Typologies of money laundering and terrorist financing by COAF

December 11, 2025

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Preventing money laundering (ML) and terrorist financing (TF) is a global priority due to the threat these crimes pose to the integrity of financial systems, national security, and the socioeconomic stability of nations. In Brazil, the fight against these crimes is a key focus, driven by international commitments, robust domestic legislation, and the work of specialized bodies such as the Council for Financial Activities Control (COAF – Conselho de Controle de Atividades Financeiras), which is now also known as Brazil’s Financial Intelligence Unit (FIU) and operates under the Ministry of Finance.

The preventive nature of this work transcends national borders, requiring strong international cooperation and the harmonization of laws and regulations. Recognition of the transnational character of these crimes led to several international treaties, which have served as the basis for policy and legislation worldwide, including in Brazil.

A key pillar of this international architecture is the Financial Action Task Force (FATF). Established in 1989 by the G7, the FATF sets international standards – the 40 Recommendations – that countries are expected to implement to combat ML and TF, as well as the proliferation of weapons of mass destruction. Brazil is an active FATF member and has committed to aligning its legislation and practices with the group's recommendations, striving for compliance and effectiveness in its ML/TF prevention regime.

Other crucial international instruments include the United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances (the 1988 Vienna Convention), one of the first major treaties to criminalize money laundering derived from drug trafficking. Also significant is the United Nations Convention against Transnational Organized Crime (the 2000 Palermo Convention), which broadened the definition of money laundering to include the proceeds of a wider range of serious crimes and promoted mutual legal assistance. For terrorist financing, the 1999 International Convention for the Suppression of the Financing of Terrorism was instrumental, providing a legal framework to criminalize the provision or collection of funds intended for terrorist acts.

Brazil's incorporation of these international standards into national law reflects its unequivocal commitment to combating these scourges. Law #9,613 of March 3, 1998, known as the “Money Laundering Act,” was the initial and most important milestone in criminalizing this offense in Brazil. Originally, this Act defined ML as concealing or disguising the nature, source, location, disposition, movement, or ownership of assets, rights, or values arising, directly or indirectly, from specific predicate crimes exhaustively listed within the law. However, Law #12,683 of 2012 significantly amended Law #9,613/98 by adopting the “all-crimes approach” (or “open list” theory). This change meant that any criminal offense could serve as a predicate crime for money laundering. Unlike the previous “closed list,” which required the predicate offense to be explicitly named in the legislation, the all-crimes approach allows for money laundering charges to be brought in connection with any underlying crime, without the need to specify the prior illegal action in the indictment. This expansion brought Brazilian legislation in line with international best practices and FATF recommendations.

Beyond criminalization, Brazilian law imposes obligations on a wide range of individuals and legal entities, known as “obliged subjects,” to implement internal controls, identify clients, record transactions, and, crucially, report any suspicious activity involving money laundering or terrorist financing to COAF. These obligated parties include financial institutions, insurance companies, jewelry stores, real estate agencies, factoring companies, credit card administrators, stock exchanges, and other sectors considered susceptible to being used for illicit purposes.

The importance of international cooperation in this context cannot be overstated. The transnational nature of organized crime and terrorism means that illicit funds often move through multiple jurisdictions. The exchange of information between FIUs of different countries, mutual legal assistance, and extradition are essential tools for dismantling global criminal networks. Brazil actively participates in cooperation networks such as the Egmont Group, which facilitates the secure and efficient exchange of information between FIUs.

At the domestic level, beyond Law #9,613/98 and its amendments, other legal and regulatory frameworks are fundamental. Brazil’s Central Bank (BACEN – Banco Central do Brasil), Securities and Exchange Commission (CVM – Comissão de Valores Mobiliários), Superintendence of Private Insurance (SUSEP – Superintendência de Seguros Privados), and other regulatory bodies issue circulars and resolutions detailing the prevention obligations for the sectors they regulate. The Anti-Corruption Act (Law #12,846/2013), while not directly focused on ML/TF prevention, reinforces the framework by penalizing companies for corrupt acts, which often generate the proceeds that are subsequently laundered. The National Financial System, in turn, is the primary conduit for these funds, which places a central role on banks and other financial institutions to identify and report suspicious transactions.

