Functioning, responsibilities and activities of the main entity responsible for preventing money laundering in the country.

Law No. 9.613/98, known as the Money Laundering Law, was an important milestone for Brazil in combating financial crimes.

This legislation not only defined and criminalized money laundering, but also established strict mechanisms for monitoring financial transactions and imposing penalties for non-compliance with the guidelines.

The creation of COAF (Council for the Control of Financial Activities) was one of the strategic measures foreseen in the law, consolidating the need for an entity that would act in a preventive and investigative manner, strengthening the national financial system against illicit threats.

Preventing money laundering and the financing of terrorism is a major concern for financial authorities in many countries, including Brazil. In Brazil, this responsibility falls primarily on COAF, whose mission is to regulate and enforce the provisions of the law and monitor suspicious financial activities that may threaten the Brazilian economic system. 

In this article, we will explore the workings of COAF, its responsibilities, and the entity's main activities, focusing on its oversight and accountability functions, which are essential to ensuring the integrity of the national financial system.

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What is COAF and how does it work?

The COAF (Council for Financial Activities Control) was established by the Money Laundering Law and is part of the structure of the Ministry of Finance, linked to the Central Bank of Brazil (BCB). Its main function is to act as a financial intelligence unit, preventing and combating money laundering, the financing of terrorism, and other financial crimes.

As Brazil is a member of the Financial Action Task Force (FATF) — an international organization dedicated to preventing money laundering — the country has committed to implementing a financial intelligence unit with technical and operational autonomy.

Structure and operation

The organizational structure of COAF does not have its own career civil servants; instead, it is composed of public servants from various administrative bodies, such as the Central Bank, the Securities and Exchange Commission (CVM), the Federal Revenue Service, and the Comptroller General of the Union (CGU). This composition allows for an integrated approach in combating illicit activities.

The COAF's operation is based on the analysis of financial information sent by sectors required to report suspicious activities, such as banks, insurance companies, real estate companies, and brokerage firms. From these reports, the COAF identifies atypical financial transactions and notifies the competent authorities, such as the Public Prosecutor's Office and the Federal Police, so that in-depth investigations can be carried out.

It is important to note that COAF does not directly conduct criminal investigations, but acts as a financial intelligence agency, providing essential data for conducting inquiries and criminal proceedings.

Practical Application

The COAF (Council for Financial Activities Control) operates on several fronts, including regulating issues related to money laundering, monitoring obligated sectors, and applying penalties in case of non-compliance with the legislation. Article 9 of the Money Laundering Law establishes a list of individuals and legal entities subject to these obligations, known as "obligated persons".

Among the main activities carried out by COAF are the monitoring of these individuals and the verification of compliance with legal obligations. In addition, the entity conducts the Electronic Compliance Assessment (Avec), a system to identify the adherence of obligated individuals to anti-money laundering regulations.

Responsibilities of COAF

The responsibilities of COAF are broad and involve both the prevention and combating of money laundering and other financial crimes. Its main duties include:

• To receive, examine, and identify suspected instances of illegal activity.
• To produce and disseminate financial information relevant to crime investigations, acting as a strategic source of intelligence for the authorities.
• To monitor sectors required to report suspicious activities, ensuring that financial and non-financial institutions comply with legal regulations.
• To assist in the development of public policies to combat money laundering and the financing of terrorism.

The oversight carried out by COAF covers financial institutions, such as banks and brokerage firms, as well as non-financial sectors, such as car dealerships, credit card companies, and currency exchange offices. These sectors are required to implement compliance programs, with mechanisms for identifying customers (Know Your Customer – KYC), and to report atypical financial transactions that may indicate attempts at money laundering.

COAF closely monitors Suspicious Transaction Reports (STRs) issued by these institutions and applies sanctions in case of non-compliance, which may include warnings and substantial fines.

In addition to oversight, COAF plays a fundamental role in holding companies and individuals accountable for violating anti-money laundering regulations, and can share information with the Public Prosecutor's Office and the Federal Police, who, based on this data, initiate criminal investigations.

COAF Activities: Oversight and Accountability

As mentioned, one of COAF's most important activities is the analysis of Suspicious Transaction Reports (STRs) submitted by obligated entities. These reports are thoroughly examined to detect possible irregularities.

COAF uses advanced monitoring systems, such as SISCOAF, which allow it to cross-reference financial data, analyze transaction patterns, and detect operations that may be linked to crimes such as money laundering, tax evasion, and terrorist financing.

In addition to oversight, COAF offers training and guidance to institutions so that they can implement effective compliance practices. This includes adopting internal monitoring policies and training employees to identify suspicious transactions.

accountability

Another relevant activity is holding "obligated parties" accountable through the Administrative Sanctioning Process (PAS), when non-compliance with legal obligations is verified. Sanctions can range from warnings to fines, depending on the severity of the infraction. In extreme cases, the activities of the institution involved may even be suspended.

The information obtained by COAF can also be forwarded to investigative bodies, such as the Federal Police and the Public Prosecutor's Office, for the initiation of criminal proceedings against those involved.

A notable example of COAF's actions was its participation in Operation Lava Jato, where it played a crucial role in monitoring suspicious financial transactions, helping to identify corruption and money laundering schemes.

