Combating illegal mining of precious metals and preventing money laundering in Brazil
Regulations from Brazil's National Mining Agency (ANM), Federal Revenue Service (RFB) and Central Bank (BCB) seek to ensure greater transparency in transactions involving precious metals
The prevention of money laundering, financing of terrorism and proliferation of weapons of mass destruction (AML/CFT) is currently a highly visible issue in Brazil’s political landscape, impacting an increasing number of sectors. In the case of the mining sector, the illegal extraction of precious metals – particularly gold – has been making headlines in the media, especially due to its impacts on the environment and traditional communities, including indigenous groups. Various public entities have issued new regulations this year in response to such incidents, imposing further obligations on producers of gemstones and precious metals, as well as those who acquire these products.
The new regulations and increased attention from authorities regulating and overseeing the mining sector primarily stem from growing concerns about combating illegal mining and the financing of these activities in Brazil. These measures also involve improving supply chain controls for precious metals.
ANM Resolution No. 129: AML/CFT obligations for mining companies
ANM Resolution No. 129 came into effect on March 24, 2023, mandating the adoption of AML/CFT mechanisms by producers of gemstones and precious metals. The resolution applies to producers who extract such products via mining concessions, mine manifests (manifestos da mina – an old form of mineral rights deriving from land ownership), garimpeira permits, or even guias de utilização (an exceptional form of authorization to extract specific substances prior to being granted a concession). Although the resolution distinguishes between small, medium, and large producers, the obligations it sets forth must be met by all those who extract gemstones and precious metals, regardless of size.
The resolution represents the ANM’s response to Brazil’s National Risk Assessment of Money Laundering, Terrorist Financing, and Financing of Proliferation of Weapons of Mass Destruction (ANR), which identified illegal mining as a high-level threat and demonstrated the need to specifically regulate the Brazilian Anti-Money Laundering Law (Law No. 9,613/1998) in relation to the mining sector. The resolution essentially requires producers of gemstones and precious metals to adopt prevention and control mechanisms that individuals and legal entities subject to the provisions of the law in other sectors already use.
The main measures the resolution establishes for mining companies include obligations to:
- Develop internal AML/CFT policies, which must encompass the procedures outlined in Article 2 of the resolution;
- Adopt Know Your Customer (KYC) and Know Your Employee (KYE) measures, with particular attention to precautions regarding interactions with politically exposed persons (PEP) – as per the Financial Activities Control Board’s (Coaf) Resolution No. 40/2021;
- Record and monitor the trading of products in order to identify and pay special attention to transactions with suspected links to money laundering, terrorism financing, and proliferating weapons of mass destruction.
The resolution also introduces a series of elements that characterize or indicate AML/CTF red flags for producers of gemstones and precious metals in the mineral extraction sector. Another significant provision concerns mining companies’ obligations to report any suspicious transactions to Coaf, as well as transactions equal to or exceeding BRL 50,000.
While the obligations mentioned above apply to producers of gemstones and precious metals of all sizes, it is worth noting the resolution also contains specific provisions for medium-sized and large companies. Notably, there is an obligation to implement structures and policies designed to ensure they comply with their AML/CTF duties.
The content of these policies is outlined in the resolution, which also requires medium and large producers to develop control mechanisms and corporate governance structures compatible with the size and volume of their operations, proportionate to the AML/CTF risks linked to their activities.
At the beginning of August, the ANM determined (via Resolution No. 138/2023) that companies have until January 1, 2024 to implement these structures and policies.
RFB Normative Instruction No. 2,138/2023: registration of transactions involving gold
In line with ANM Resolution No. 138/2023, the RFB recently issued Normative Instruction No. 2,138/2023, establishing the Electronic Invoice for Financial Gold – a tool designed for registering transactions involving gold when classified as a financial asset or exchange instrument. All institutions within Brazil’s National Financial System (SFN) that are authorized by the Brazilian Central Bank (BCB) must issue such invoices when conducting transactions with gold. This regulation also provides for preparing a ‘Taxpayer Guidance Manual’, which must contain guidelines, technical requirements, and a model for companies to issue the electronic invoice correctly. Issuing the Electronic Invoice for Financial Gold has been mandatory since August 1, 2023.
The RFB also published a note in which it clarified that this measure seeks to promote increased transparency and facilitate the ability to audit transactions involving gold, as the electronic invoice simplifies access to information about the transactions. Furthermore, Normative Instruction No. 2,138/2023 indicates that companies that fail to comply with the measure or report inaccurate or false information will be considered unreliable regarding all tax-related effects.
BCB Normative Instruction No. 406/2023: gold purchases by financial institutions
The BCB issued Normative Instruction No. 406 on July 31, 2023, seeking to guide financial institutions regarding procedures for gold purchases. Commercial banks, securities brokers (CTVMs) and securities dealers (DTVMs) are authorized by Brazil’s National Monetary Council (CMN) to engage in purchase and sale transactions involving precious metals in the physical market, whether for themselves or on behalf of third parties.
According to the regulation, these entities must not presume legality in regard to the origin of the product they acquire nor presume good faith when conducting gold purchases. This presumption was dismissed in a Federal Supreme Court (STF) ruling, as outlined further below.