In summary, Brazil has built a solid legal and regulatory system to combat money laundering and terrorist financing. This system is dynamic, continually adapting in response to evolving criminal tactics and international guidelines. However, its effectiveness depends on the vigilance and proactive efforts of all involved parties, from the institutions required to file reports to the intelligence and law enforcement agencies.

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Overview of Brazil’s Central Bank Circular #3,978/2020

Circular #3,978, issued by BACEN on January 23, 2020, represents a fundamental regulatory milestone for preventing and combating ML/TF within the financial sector and other institutions it authorizes. This circular revoked Circular #3,461/2009 and related regulations, consolidating and enhancing guidelines for implementing robust policies, procedures, and internal controls in line with FATF recommendations and international best practices.

The core objective of Circular #3,978/20 is to establish a risk-based approach to ML/TF prevention. This means financial institutions must identify, assess, and understand their ML/TF risks and then implement control measures proportionate to those risks. This approach optimizes resource allocation by concentrating efforts on areas of greatest vulnerability.

The main points of Circular #3,978/20 are outlined below:

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Main Points of Circular #3,978/20

1. Money laundering and terrorist financing prevention policy: the Circular mandates that institutions develop and implement a formal ML/TF prevention policy, which must be approved by the board of directors or senior management. This policy must be comprehensive, address all relevant ML/TF risks to which the company is exposed, and be communicated to all employees. It serves as the overarching document governing the institution's anti-money laundering and counter-financing of terrorism (AML/CFT) actions.

2. Internal Risk Assessment (IRA): this is the backbone of the risk-based approach. Institutions must conduct periodic internal risk assessments to identify and evaluate ML/TF risks related to:

– Clients: their profiles, activities, volume of operations;

– Products and services: new technologies, payment methods, innovative products;

– Distribution channels: digital, physical, and correspondents;

– Geographical area: high-risk countries and regions with a high crime incidence.

The IRA must be documented, approved by senior management, and reviewed periodically to reflect changes in the risk or business environment.

3. Know Your Customer (KYC), Know Your Partner (KYP), and Know Your Employee (KYE): the circular expands on due diligence requirements.

– KYC: institutions must collect sufficient information to understand a client's business nature, purpose, source of funds, and transaction patterns. The depth of this due diligence must be proportional to the client's risk level (standard, enhanced, or intensified). This includes identifying and verifying the identity of clients, their representatives, and beneficial owners.

– KYP: applies to business partners, such as banking correspondents and service providers, requiring a risk analysis similar to that for clients.

– KYE: emphasizes the importance of vetting employees, especially those in sensitive positions, to prevent internal complicity in ML/TF crimes.

4. Transaction monitoring, screening, and analysis: institutions must have systems and procedures to monitor client transactions, identifying those that deviate from expected behavior patterns or match ML/TF red flags. The circular encourages using technology and algorithms to automate and improve monitoring. Selecting suspicious transactions for in-depth analysis is a crucial step before reporting to COAF.

5. Reporting to COAF: This is the final step in the risk identification process. Institutions must report to COAF any transactions that may indicate ML/TF, regardless of value. Reports are also mandatory for cash transactions exceeding established regulatory thresholds (e.g., large withdrawals or deposits). The circular details deadlines and communication methods, which are handled through the COAF Information System (Siscoaf).

6. Governance and responsibilities: the standard reinforces the responsibility of senior management and the board for the effective implementation of the AML/CFT Policy. It requires the appointment of a compliance officer responsible for the AML/CFT area and the establishment of a dedicated function to manage these risks, endowed with autonomy and adequate resources.

7. Training: the Circular highlights the need for ongoing, comprehensive training programs for all employees, from senior management to frontline staff. The goal is to ensure everyone understands their AML/CFT responsibilities and can identify and report suspicious activity.

