Cryptocurrency Regulation Shouldn’t Prevent Money Laundering, Experts Say

The bill on cryptocurrency transactions, approved in the Senate this Tuesday (22), should bring more security to investors, but it will hardly reach the goal of preventing many people from continuing to operate in exchanges outside the country or using the system for crimes of money laundry.

According to the project, which will now be analyzed by the Chamber of Deputies, virtual asset brokers, the so-called exchanges, will only be able to operate in the country with authorization from a federal government agency. The provision of these services without a guarantee will be considered a crime against the financial system.

It will be up to the Executive to define which body or bodies will regulate the operation and supervise these companies. The government will also define which assets will be regulated.

The proposal also brings brokers to the list of entities that need to report suspicious transactions to Coaf (Council for the Control of Financial Activities) and act to prevent money laundering.

According to experts, several large virtual asset brokers have ignored legislation in other countries, even China and the US, and Brazil will be no different.

In addition, the cryptocurrency universe was developed in a decentralized and unregulated way. Therefore, it is impossible to monitor all transactions performed.

A person can, for example, buy virtual currencies at a brokerage that will be authorized to operate in the country, but put them on a flash drive or computer and not record subsequent transactions. You can also open an account abroad, send the money abroad legally and trade with brokers in other countries.

The text does not criminalize investors who operate with unauthorized brokers. Therefore, many experts have the assessment that it will not be possible to hold an individual liable for using an exchange based in another country, even if he declares the assets and operations to the tax authorities, collecting tax in the case of capital gain.

Investment expert Bruno Hora, co-founder of InvestSmart, says that banning transactions with unauthorized exchanges is similar to trying to prevent Brazilians from making purchases on foreign websites.

He says that the entire cryptocurrency universe is based on privacy, non-regulation, decentralization and encryption, which makes monitoring these activities more difficult.

Regulation is welcome, in his assessment, but it will be important for the government to regulate the law so as not to burden cryptocurrency exchanges to the point of making them uncompetitive.

“The process of buying an exchange is very similar to buying something on an American or Chinese website. It is not so simple to prevent. Even for those who do not intend to hide their assets, exchanges abroad will be an option. Regulation has to exist, but the excess can make Brazilian exchanges less attractive, creating a competitive disadvantage”, he says.

Sabrina Lawder, International Tax leader at Grant Thornton Brasil, states that it is important for Brazil to have decided to regulate this issue and to have enshrined in the law that this market must observe issues such as free competition, information security and the need to monitor financial crimes and money laundering. money.

“It’s a positive point because it gives more security to everyone who operates with crypto assets,” he says.

She also highlights that the legislation has not brought the responsibility of investors who operate with unauthorized companies. “I understand that the taxpayer cannot be held responsible for the lack of a license from the exchange.”

Lawyer Mariana Tumbiolo, a partner at Madruga BTW and a specialist in the area of ​​corporate crimes, says that regulation is positive from the point of view of laundering crimes, but it is not enough to prevent these crimes.

She claims that regulation and joint action by the public and private sectors made it difficult to use the financial system for money laundering. Therefore, criminal organizations have sought to use virtual assets, which are less regulated, for this purpose.

“The great means that have been used for money laundering are crypto assets. Large criminal organizations have used these assets to launder and send money out of Brazil”, he says. “That gate is uncovered. The illicit is seeping through this side.”

For her, the law will not reach people who want to use these assets for asset concealment. In this sense, an important step would be to try to stop the money from reaching brokerages abroad, through monitoring carried out by means of payment companies.

“We don’t have the ability to control whether the person is using their money on an exchange abroad or in Brazil. What is left out of this regulation are the actors who want to use the crypto system to hide their assets. I can not take.”

Pablo Cerdeira, from Galdino & Coelho Advogados, also sees little effectiveness in the attempt to ban negotiations with brokers abroad. He claims that financial pyramid problems are crimes regardless of the asset used. And that some cases are more due to failures of financial institutions than the nature of cryptocurrency.

“Usually, when the law tries to regulate something that it does not have the capacity to regulate, it weakens. The law will not be able to reach many cases. It will be an obligation that will not be effective”, he says.

Lawyer Fernando Zilveti says that the possibility of criminalizing operations carried out on authorized exchanges can have the opposite effect, of alienating the investor. For him, people in this market are not looking for security, but for freedom and low cost to operate.

“The idea of ​​turning crypto into a regulated market is not a bad one. Switzerland and England have created a safe business environment. But when you start talking about financial crime, fines, instead of bringing people in, you are scaring away.”

Sabrina Lawder, from Grant Thornton, also highlights that the text provides for exemption from taxes for the acquisition, by legal entities, of machines (hardware) and computational tools (software) used in the activities of processing, mining and preservation of virtual assets until December 2029 .

But only for enterprises that use 100% of their electricity needs from renewable sources in their activities and that neutralize 100% of greenhouse gas emissions from these activities.

What are cryptocurrencies?

They are digital assets that use encryption systems to carry out transactions. Unlike government-issued money, such as the real or the dollar, cryptocurrencies are launched by private agents and traded exclusively on the internet. The holder of a virtual currency can only redeem it using a code provided by the seller

Who are the virtual asset service providers?

The company that performs, on behalf of third parties, at least one of the services:

• redemption of cryptocurrencies (exchange for sovereign currency);
• exchange between one or more cryptocurrencies;
• transfer of virtual assets;
• custody or administration of these assets or instruments for controlling virtual assets;
• participation in financial services related to the offering by an issuer or the sale of virtual assets.
• The text proposes that companies be considered financial institutions and subject to all the rules of the financial crimes law (law 7,492, of 1986); and also to the Consumer Defense Code (law 8078 of 1990)

What are the guidelines to be followed by service providers?

• promote free competition and free enterprise;
• control and maintain the separation of resources contributed by customers;
• define good governance and risk management practices;
• ensure information security and protection of personal data;
• protect and defend consumers and users and popular savings;
• ensure the soundness and efficiency of operations

What are the penalties provided for in case of fraud?

• The project inserts into the Penal Code (decree-law 2,848, of 1940) a specific crime for irregularities involving cryptocurrencies.
• Fraud in the provision of virtual asset services is defined as “organizing, managing, offering portfolios or intermediating operations involving virtual assets, in order to obtain an unlawful advantage, to the detriment of others, inducing or keeping someone in error, through artifice, ruse, or any other fraudulent means”.
• The penalty for these cases is imprisonment from four to eight years, in addition to a fine.

How does the proposal deter money laundering?

The Executive must create rules in line with international standards to prevent money laundering and concealment of assets, as well as combat the activities of criminal organizations, the financing of terrorism and the production and trade of weapons of mass destruction.

tax exemption

The text provides for exemption for the acquisition, until December 2029, of hardware and software used in the processing, mining and preservation of virtual assets. But only for enterprises that use 100% of their electricity needs from renewable sources in their activities and that neutralize 100% of greenhouse gas emissions from these activities.