Identity Verification, KYC and AML Compliance in Brazil

Key takeaways
 

Laws 9.613/98 and 12.683/12 transformed money laundering prevention in Brazil, establishing strict requirements for identity verification in financial transactions, with penalties that can reach 20 million reais.

Document fragmentation and LGPD complicate traditional identification processes, highlighting the absence of a unified digital infrastructure in the country.

Regulatory compliance in Brazil requires an advanced technological strategy that ensures security, data protection, and efficiency in identity verification.

Didit offers a free AI-powered identity verification solution, reducing operational costs by up to 90% and completing KYC processes in less than 30 seconds.
 

With over 210 million inhabitants, Brazil is a land of opportunities for companies that know how to play their cards right. In the financial world, playing well means mastering the rules of KYC and AML. The Law 9.613/98 makes it clear that there's no room for improvisation: obligated parties must comply with strict KYC and AML regulations in Brazil, especially when it comes to financial transactions.

Thus, thoroughly understanding and complying with the requirements of Anti-Money Laundering (AML) and Know Your Customer (KYC) in the country will help ensure that identity verification processes align with the stringent local regulatory framework. Failure to do so can result in significant penalties, which, according to the Central Bank of Brazil, can reach up to 20 million reais or double the value of the irregular transaction.

Therefore, KYC in Brazil plays a crucial role in preventing money laundering, terrorist financing, and other financial risks. Given the rapid evolution of regulations concerning identity verification, it's essential for any company looking to operate in the Brazilian market.

The Legal Framework for KYC and AML in Brazil: Regulatory Requirements

The legal framework for KYC and AML in Brazil acts as a bulwark against irregular financial activities. Understanding these regulations will help companies operate securely within Brazil's financial market.

Law 9.613/98: The Main Anti-Money Laundering Legislation in Brazil

The Law 9.613/98, commonly known as the Money Laundering Law, radically transformed the approach to prevention in Brazil. Before its implementation, the financial system lacked effective mechanisms to identify and prevent irregular operations. This law laid the groundwork for financial institutions to take on a much more significant and proactive role in detecting suspicious activities. It defined the obligated parties required to report unusual transactions, expanding the scope from traditional banks to include currency exchange centers and stock brokers, creating a much broader and more effective network. The Financial Activities Control Council (COAF) became the central authority for receiving, processing, and sharing data on suspicious operations. Institutions, in turn, were obliged to meticulously record transactions, implement internal procedures, and develop monitoring systems that could detect patterns of illicit activity.

Law 12.683/12: Expanding Regulatory Scope

The Law 12.683/12 marked a significant evolution in anti-money laundering legislation. New forms of money laundering forced institutions to update their policies. Its primary innovation was the elimination of the role of preceding crimes, which was a significant change in the legal approach to money laundering. Following this amendment, authorities could track suspicious operations with more flexibility. The Law 12.683/12 strengthened investigative mechanisms, facilitating cooperation and collaboration among various agencies. This way, they had more and better tools to pursue financial crimes.

Circular 3.798/20 of the Central Bank

The Circular 3.798/20 from the Central Bank of Brazil marked a qualitative leap in KYC and AML regulation in Brazil. Beyond establishing general guidelines, it deepened the control mechanisms and identity verification processes, always adhering to international standards set by the Financial Action Task Force (FATF). This Circular defined customer due diligence processes, detailing precise criteria for identity verification, risk analysis, and continuous transaction monitoring. Additionally, stricter requirements were established for identifying Politically Exposed Persons (PEPs) and preventing money laundering.

Identity Verification in Brazil: A Challenge for Companies

Identity verification in Brazil presents a real challenge for KYC providers in the Latin American environment. The digital expansion, coupled with complex regulatory diversity, means companies face significant obstacles in ensuring accurate, secure, and high-quality identification. Factors such as data privacy and protection are fundamental in the Brazilian ecosystem. The General Data Protection Law (LGPD) sets very strict limits on the collection and use of personal information, challenging many traditional verification systems. There is also no unified digital identity infrastructure. Unlike some neighboring countries that are beginning to work on this aspect, Brazil lacks a standardized digital identity system that allows for quick, universal, and reusable verification. Documents like the General Registry or Cadastro de Pessoas Físicas (CPF) coexist in a fragmented system, creating numerous frictions during identity verification processes.

Challenges in Document Verification in Brazil

Document verification in Brazil poses a challenge for many traditional authentication methods. In many respects, the country deviates from international standards, putting many systems to the test:

• Many Brazilian identity documents are printed on paper rather than plastic. This makes the passage of time much more harmful to the information displayed on them.
• Non-standardized sizes and formats used in Brazil also complicate verification tasks. For example, Brazilian ID documents usually measure 6.4x19.3cm, while driver's licenses measure 8.5x12cm, a format closer to a booklet than to conventional cards.
• The physical characteristics of the documentation make verification processes more complex. The reason? Important information is spread across multiple pages of the document, adding another layer of difficulty to digital recognition systems.

Key Documents: CPF Number and Passports

The Cadastro de Pessoas Físicas (CPF) is the central element of identification in Brazil. All local documentation includes an 11-digit number that functions similarly to a Social Security number in countries like the United States, and is essential for various activities, such as opening bank accounts, tax declarations, or online purchases. On the other hand, Brazilian passports have undergone numerous updates (2009, 2010, 2014, 2015, 2016, and 2023), with more or less significant changes, like the introduction of complex holograms that can complicate digital reading. One of the latest advancements is related to the inclusion of an RFID chip, adding an extra layer of protection against counterfeiting.

Didit: Transforming Identity Verification and KYC and AML Compliance in Brazil

Identity verification in Brazil, as well as KYC and AML compliance, is a real maze that consumes resources, increases risks, and can hinder business growth. Didit is born to turn this challenge into an opportunity for digital expansion. Our proposal goes beyond a simple KYC service: we are a strategic ally that democratizes access to cutting-edge identity verification technologies. By offering a free, unlimited, and forever identity verification service, Didit is redefining the rules of the game in Brazilian digital identification.

Didit's technology is based on three strategic pillars that address the specific challenges of the Brazilian market:

• Document Verification: We use AI algorithms capable of validating over 3,000 types of documents from more than 220 countries and territories. Our system detects inconsistencies and extracts information with unprecedented precision, adapting to Brazil's complex documentary reality.
• Facial Recognition: We implement customized AI models that go beyond simple comparison. Our passive liveness tests and advanced detection ensure the person identifying themselves is really who they claim to be, overcoming the characteristic document fraud challenges of the Brazilian market.
• AML Screening (optional): We perform real-time checks against more than 250 global datasets, covering over a million entities on watchlists. This process enables companies to comply with the requirements of Law 9.613/98 and Circular 3.798/20 from the Central Bank.

What Official Documentation Does Didit Verify in Brazil?

Didit is capable of resolving the problems of traditional identity verification systems in Brazil. Our free solution can work with the different local documentation: we're talking about ID documents, passports, driver's licenses, and residence permits. This way, you can verify the identity of your Brazilian users without major complications, overcoming the challenges posed by the country's non-standardized documentation.

In summary, for the Brazilian market, this means:

• Full compliance with the General Data Protection Law (LGPD)
• Reduction of operational costs by up to 90%
• Completed KYC processes in less than 30 seconds

Do you want to turn identity verification challenges in Brazil into a competitive advantage?