8. Internal Controls: institutions must establish effective internal controls to ensure compliance with AML/CFT policies and procedures. This includes periodic independent audits and testing to assess the system's adequacy and effectiveness.

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For financial institutions, Circular #3,978/2020 has had profound implications, particularly regarding: (i) increased compliance complexity, (ii) the need for technological investment, (iii) a radical cultural shift, (iv) higher operational costs, (v) the adoption of proactive and continuous risk management, and (vi) intensified client due diligence under the threat of severe administrative sanctions from Brazil’s Central Bank.

In conclusion, the BACEM’s Circular #3,978/2020 is not merely a set of rules but a strategic guide for financial institutions to build effective defenses against money laundering and terrorist financing. It demands an ongoing commitment to governance, technology, and a culture of compliance, transforming the financial sector into an active and indispensable partner in safeguarding the country's economic and social security. Its effective implementation is vital to preserving the integrity of and confidence in the Brazilian financial system and ensuring Brazil continues to meet its international commitments in the fight against these crimes.

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COAF Analysis: Creation, Purpose, and Functional Structure

The Financial Activities Control Council (COAF) serves as Brazil's Financial Intelligence Unit, playing a crucial role in preventing and combating money laundering and terrorist financing. Its existence and operations are cornerstones of the Brazilian AML/CFT system, functioning as the central link between the private sector (the obligated reporting entities) and the law enforcement and judicial authorities.

COAF was established on March 3, 1998, by Law #9,613 – the same legislation that criminalized money laundering in Brazil. Initially, COAF was a collegiate body under the Ministry of Finance. Its structure and jurisdiction were designed to allow it to function as the national FIU, tasked with receiving, examining, and disseminating information on suspicious financial transactions.

Over the years, COAF has undergone restructuring to enhance its autonomy and effectiveness. A significant change occurred in 2019 with Law #13,974, of January 7, 2020, which transformed COAF into a special autonomous FIU. While linked to BACEN, it was granted technical and operational autonomy. This change aimed to shield the unit from political interference and strengthen its operational capacity. Although the official name is now FIU, the acronym COAF remains widely used and recognized.

COAF's primary purpose is to protect the national financial system and the Brazilian economy from being exploited by criminals for money laundering and terrorist financing. Its importance lies in its function as an “intelligent filter” for information, transforming raw data into actionable intelligence for law enforcement agencies. Without COAF, the AML/CFT system would be less efficient, as critical information would be fragmented and difficult to analyze cohesively.

COAF’s functional structure is composed of the following elements:

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COAF Structure

1. Director: appointed by the President of the Republic, the Director unit senior leader, responsible for its management and representation.

2. Plenary: this is the collegiate body that establishes the FIU's guidelines and deliberates on the application of administrative sanctions and communications regarding evidence of crimes. The plenary includes representatives from various public bodies and entities, such as:

– BACEM;

– CVM;

– SUSEP;

– Office of the Attorney General of the National Treasury;

– Brazil’s Federal Revenue Service;

– Brazil’s Federal Police;

– Ministry of Justice and Public Security;

– Ministry of Foreign Affairs;

– Federal Attorney General’s Office;

– the Brazilian Office of the Comptroller General (CGU).

– the Brazilian Intelligence Agency (ABIN);

– Others, as needed. This diverse representation ensures a multidisciplinary approach and integrates different areas of expertise in the fight against ML/TF.

3. Executive Secretariat: responsible for providing technical and administrative support to the Plenary and for managing the intelligence analysis teams. This is where most of the technical work – data analysis and the preparation of Financial Intelligence Reports – takes place.

4. Directorates and coordination: these internal subdivisions manage specific areas, such as intelligence analysis, standardization, inspection, information technology, and international and administrative cooperation.

