Community-Based Approach to AML: Changing the Game in Brazil

5 mins

Money laundering and terrorist financing are major global concerns and require efficient measures to prevent the misuse of financial systems. According to reports from Brazilian authorities, the main sources of illegal funds come from financial system crimes (such as fraud and embezzlement), drug trafficking, and tax evasion. Money laundering in Brazil is primarily tied to domestic crimes, including smuggling, corruption, and organized crime, which creates funds that may be laundered through the banking system, real estate investments, or financial asset markets.

In light of this, the Brazilian government has implemented a comprehensive AML regulatory framework. Despite having a mature framework, implementing Anti-Money Laundering and Countering the Financing of Terrorism (AML/CFT) compliance can be a challenging task for financial institutions in Brazil. The rapid growth of the SFN and its increasing complexity make it difficult for financial institutions to maintain efficient AML/CFT measures and keep pace with changing regulatory requirements. Moreover, a lack of awareness and training among employees and the need for continuous monitoring of suspicious activities add to the challenges faced by financial institutions. In light of these challenges, Tookitaki's community-based approach to AML presents a game-changing solution for the financial sector in Brazil.

An Overview of the AML Landscape in Brazil

In Brazil, the National Financial System (SFN) is supervised by the Banco Central do Brasil (BCB) to ensure its compliance with AML/CFT legislation and regulations. The BCB works in conjunction with the Council for Financial Activities Control (Coaf) - the Brazilian financial intelligence unit - to enforce AML/CFT measures and prevent any illicit activities. Coaf has technical and operational autonomy and is administratively linked to the BCB. The Mercosur/SGT-4 Commission for the Prevention of Money Laundering and Terrorist Financing (CPLDFT) is coordinated by the central banks of Mercosur's member countries. The CPLDFT comprises national institutions responsible for the AML/CTF framework in the banking, securities, insurance, and other financial markets.

Brazil has a comprehensive legal framework in place for combating money laundering and terrorism. Laws such as the AML Law (Law No. 9,613/1998), Law No. 10,701/2003, Law No. 12,683/2012, Law No. 13,260/2016, Law No. 13,810/2019, and Law No. 13,974/2020 address various aspects of AML/CFT and provide the framework for the adoption of AML/CTF policies, procedures, and internal controls by the supervised entities. BCB Circular No. 3,978/2020 further enhances the AML/CTF framework for the supervised entities.

Brazil is a member of the Financial Action Task Force on Money Laundering (FAML/FATF) and the Financial Action Task Force of Latin America (GAFILAT) under the Organization for Cooperation and Economic Development (OECD).

AML Compliance Requirements of Financial Institutions

In Brazil, financial institutions are obligated to establish AML programs in accordance with the AML regulations. These programs help financial institutions to address financial crimes in a systematic manner. All financial institutions under BCB regulation must report any suspicious operations, promote training for their employees, and implement internal procedures to detect suspicious activities.

The customer due diligence process is a crucial part of AML compliance, where financial institutions must verify customer information, assess customer risk levels, and implement controls appropriate to the risk level. Financial institutions are also responsible for maintaining accurate customer records, which are subject to regulatory audits and inspections. Failure to comply with AML requirements can result in significant fines for financial institutions, as well as fines and imprisonment for individuals convicted of financial crimes.

Compliance Challenges

Despite established laws and regulations, the current system has some weaknesses, such as the lack of independent reporting mechanisms for financial crimes and a decentralized public procurement system, which makes it difficult to detect and prosecute criminal activity. FIs in Brazil also face several compliance challenges, including the need to maintain an effective AML compliance program. This requires continuous attention to known predicate offenses such as fraud, as well as upgrading legacy technology to better identify and mitigate risks. The shift towards a risk-based approach to AML compliance also presents a challenge for traditional rules-based systems, leading to longer onboarding times, inefficient monitoring of financial crimes, high workloads, and the inability to achieve holistic risk coverage.

Tookitaki's Community-Based Approach to AML

Tookitaki, a leading financial technology company, offers a unique and innovative approach to AML compliance for financial institutions. Tookitaki's AML solution is based on a community-based approach that improves the accuracy and efficiency of AML compliance. This approach has several benefits for financial institutions, including increased visibility into customer risk, streamlined customer onboarding, and improved detection of financial crime.

The Anti-Financial Crime (AFC) Ecosystem is at the heart of Tookitaki's AML solution. It is a community-based platform that allows financial institutions to share information and best practices in the fight against financial crime. The main output of the AFC ecosystem is the Typology Repository, a repository of risk scenarios guided by regulators and fin crime experts. This is a database of money laundering techniques and schemes that have been identified by FI's, fincrime experts and regulators around the world. FI's contribute to the repository by sharing their own specialized experience and knowledge of money laundering. This ensures a secured, communal approach to fighting financial crime instead of a siloed-manner.

The AFC Ecosystem is designed to work alongside Tookitaki's Anti-Money Laundering Suite (AMLS) to provide a comprehensive solution for financial institutions. The AMLS consists of several modules designed to meet the specific needs of financial institutions. These modules include:

  • Transaction Monitoring: This module enables financial institutions to monitor customer transactions and detect potential money laundering activities. It uses advanced machine learning algorithms to analyze large amounts of data and flag suspicious transactions for further review.
  • Smart Screening: This module integrates with external databases and uses advanced algorithms to identify high-risk customers. It helps financial institutions to streamline the customer onboarding process and reduces the time and cost of manual customer due diligence.
  • Customer Risk Scoring: This module uses machine learning algorithms to determine the risk level of each customer. It helps financial institutions to prioritize their AML compliance efforts and focus on high-risk customers.
  • Case Manager: This module provides financial institutions with a centralized platform to manage AML cases. It enables financial institutions to track and manage cases from start to finish, and ensures that all relevant information is recorded and accessible in one place.

Revolutionizing Anti-Money Laundering Compliance in Brazil

Tookitaki's approach to AML compliance is a game-changer for financial institutions in Brazil. Unlike traditional AML solutions that are siloed, Tookitaki's community-based approach leverages the collective knowledge and expertise of financial institutions to tackle financial crime more effectively. This approach has several benefits, including increased efficiency, improved collaboration, and a more comprehensive view of financial crime risks.

With a risk-based approach that combines the latest technology and innovative techniques, Tookitaki's AML solutions are designed to meet the needs of today's fast-paced financial landscape. We invite financial institutions in Brazil to see for themselves the benefits of Tookitaki's community-based approach to AML. Request a demo today and take the first step towards a more efficient and effective AML compliance program.