Interested in this topic? Learn more about Administrative Sanctioning Law in our Postgraduate Program in Administrative Law.

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The Importance of a Financial Intelligence Unit in Brazil

COAF plays a central role in the collection, processing, and analysis of financial data, being fundamental for the prevention and combating of highly complex financial crimes. Its intelligence function goes beyond simple oversight, integrating a national and international cooperation network that allows the sharing of information with other financial entities around the world.

In addition to its role as a financial intelligence unit, COAF also fosters institutional cooperation. Through partnerships with other public authorities, such as the Public Prosecutor's Office, the Central Bank of Brazil (BCB), and security agencies, the Council expands its analytical and investigative capacity. This collaborative work, combined with the sharing of information with international entities, strengthens COAF's role in preventing transnational financial crimes, such as money laundering and terrorist financing, bringing Brazil into line with the main international standards for combating these crimes.

Conclusion

COAF is an essential pillar in the prevention and combating of money laundering and the financing of terrorism in Brazil. Its oversight and accountability activities guarantee the integrity of the financial system, and its role as a financial intelligence unit is crucial in identifying risks before they materialize into large-scale crimes.

In an increasingly integrated global landscape, the importance of an entity like COAF becomes even more evident. The continuous evolution of criminal techniques demands constant improvement in financial analysis and oversight tools. Strengthening COAF, as well as Brazil's commitment to cooperating with international organizations, is fundamental to ensuring that the country remains firm in the fight against financial crimes, contributing to a safer and more reliable economic environment both nationally and globally.

References

BRAZIL. Law No. 9.613, of March 3, 1998. Available at: https://www.planalto.gov.br/ccivil_03/leis/l9613.htm . Accessed on: September 23, 2024.

BRAZIL. Council for the Control of Financial Activities – Coaf. Coaf conducts Electronic Compliance Assessment (Avec) for 2024. Latest News, July 08, 2024. https://www.gov.br/coaf/pt-br/assuntos/noticias/ultimas-noticias/coaf-realiza-avaliacao-eletronica-de-conformidade-avec-de-2024 . Accessed on: September 23, 2024.

BRAZIL. Council for the Control of Financial Activities – Coaf. Coaf and Febraban celebrate agreement to strengthen the fight against money laundering. Latest News, November 28, 2023. https://www.gov.br/coaf/pt-br/assuntos/noticias/ultimas-noticias/coaf-e-febraban-celebram-acordo-para-fortalecer-combate-a-lavagem-de-dinheiro . Accessed on: September 23, 2024.

BRAZIL. Council for the Control of Financial Activities – Coaf. Organizational Structure . Available at: https://www.gov.br/coaf/pt-br/acesso-a-informacao/Institucional/estrutura . Accessed on: September 23, 2024.

BRAZIL. Council for the Control of Financial Activities – Coaf. Institutional . Available at: https://www.gov.br/coaf/pt-br/acesso-a-informacao/Institucional . Accessed on: September 23, 2024.

BRAZIL. Council for the Control of Financial Activities – COAF. What does COAF do? Brasília, COAF, 2024. Available at: https://www.gov.br/coaf/pt-br/centrais-de-conteudo/publicacoes/publicacoes-do-coaf-1/OquefazoCoaf.pdf . Accessed on: September 23, 2024.

BRAZIL. Council for the Control of Financial Activities – Coaf. Administrative Sanctioning Process (PAS) . Available at: https://www.gov.br/coaf/pt-br/acesso-a-informacao/Institucional/a-atividade-de-supervisao/processo-administrativo-sancionador-pas . Accessed on: September 23, 2024.

BRAZIL. Council for the Control of Financial Activities – Coaf. Reception of Communications . Available at: https://www.gov.br/coaf/pt-br/pastas-antigas-disponiveis-para-pesquisa/sobre-o-coaf-1/a-producao-de-inteligencia-financeira/inteligencia-financeira/recepcao-e-analise-de-comnicacoes#:~:text=·%20Comunicação%20de%20Operação%20Suspeita%20 . Accessed on: September 23, 2024.

Operators sign technical cooperation agreement with the CNJ, Ministry of Justice and Coaf. National Operator of the Electronic System of Public Registries. Available at: https://onserp.org.br/on-rcpn-assina-acordo-de-cooperacao-tecnica-com-o-cnj-ministerio-da-justica-e-coaf/#:~:text=Coopera%C3%A7%C3%A3o%20T%C3%A9cnica.%20Este%20acordo%2C%20firmado%20tamb%C3%A9m%20com,de%20dados%20centrais%20notariais%20e%20registrais%20na . Accessed on: September 23, 2024.

COAF's work originated Operation Lava Jato, says the Council's president. Chamber of Deputies , July 07, 2015. Available at: https://www.camara.leg.br/noticias/464113-trabalho-do-coaf-originou-a-operacao-lava-jato-afirma-presidente-do-conselho . Accessed on: September 23, 2024.

VITAL, Danilo. Police Authority can directly contact COAF to obtain evidence. Conjur , May 7, 2024. Available at: https://www.conjur.com.br/2024-mai-07/policia-pode-acionar-direto-o-coaf-para-obter-provas-revisa-stj/ . Accessed on: September 23, 2024.