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Case study

Philipp Bock, allpago: Central Bank of Brazil closes loopholes for remittances and implements stricter controls

Wednesday 29 October 2014 | 12:07 PM CET

The goal is to guarantee the compliance with money laundering prevention practices and to avoid tax evasion

Widely used in cross-border operations, the Central Bank of Brazil is now considering ‘Remessas de Pequeno Valor’ a loophole and will begin to apply controls to prevent fraud and guarantee compliance with money laundering prevention practices.

The Central Bank of Brazil (Banco Central) has recently announced at an event with the Brazilian independent exchange brokers, the launch of a new remote fiscalisation system. The system aims to prevent tax fraud and improve the controls in the foreign exchange market, especially in low-value transactions that have simplified procedures.

The Central Bank of Brazil has heavily invested in technology to remotely supervise the market. The development of software and methodologies seek to control the entire financial system and not only the foreign exchange market.

The new system named Siscom will link the information captured by the brokers with the data available at the Central Bank of Brazil. The main idea is to guarantee the compliance with money laundering prevention practices.

In addition to reinforcing the new tighter regulation, Correios (Brazilian Postal Services) have recently announced the opening of two warehouses together with the Brazilian IRS - one in Miami and other in Hong Kong. The objective is to inspect if purchases made through the internet have been accurately declared and if taxes have been paid before they are actually sent to Brazil. In order to increase the efficiency of the controls, the government has launched a system to automate the inspection and to be able to forward in advance all necessary information to the Federal Revenue Bureau of Brazil. The go-live of this system is expected to be in the first quarter of 2015.

There is a real ‘loophole’: fraudulent currency exchanges transactions and fictitious remittances are often classified as ‘Remessas de Pequeno Valor’ to keep it off the Central Bank of Brazil’s radar.

“Some players wrongly declare every remittance as Merchandise on purpose. This prevents them from paying Withholding Taxes when they transfer funds abroad”, said Philipp Bock, CEO of allpago international.

In accordance with the regulation, operations up to the equivalent of USD 10.000 are made by the simplified exchange. Until the end of July 2014 this limit was USD 3.000. A currency buyer only needs to present the CPF (Brazilian Social Security Number) to close a currency exchange contract. This simplified procedure allows exchanging large volumes of currencies without a detailed record.

The brokers have already received the first forms to be filled and have to return them to the Central Bank of Brazil within 30 days. If the inspection finds criminal evidences, the Central Bank of Brazil will refer the cases to the Prosecution Service of the Union (Ministério Público) and the Federal Police (Polícia Federal).

Tighter regulation promotes higher standards of excellence in the Brazilian payment industry

The definition of a legal and regulatory framework for the industry has started to be discussed several years ago by the government. The implementation of the MP 615/13 and Law 12.865/13 has determined the performance of the Central Bank of Brazil especially in the authorization of the constitution, operation, governance and payment service provision for all the payment method institutions in the country.

Associated with the evolution of the payment methods and use of new technology by the Brazilian buyers, new specific laws and regulations are required to attend the new developments in the local market.

Recommendations when operating locally in Brazil

The new measures announced by the Brazilian Central Bank and IRS will help to sort out the providers operating in the grey Zone. The Central Bank is also expected to define the rules for payment service providers in 2015. So far issuers (e.g. Bradesco), acquirers (e.g. CIELO) and issuers of electronic currency (e.g. Paypal) haven been regulated.

In addition, Brazil provides a highly complex business environment with various great opportunities but also risks and challenges. In terms of the “Ease of Doing Business Index” and “Managing Tax Obligations”, Brazil is ranked between 116 and 159 out of 189 countries.

Great challenges when managing the own operation from abroad are the high administrative costs due to the legal requirements and a particular onerous tax system. More than any other market in Latin America, a strong partner with local knowledge is important in Brazil in order to avoid legal or tributary implications.

This is why merchants shall ensure they and their partners comply with these laws and regulations. Working together will local specialized lawyers is highly recommended.

“Summarizing, the promotion of equal rules for each and every player in the value chain will guarantee transparency in a market where information is very asymmetric as of today. It will enforce competition and maturation of the local PSPs and other partners active in this sector. At the end of the day all companies operating seriously will benefit from these new measures”, said Philipp Bock.

About the author

Philipp Bock, CEO and founder of allpago international, grew up in Brazil and Austria before studying at the Technical University of Berlin, at the ESCP Europe and INSEAD. Prior founding allpago, Philipp has worked at arvato services Bertelsmann restructuring the Brazilian country subsidiary and building up the ecommerce operation.

Company profile

allpago international provides a full-spectrum of payment services in the LATAM region. allpago works as a payment gateway, a white label payment service provider (PSP) or a product and service reseller for merchants and payment service providers interested in the LATAM markets. allpago‘s features include one-click payments, recurring payments and installments. Furthermore the company offers a fully integrated Risk-Management Solution as well as a Business Intelligence Platform with user rights management and user-logs. With its Level One PCI DSS Certification it guarantees the highest levels of security and safety.

This year allpago was nominated Top 3 Finalist at the MRC METAward for “Best Innovative Emerging Technology".

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