Brazil - The federal police raided some crypto exchanges
The federal police operation against money laundering and tax evasion on crypto exchanges suggests that Brazil’s crypto law enforcement is further advanced than its neighbors.
On 23 September, Brazil’s Federal Police raided six crypto exchanges and froze $238 million in assets. We don’t know the exact names of the companies that were raided. But we do know that this was a calculated operation carried out by Brazilian authorities after four years of investigation between 2017 and 2021.
The flows of illicit funds involved buying crypto assets in Hong Kong, Singapore and other jurisdictions and reselling them in Brazil in what appears to have been a years-long arbitrage and tax dodging practice. The exchanges facilitating these flows allegedly failed to detect the illicit funds. Brazil’s Federal Police and Tax Authority worked closely on this operation after suspicious activity reports were filed by the country’s Financial Intelligence Unit.
Brazil is Latin America’s largest crypto market by peer-to-peer volume, according to Chainalysis. It is also host to several significant companies driving adoption in the region, including Mercado Bitcoin and Nubank. Binance has opened two offices there recently.
Other crypto jurisdictions in Latin America should watch Brazil’s response to crypto-related crime closely. Brazil’s Federal Police and agencies in the United States have strong security cooperation broadly and that includes crypto-related operations. That means that how Brazil’s authorities coordinate on AML and CTF policy will set a strong precedent for other countries under pressure to comply with international standards, like Colombia, Argentina and Mexico.
Brazil has good reason to be interested in AML and CTF on its crypto platforms. The organized crime group PCC is understood to be involved with multiple criminal businesses, like drug-traffkcing, human trafficking and illicit gold mining. These businesses sometimes take advantage of crypto for money laundering.
What is concerning is to see a lack of activity countering crypto-related crime in neighboring Mexico. Mexico is Latin America’s second most important economy and a significant market for cross border payments by volume, but the government does not appear to show signficant advances related to policing organized crime and cartel activity on its platforms.
Some think that Mexican security is deteriorating and non-state actors’ control over territory and political machinery is strengthening. That will no doubt reflect in the crypto and traditional financial system in Mexico. This was somewhat predictable. AMLO disbanded the Federal Police, reorganized the military, and in the process it shriveled investigative capacity.
In any case, it is likely that many inside the security forces will probably see physical security and combating traditional features of organized crime as taking the priority over crypto-related financial surveillance and policing.