Furthermore, Normative Instruction No. 406/2023 states that these entities must fully comply with the CMN’s and BCB’s applicable regulations when purchasing gold. This includes observing prudential limits, customer exposure, AML/CTF controls, and the terms of the applicable social, environmental, and climate responsibility policy (PRSAC) for these transactions.
Bill No. 3,025/2023: Tackling illegal gold mining
In line with regulations issued by various government entities to regulate the mining and trading of precious metals in Brazil, in June 2023, the country’s president submitted a bill to Congress “addressing rules for controlling the origin, purchase, sale, and transportation of gold within the national territory and amending Law No. 7,766/1989.”
Bill No. 3,025/2023 was introduced to tackle illegal gold mining in indigenous lands and conservation units. According to the bill’s explanatory notes, this issue is related to factors such as a “lack of controls over the purchase and sale of gold stemming from garimpeira permits, and gaps in legislation that allow for laundering gold illegally extracted from protected lands.”
The main topics Bill No. 3,025/2023 addresses include upholding a rule that the first purchase of gold extracted via the garimpeira permit framework (considered a financial asset) must be conducted exclusively through financial institutions. Such purchases would have to be registered with the ANM and include details of the transaction (including the quantity acquired), and would require an electronic invoice to be issued – following the same framework that took effect on August 1, 2023 via RFB Normative Instruction 2,138/2023.
Another provision in Bill No. 3025/2023 concerns the transportation and custody of gold. Regardless of its type, any gold that is sold would have to be accompanied by a Gold Transportation and Custody Document, which would be issued by the seller and registered in the ANM’s electronic system. Gold seized without the respective document (or in violation of it) will be subject to seizure and forfeiture, without prejudice to the civil and criminal liability of those involved. Moreover, mined gold cannot be transported outside the limits (set by the ANM with the support of the Brazilian Geological Service – SGB) of its respective gold-producing region prior to being acquired by a financial institution. The bill also provides for the possibility of ANM creating a gold traceability mechanism.
Regarding financial institutions, the bill provides that the CMN must regulate risk management structures that allow for due diligence to verify the veracity of the information the seller provides with respect to gold’s lawful origin. It would also have to facilitate the adoption of measures to combat money laundering or concealment of assets, rights, and values within the financial system, as stipulated in the Anti-Money Laundering Law. In this regard, the bill aligns with RFB Normative Instruction No. 406/2023, which removed the presumption of good faith when acquiring gold as a financial asset.
Furthermore, Bill No. 3,025/2023 would prohibit holders of mineral rights (as well as their spouses or relatives up to the third degree) from exercising control or holding a stake in groups that control financial institutions engaged in purchasing mined gold. The same prohibition applies to individuals with final criminal convictions or convictions issued by a collegiate jurisdictional body for crimes related to:
- Criminal organization;
- Dealing in the proceeds of unlawful activities (receptação qualificada);
- Mineral usurpation (obtaining minerals that belong to the state);
- Money laundering or concealment of assets, rights, or financial sums;
- Land grabbing;
- Active or passive corruption;
- Crimes against the popular economy, public faith, or the tax system; and
- Misappropriation or evasion of social security contributions.
Brazil’s House of Representatives must still analyze the bill, and if approved, it will be sent on to the Senate. The approved wording must then be submitted for presidential assent.
Various entities within the federal administration (i.e., the ANM, RFB, and BCB) have issued regulations throughout 2023 that combine to create a system of greater control over the production and trading of precious metals, especially gold. In this regard, Bill No. 3,025/2023 demonstrates the concern regarding this issue and a clear movement towards introducing increasingly robust regulations into the legal framework regulating the mining and trading of precious metals in Brazil.
This trend towards greater regulation and enforcement in the mining sector is also echoed in the Brazilian Judiciary – as seen in the Federal Supreme Court (STF) in the case of Direct Action of Unconstitutionality (ADI) No. 7,345. In its ruling, the STF suspended the effects of Article 39, Paragraph 4, of Federal Law No. 12,844/2013 on an interim basis throughout Brazil, determining that the provision reduces the responsibilities of DTVMs in relation to purchasing illegally sourced gold.
In his decision, STF Justice Gilmar Mendes understood that the provision allowed DTVMs to purchase gold solely based on the seller’s declaration that its origin was legal. He stated the view that “the legislative statute in question made private monitoring unworkable by absolving the buyer, thereby stimulating the illegal market.”
As part of the interim decision, the STF ordered Brazil’s Executive Branch to adopt necessary regulatory measures for combating purchases of illegally extracted gold, especially from indigenous lands and environmentally protected areas. Within the scope of their jurisdiction, the RFB and BCB’s regulations comply with the STF’s ruling.
As such, the new regulations, measures, and bills demonstrate a greater concern for transactions carried out in the mining sector, particularly concerning the origin and destination of precious metals. The new regulations also serve as significant tools for combating the financing and practice of illegal mining, as they entail greater transparency and control of information regarding the parties involved in transactions, as well as a move toward greater security and assurance of the legality of supply chains in the mining sector.
*With the collaboration of Beatriz Borges Paiva de Queiroz.