The Economic Affairs Commission (CAE) approved on Tuesday (22) a project that recognizes and regulates the cryptocurrency market in Brazil. In addition, the collegiate responded favorably to the substitute bill of Senator Irajá (PSD-TO) on three topics submitted by Senators Flávio Arns (Podemos-PR), Soraya Thronicke (PSL-MS), and Styvenson Valentim (Podemos-RN). If there is no appeal for a vote in the plenary, the text may go directly to the House of Representatives.
Digital currencies use cryptographic systems to carry out transactions. Unlike sovereign money – issued by governments, such as the real or the dollar – cryptocurrencies are launched by private agents and traded exclusively on the internet. The virtual currency holder can only redeem it using a code provided by the seller.
According to Irajá, nearly 3 million people are registered at cryptocurrency exchanges. The number is close to the number of investors in the stock market. “The cryptoasset exchanges are neither subject to regulation nor to the control of the Central Bank or the Securities and Exchange Commission (CVM), which makes it more difficult for the public authorities to identify suspicious transactions”, he warns.
In 2018, R$ 6.8 billion in virtual currencies were traded in Brazil, and 23 new exchanges (brokerage houses) were created. By 2019 35 companies were acting freely, without the supervision or oversight of financial system bodies, such as the Central Bank or stock exchanges.
What the substitute bill says
The substitute recommends the approval of PL 3.825/2019 by Senator Flávio Arns. Irajá considers the bills PLs 4.207/2020 and 3.949/2019 impaired, suggested by Soraya Thronicke and Styvenson Valentim. The substitute brings rules and guidelines both for the provision of services related to virtual assets and for the operation of exchanges.
Irajá understands that the cryptoasset is not a security. Therefore, it is not subject to the supervision of the CVM, which oversees the stock market. The exception is in the case of public offerings of cryptoassets to raise funds in the financial market.
The rapporteur considers that a company is a service provider of virtual assets when it performs on behalf of third parties, at least one of the following services:
- Redemption of cryptocurrencies (exchange for sovereign currency)
- Exchange between one or more cryptocurrencies
- Transfer of virtual assets
- Custody or administration of these assets or instruments of control of virtual assets
- Participation in financial services related to the offer by an issuer or the sale of virtual assets
The proposals by Soraya Thronicke and Flávio Arns established the Federal Revenue and the Central Bank as regulators of the virtual currency market. The rapporteur assigns to the Executive Branch the responsibility to define which agencies should regulate and supervise business with cryptocurrencies.
Irajá’s substitute bill sets some guidelines: the regulation of the cryptocurrency market should promote free enterprise and competition; require the control and separation of customer funds; define good governance and risk management practices; ensure information security and protection of personal data; protect and defend consumers and users and popular savings, and ensure the soundness and efficiency of operations.
According to the text, the executive branch must create norms aligned with international standards to prevent money laundering and concealment of assets and combat the activities of criminal organizations, the financing of terrorism, and the production and trade in weapons of mass destruction. According to the text, it is up to the bodies indicated by the Executive Branch to authorize the operation of exchanges and define which assets will be regulated.
The text acknowledges the possibility of a simplified procedure for obtaining a license to operate. The body may authorize other services directly or indirectly related to the exchange’s activity. The regulator appointed by the Executive Branch may approve the transfer of control, merger, splits, and incorporation of the exchange; establish conditions for management positions; and authorize the investiture and commissioning in such posts.
According to PL 3.825/2019, the agency is free to decide whether companies will have to operate exclusively in the virtual assets market or not. However, the regulator should also define the hypotheses for including transactions in the foreign exchange market and the need to submit them to the regulation of Brazilian capital abroad and foreign capital in the country.
According to the substitute bill, irregular operation subjects the exchange and its owners to all the penalties provided in the white-collar crime law (Law 7.492, 1986). In addition, the regulator must define conditions and deadlines for the registration of existing exchanges, and they must comply within six months after the proposal becomes law.
The body appointed by the Executive Branch must supervise the exchanges and apply the same rules that Law 13.506 of 2017 establishes for companies supervised by the CVM and the Central Bank. It must establish rules for the cancellation of the operating license, on its own initiative or upon request, in case of disobedience to the legislation.
The text proposes that the companies be considered financial institutions and subject to all the rules of the financial crimes law (Law 7.492, 1986); and the Consumer Defense Code (Law 8.078, 1990).
According to Senator Flávio Arns, Coaf has already warned about money laundering risks in cryptocurrency business. He reports that in 2017, the Prosecutor’s Office and the Civil Police of the Federal District identified a criminal group practicing financial pyramiding with a fictitious virtual currency (kriptacoin). In 2019, the Federal Police in Rio Grande do Sul indicted 19 people who raised money from municipalities for investment in cryptocurrencies, promising high returns.
The bill also subjects the exchanges to the rules of the money laundering law (Law 9.613, 1998). They are required to register all transactions that exceed the limits set by the Council for Financial Activities Control (Coaf), the Brazilian anti-money laundering body.
Arns recalls that in the European Union, exchanges and digital wallets must be registered with the financial bodies of each country. The United States, Japan, and Australia already regulate operations with cryptocurrencies and have systems for licensing exchanges. In addition to a series of information about the business and partners, the countries require companies to prevent fraud and money laundering, have compliance and risk management mechanisms, and audited financial statements.
The substitute provides for the reduction to zero of the rates of certain taxes owed by legal entities. The benefit is valid until December 31, 2029 and applies to companies that buy machines (hardware) and computational tools (software) for processing, mining, and preserving virtual assets.
The incentive was suggested through an amendment by Senator Luis Carlos Heinze (PP-RS) and accepted by the rapporteur, Senator Irajá. If the machines or tools are acquired through import, PIS, Cofins Import, IPI Import and Import Tax rates will be zeroed. Likewise, if they are acquired in the domestic market, the contribution rates for PIS, Cofins and IPI will be zeroed.
Enterprises that use 100% renewable energy sources and neutralize 100% of the greenhouse gas emissions from these activities are entitled to zero rates. An act of the Executive Branch must define the competence to authorize and supervise the granting of the exemption.
Registration of politicians
A novelty in the text was suggested by senator Soraya Thronicke and accepted by Irajá: the creation of a National Register of Politically Exposed Persons (CNPEP), to be regulated by an act of the Executive Branch and published by the Transparency Portal. The change should also be made in the money laundering law.
The agencies and entities of any branch of the government of the Union, the states, the Federal District, and the municipalities must send the CNPEP manager updated information on their members or former members classified as politically exposed persons under current legislation and regulations. The managing body of the CNPEP must indicate organs and entities that fail to comply with this obligation.
The institutions regulated by the Central Bank must consult the CNPEP to execute money laundering prevention policies and evaluate credit risk through an agreement with the body responsible for the registry defined in mutual understanding. Other institutions may adhere to the agreement with the CNPEP to fight and prevent money laundering.
The opinion includes the provision of virtual asset services without prior authorization in the financial crimes law (Law 7.492, 1986). The penalty is imprisonment for one to four years and a fine.
The text also inserts in the Penal Code (Decree-Law 2.848, 1940) the fraud in the provision of virtual assets, typified as “organizing, managing, offering wallets or intermediating operations involving virtual assets to obtain an illicit advantage, to the detriment of others, inducing or keeping someone in error, through artifice, trickery, or any other fraudulent means”. The penalty is imprisonment for four to eight years.
Source: Senate Agency