A senior lawyer in Brazil who has defended criminals accused of money laundering has said how the Lava Jato cases, which highlighted massive public corruption, have pushed launderers towards using crypto-currency to hide dirty money.

But even though the Lava Jato task force was officially disbanded in 2021, Pierpaolo Bottini, partner at São Paulo-based Bottini & Tamasauskas Advogados, and a former director of the Economic Criminal Law of the Brazilian Institute of Criminal Sciences, said this abuse of crypto has been highlighted in cases he is defending. 

These suspects are being charged with using cryptocurrencies for money laundering (ML), where the main “predicate offence is corruption” related to competitive bidding processes and tax evasion. He noted how he was currently defending entrepreneurs accused by Brazilian public prosecutors of “offering undue advantages to public officials via the usage of cryptocurrencies” as a direct method of delivering a bribe. 

These clients work mainly in the oil and gas industry and in the construction sector and they are accused of corruption to secure or maintain state contracts for the construction of refineries and other major energy infrastructure structures, alongside other public construction contracts. 

“These cryptocurrencies were [sent] to third parties who provided services for these executives, to liberal professionals or to consultants, but the accusation – and this is the discussion in the judicial process – is that those would be interposed people who would act on behalf of politicians”, he explained. He added that none of these intermediaries were family relations of the corrupt politicians, but often their friends. 

The prosecution says that these intermediaries withdrew cryptocurrency via exchanges and turned it into cash, handing that physically to Brazilian politicians. Now, these third parties have been charged with money laundering offences associated with aiding these bribes to politicians, said the lawyer. 

Bottini, who spoke on condition of not naming these defendants, added that the transactions involved in two cases he is currently defending involved the alleged payment of around Brazilian Real BRL10 million (USD1.7 million) and he has not seen or heard of cases identified by the Brazilian law enforcement authorities involving larger crypto-based ML. 

The launderers disguised the payment as a fake contract paid in crypto, which enabled them to bypass the suspicious transaction controls because cryptocurrency exchanges are not yet covered by Brazilian AML laws, even if their abuse by criminals to hide dirty money is a clear act of ML and hence illegal. This meant the launderers did not have to parcel the payments to avoid it being detected and reported as a large transaction. 

This laxity may soon be over. The Brazilian Senate’s economic affairs committee in February passed a bill that would bring crypto-exchanges under Brazilian anti-money laundering (AML) laws regarding CDD and STRs, although this still needs to be approved by the lower house (Chamber of Deputies) and the President (1). In any case, the Council for Financial Activities Control (COAF, in the Portuguese acronym), Brazil’s FIU said in a note that Brazilian VASPs have been developing self-regulation initiatives to report suspicious transactions. 

The Brazilian Revenue Service (Receita Federal) added in a written note, that it is now mandatory for crypto-exchanges to provide information about the use of virtual currency to avoid tax, “which makes it possible to identify, together with other internal data, suspicious operations” in terms of ML. 

Bottini, who also lectures on criminal law at the University of São Paulo said that usually in Brazil, the movement of dirty virtual money in Brazilian corruption cases “do not reach very high values [of money]”, making them less likely to be noticed by exchanges. 

Launderers move money “usually in small quantities and through different [crypto] wallets, in which they end up investing” as well as in “cryptocurrency funds, whose ownership is not clear”, he said. Other ML specialists in Brazil have highlighted the use of privacy services offered by operators and the use of tumblers to combine transactions to obscure ownership. 

The co-author of a book ‘Money Laundering’, written with another lawyer Gustavo Badaró, agreed that illicit transactions were undertaken through crypto-currency brokerages in Brazil buying and selling crypto-currency, including major crypto-market players, he said, without naming them. 

He accepted that despite the recent reform efforts, crypto-currency brokerages “are poorly regulated in Brazil”, he said.  Moreover, in terms of ML involving politically exposed people (PEPs) utilising fake contracts with personal contacts, “it is a very difficult type of operation to detect because there is no public official at either end” when bribers use intermediaries to bribe politicians, the lawyer noted. 

This way of hiding dirty money flows is not new – Lava Jato unveiled the use of false consultancy contracts or fake service contracts, in which large companies paid smaller companies for services that were not rendered but formalised in documents, to launder money, said Bottini. “These smaller companies used this money to make payments to politicians in the corruption system,” he said, with the big change today being that such payments continue, but via crypto rather than the standard banking system. 

Also Lava Jato has encouraged some criminals to store criminal cash proceeds in physically secure places, for later spending – as if they were the popular Disney comic character “Scrooge McDuck”, said the lawyer. 
For instance, in 2017, the Brazilian police announced they had made their biggest-ever seizure of cash in a Salvador, north-eastern Brazil, apartment, namely BRL51 million (USD8.9 million), which took 14 hours to count. It was in a property lent to Lúcio Vieira Lima, a politician, and brother of the ex-minister Geddel Vieira Lima, who was also involved in Lava Jato cases. Geddel and his brother were sentenced for ML in the same case to 13 years and 4 months and 9 years in prison, respectively (2). Their mother was also sentenced in the same case for ML and criminal association to 10 years in prison, but due to her advanced age and poor health condition, she was allowed to be detained at home (3). 

The Federal Police found the money following a tip that the former minister was hiding documents related to an investigation into corruption at the state-owned Brazilian financial services agency Caixa when its vice-presidency was occupied by Geddel Vieira Lima. 

Besides cryptocurrencies and fake contracts, the lawyer said another common Brazil ML technique is the use of ‘dólar cabo’ – the Brazilian Portuguese expression for illegal trade of dollars destined to be deposited in an overseas financial institution: “Criminals send the money to a ‘doleiro’, a foreign exchange trader abroad, and he makes the values available here in Brazil.” Sometimes, the money is sent through international wire transfer services online to the bank account indicated by the doleiro, who then gives the criminal the money in cash in Brazil. With Lava Jato cases highlighting this technique, Bottini said this kind of ML operation has not been cited in ML cases, although that “doesn’t mean they don’t happen”. 

In Lava Jato cases, Bottini also defended companies whose executives used normal wire transfers between banks in Brazil to pay fake contracts with fake companies to launder money. Again, the operation was used to hide dirty money given to civil servants in exchange for favours. 

Some of these companies ended up signing leniency agreements with prosecutors by admitting their illicit practices and cooperating with the investigations to help convict others. 

Under those agreements, these companies implemented “very strict compliance systems”, therefore they have no “institutional space for this type of practices” anymore, he underlined. “Offshore companies in tax havens and sometimes trusts” are also instruments widely used on Brazilian ML, he said. Therefore, Bottini suggests improvements in Brazil’s “exchange of information [agreements] between countries about the final beneficiaries of certain transactions and the holders of certain accounts”. 
The lawyer and academic believes fiat currency and digital asset exchange companies “must carry out a compliance process and be obliged to alert the authorities of suspicious acts of ML”. Besides, he advised, “private agents operating in the sector” should be included in the inspection process. 
The lawyer also believes Brazil should work to “bring more and more commercial and financial transactions into the formal [banking] system” to avoid the use of cash to assist law enforcement in “tracking the proceeds of crime”. 

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