RIO DE JANEIRO, BRAZIL – Cash in the underpants, R$51 million (US$10 million) in banknotes in an apartment in Bahia, cash deposits, houses bought in cash. The news is repeated, only with changes, but the money-laundering controls are triggered every time someone uses cash to pay large sums.
Operation Lava Jato, when banks were caught red-handed and had to run to the Central Bank to cut deals on account of failed “know your customer” systems, helped to reduce money laundering. Now financial institutions are preparing for a new phase of crime monitoring. The new phase begins with the implementation of the PIX system, which will allow for instant payments and transfers in less than ten seconds, 24 hours a day, seven days a week.
The new system tends to dramatically reduce people’s use of cash, which will make it very difficult to launder traditional large sums of money. But bankers and fintechs are beginning to worry about the low amounts, which can disappear within minutes in a tangle of accounts and instant transfers.
When Lava Jato knocked on the banks’ doors, it became clear that many of them did not have their laundering prevention controls in place. Many of them didn’t even do basic checks on PIX fake name usage: will criminals be able to launder money with a new system?
The Central Bank will require institutions to know their clients and their PIX partners; senior management will now be responsible for crime prevention.
There was also the case of some managers colluding with the scheme. But the fact is that the illegal money has traveled through the banking system. Lava Jato cooled down, but then came the cases of politicians and advisors who, in an attempt to circumvent the monitoring system, made deposits in kind of small amounts. Sheer illusion. The amount is not important, the operation’s atypicality is. And, if it applies to the crime of corruption, it applies to drug trafficking.
The system’s alert rules determine a minimum transaction amount, in some cases of R$10,000 and in others of R$50,000, in which it becomes mandatory to notify the COAF, the government body that monitors financial operations. But this is a static rule of authority. The banks make their own assessments of potential crimes and are not only restricted to figures. For instance, it is not common for someone to make R$1,000 deposits every day. In this case, money laundering prevention systems alarms light up, which alert the authorities. And it is on the atypical details that institutions will need to work to prevent laundering in PIX operations.
Banks are increasingly worried because a few weeks ago the Central Bank (BC) and the Securities and Exchange Commission (CVM) introduced rules that will also hold the top administration responsible if laundering crimes occur while the bank is not monitoring them. Mariana Tumbiolo, president of Zela, a consulting firm specializing in the matter, says that until now only the compliance director would be held accountable.
One of the best-known cases is that of the compliance director of the Banco Rural who was convicted in the ‘Mensalão’ case. He had no direct involvement with the crime, but the fact that he was responsible for the bank’s system, which should have detected irregularities, made him a defendant in the case. Now, the rule says that the bank’s president is also responsible for knowing his client and will be held accountable if he allows the crime to occur in his institution.
Bradesco’s money-laundering prevention manager, Alceu Del Petri Filho, said in a recent live broadcast promoted by Zela, that he is worried about small transactions and warned that all it takes is one player in the system to allow a criminal to enter to contaminate all others. How to recognize this petty criminal client, often linked to drug trafficking and who is not on the most wanted list?
In addition, PIX embraces a number of institutions that are not banks and that are not even monitored by the Central Bank.
Central Bank manager Gerson Romantini guarantees that the rules will be sufficient and explains that all PIX direct participants will have to submit their anti-laundering plans by March next year. There are 762 participants in this first stage alone. Another important point is that the institutions will not only have to know their clients but also be responsible for their partners.
Fintechs
Names like Nubank or MercadoPago (Mercado Libre’s payment institution) that currently top the list of institutions with the most registered customer keys for the start of PIX, in mid-November, now have exclusive teams dealing with money laundering. Nubank says that the transactions made with PIX will feature the same security levels already adopted for TED (Express Wire Transfer) or DOC (Credit Transfer Document) transfers. Fabiana Marchezini, head of Mercado Libre in Brazil, says that the PIX rules include a novelty that was not present in TED or DOC, which is the opportunity to immediately discuss suspicious operations with other institutions in the market.
In a system as fast as PIX, the greater the speed of communication, the better. But the technology, which is an ally of these institutions in terms of customer experience, is still not enough to perform all risk analysis. Marchezini explains that artificial intelligence is still incipient in this area and that manual reviews – that is, performed by people – are needed. However, technology makes it easier for institutions to get to know their clients better, by cross-referencing data from lists of politically exposed individuals or files with people’s public data.
A matter that still fails is the verification of identity, according to José Eduardo Moreira Bergo, who was the security director of Banco do Brasil. Today, each state can issue its identity card, as can professional accreditation organizations, such as the Brazilian Bar Association, whose ID cards are also official documents. Moreover, there is an extra problem when checking whether the person is an owner of any company. Bergo says that despite digitalization, many commercial registries in the states still require that a person visit the company and request the document.
This could be a loophole for money launderers to enter the system through small institutions, which will eventually fail to conduct more accurate monitoring. Lava Jato, however, has shown that even large banks have flaws. In the case of PIX, it will be easier to track criminal money because the digital tags will follow the transaction, there will be less cash flowing in the market, but nevertheless, banks and fintechs are expecting criminal action.
Source: Veja