Legal Framework for Cryptocurrencies comes into force and introduces significant changes regarding Brazilian criminal law

On June 20, 2023, Federal Law No. 14,478/2022 (commonly named the “Legal Framework for Cryptocurrencies”) entered into force.

In addition to establishing important definitions that impact multiple areas of law, such as “virtual assets” and “virtual service providers”, the new law establishes significant modifications from the perspective of the Brazilian criminal law.

Firstly, we highlight the establishment of a specific criminal offense for the practice of fraud through the use of virtual assets, securities or financial assets, with a legal penalty of imprisonment from four to eight years plus a fine (article 171-A).

The new criminal offense establishes that it is an offense to “organize, manage, offer or distribute portfolios or intermediate operations that involve virtual assets, securities or any financial assets in order to obtain an illicit advantage, inducing to or keeping someone in error, by means of any illicit resource”.

Likewise, the sole paragraph of article 1 of Federal Law No. 7492/86 (criminal offenses against the Brazilian National Financial System) was also amended, to consider as a “financial entity” the legal entity that provides services relating to operations with virtual assets, including intermediation, negotiation or custody.

This means that the head of the legal entity that provides services relating to virtual asset transactions can be criminally liable for offenses against the national financial system, such as currency evasion and fraudulent management.

Finally, the new law also brought modifications to Federal Law No. 9,613/98 (Money Laundering Law), such as the inclusion of a penalty increase of 1/3 to 2/3 if the conduct is committed repeatedly, through a criminal organization or through the use of virtual assets.

Also, because the providers of virtual assets services operate within a sensitive sector, they have the duty to keep information about their regular clients – know your client (KYC) policy – and must report any suspicious money laundering activities practiced by such clients to the authorities. In other words, virtual service providers are obliged (i) to identify their clients and keep records of their financial transactions; and (ii) to provide data and documents required by the Brazilian Council for Financial Activities Control (COAF).

The changes to the Money Laundering Law also demonstrate the authorities’ concern to increase the severeness of criminal offenses carried out through virtual assets, which is a way of reacting to the multiple Federal Police operations in last years.

On the other hand, Demarest has been collaborating with audit firms in the drafting of reports in order to demonstrate the regularity of the operations.

Demarest’s White Collar Crime team is available to provide any further clarifications that may be necessary about this topic.