate the debate on regulation in Congress. Since 2015, for example, he has been processing a similar proposal, approved in the Chamber, and currently stalled in the Senate.

Priority government projects often pick up speed. In addition, the issue is now gaining pressure from the monetary authority.

$3 billion It was the total amount embezzled by hackers in 32 cases of theft involving digital currencies

What does BC plan to do?

Submit a bill creating a regulation for crypto assets as investment vehicles. They would be classified as any type of application. Consultancies or companies would be obliged to have an office in the country and be accountable.

Are there any plans for bitcoin to become a means of payment?

Not at the moment. The BC intends to first regulate cryptocurrencies as an investment. Although the regulator is evaluating the creation of the digital real, the use of other cryptocurrencies as means of payment is not in the short-term plans.

Source: BC, National Congress, CVM, Crypto Head.

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