Senate approves regulation of cryptocurrency operations

The Senate approved this Tuesday (26) a bill that regulates financial operations carried out with cryptocurrencies in national territory.

The proposal has been called by some parliamentarians as a “regulatory framework for cryptocurrencies”, for establishing some guidelines for operations and general rules. In addition, it establishes penalties for fraudsters, which can be sentenced to four to eight years, in addition to fines, and a mechanism for so-called “green mining” in the sector.

The bill was passed symbolically by the senators. It is now for analysis in the Chamber of Deputies, before going to the sanction of President Jair Bolsonaro (PL).

The regulation of cryptocurrency activities has become the subject of different bills, which are being processed both in the Chamber of Deputies and in the Senate.

In December last year, federal deputies had approved their own proposal.

In the Senate, a bill was approved on a final basis by the Committee on Economic Affairs. However, there was an appeal for the matter to be voted on in plenary. The rapporteur of the matter, Senator Irajá (PSD-TO), then took the opportunity to unify the proposals of the Chamber and the Senate, to facilitate their voting and have the process concluded more quickly.

The proposal now approved by the senators provides that the federal government will be responsible for authorizing the operation of virtual asset service providers. However, in a position that provoked criticism from specialists and also from parliamentarians, Senator Irajá did not want to designate which body or entity of the federal public administration will be responsible for issuing the authorizations.

Irajá also left to the federal public administration the publication of an act that will establish the hypotheses and parameters in which this authorization will be granted.

This public administration body may authorize the operation, transfer control, supervise the provider of virtual asset services, apply sanctions or even cancel or suspend these authorizations — through an administrative process.

One of the main points of the project is the establishment of a criminal classification for cases of fraud with virtual currencies. Initially, the proposal amended the Penal Code to include in the field referring to embezzlement the crime of “fraud in the provision of services of virtual assets, securities or financial assets”, with penalties provided for from four to eight years, plus a fine.

However, Senate President Rodrigo Pacheco (PSD-MG) argued with the rapporteur that the penalties provided for in the bill created a distortion in relation to other crimes. For that he suggested two to six years’ imprisonment plus a fine.

“The sentence of four years for a form of embezzlement seemed to me to be very excessive”, argued Pacheco.

Irajá, however, decided to keep his text.

The bill also includes institutions that offer operations with virtual assets within the scope of legislation dealing with crimes against the financial system.

On another front, it also amends the legislation dealing with crimes of money laundering and concealment of assets. The law provides for sentences of three to ten years in prison. The new bill still believes that penalties can be increased by one-third to two-thirds if “the crimes defined in this Law are committed repeatedly, through a criminal organization or through the use of a virtual asset.”

Another point of the project provides for the so-called “green mining”, with benefits for actions that reduce impact on the environment or use renewable energy sources. The text reduces to zero the tax rates on the importation, industrialization or commercialization of machinery and software used in the activities of processing, mining and preservation of virtual assets. However, it establishes that these reductions apply only to machines and other equipment that use 100% of their electricity needs from renewable sources and that completely neutralize greenhouse gas emissions.

When justifying the proposal to regulate operations with crypto-assets, the rapporteur of the proposal stated that the market with this digital currency moved BRL 215 billion in the last two years in Brazil.

However, the amount of fraud in this universe grew to the same extent. According to PF data sent to Sheetthe number of operations against crimes involving cryptocurrencies jumped from 16 in 2020 to 65 last year – that is, an increase of 306%.

SEE DETAILS OF THE PROJECT THAT REGULATES CRYPTOCURRENCY IN BRAZIL

Who are the virtual asset service providers?

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

• Exchange between virtual assets and national or foreign currency

• exchange between one or more virtual assets;

• transfer of virtual assets;

• custody or administration of virtual assets or instruments that enable control over virtual assets;

• participation in financial services and provision of services related to the offering by an issuer or sale of virtual assets

What are the guidelines to be followed by service providers?

• Promote free enterprise and free competition;

• to control and maintain the funds contributed by clients in a segregated manner;

• define good governance practices, transparency in operations and a risk-based approach;

• ensure information security and protection of personal data;

• ensure the protection and defense of consumers and users, as well as the protection of popular savings;

• ensure soundness and efficiency of operations;

• act in the prevention of money laundering, concealment of assets, rights and values, in the fight against the activities of criminal organizations, in the financing of terrorism and in the financing of the proliferation of weapons of mass destruction, in line with international standards.

Who will oversee virtual asset service providers?

The Executive will assign to one or more agencies or entities of the federal public administration the responsibility for disciplining the operation of brokerage firms, in addition to supervising these companies.

What is the responsibility of the government-appointed regulatory body?

• Authorize the operation, transfer of control, merger, spin-off and incorporation of the virtual asset service provider;

• establish conditions for the exercise of positions in statutory and contractual bodies in a virtual asset service provider and authorize the possession and exercise of people for management positions;

• supervise the virtual asset service provider and apply any sanctions;

• cancel or suspend, through an administrative process, authorizations;

• provide for the cases in which the activities or operations will be included in the foreign exchange market or in which they must be subject to the regulation of Brazilian capital abroad and foreign capital in the country.

What are the penalties provided for in case of fraud?

• Penal Code now provides for fraud with cryptocurrencies as a case of embezzlement, with a penalty of four to eight years in prison, in addition to a fine.

• Crimes of laundering or concealing assets, with penalties of 3 to 10 years, can be increased by one third to two thirds if crimes are committed repeatedly, through a criminal organization or through the use of virtual assets

Are there tax benefits for the sector?

• Project provides tax exemption for cases of green mining: for the purchase, import or industrialization of machines and software for the sector that use 100% of their electricity needs from renewable sources and that neutralize 100% of greenhouse gas emissions