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The 87 Typologies of Money Laundering identified by COAF

Money laundering typologies are diverse, reflecting the creativity and adaptability of criminals in integrating illicit funds into the financial system and the legitimate economy. The identification of 87 distinct typologies demonstrates the granularity of COAF's analysis, covering a wide range of sectors and methods. It is important to note that these typologies are dynamic, constantly being revised and updated as new laundering techniques emerge.

These typologies characterize money laundering operations by providing concrete examples of how the three stages of laundering (placement, layering, and integration) can manifest. They categorize techniques based on:

Economic sector involved: finance, real estate, foreign trade, crypto assets, and the like.
Instrument used: cash deposits, electronic transfers, purchase of luxury goods, insurance, and the like.
People involved: use of “straw persons” (or "stooges"), shell companies, Politically Exposed Persons (PEPs).
Behavior patterns: Structuring transactions (“smurfing”), activity inconsistent with the client's profile, circular transactions.

The following sections present a selection of the typologies identified by COAF to illustrate the diversity and complexity of money laundering methods. We begin with typologies related to companies and corporate structures:

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A. Typologies related to companies and corporate structures

1. Shell Companies: creating or acquiring companies with no real economic activity, solely for moving money, issuing fake invoices, or justifying transfers.

2. Use of straw persons ("stooges") or intermediaries: setting up companies or operating accounts in the name of third parties (relatives, employees, low-income individuals) who are not the real economic beneficiaries.

3. Complex corporate structures: creating chains of companies across different jurisdictions (often tax havens) to obscure the identity of the ultimate beneficial owner.

4. Fictitious loans or debt simulation: granting or receiving loans between related companies or individuals without a clear commercial purpose, real collateral, or under non-market terms.

5. Unjustified capital contributions: increasing a company's share capital with funds of dubious origin, especially when the partners' financial capacity is incompatible with the contribution.

6. Anomalous mergers and acquisitions: acquiring companies at inflated or deflated prices, or merging with/spinning off companies with low transparency, to integrate illicit assets.

7. Companies with multiple unrelated activities: entities engaged in a wide range of logically unrelated activities, which can be used to justify diverse financial movements.

8. Incompatible changes in company assets: companies showing asset or revenue growth that is disproportionate to their declared economic activity or historical performance.

9. Misuse of Associations, foundations, and Non-Profit Organizations (NPOs): using non-profit entities (NGOs, churches, charities) to disguise the origin of funds or channel them for illicit purposes.

10. Opening business accounts with high turnover of partners/attorneys: accounts of legal entities that frequently change their representatives or partners, particularly when large transactions are involved.

11. Companies with low share capital and large financial transactions: newly created companies or those with negligible capital that move large volumes of money.

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The second typology category relates to new technologies and cryptoassets:

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B. Typologies related to new technologies and cryptoassets

12. Use of cryptoassets (cryptocurrencies): acquiring cryptocurrencies with illicit money and subsequently selling them on different platforms or in different jurisdictions; or using “mixers” and “tumblers” (services that obfuscate transaction trails) to hinder tracking.

13. Online gaming and betting platforms: depositing illicit funds into online gaming/betting accounts and subsequently withdrawing them as simulated “winnings,” or using accounts for transactions between users.

14. Buying and selling Non-Fungible Tokens (NFTs): using high-value NFTs to move large sums between cryptoasset accounts, taking advantage of the subjectivity in their valuation.

15. Use of digital accounts and fintechs for structuring (“Smurfing”): opening multiple accounts with digital banks or fintechs to split amounts and avoid detection or reporting thresholds.

16. Peer-to-Peer (P2P) cryptoasset transactions without identification: direct exchange of cryptocurrencies between individuals, bypassing regulated exchanges to avoid registration and identification.

17. Creation of fictitious funds in metaverses or games: simulating earnings or investments in virtual environments to justify the movement of funds in the real world.

18. Use of anonymous or prepaid rechargeable cards: acquiring prepaid cards with illicit cash to move and spend resources without a trace in the formal banking system.

19. Digital fraud involving movement of crypto assets: converting money obtained through virtual scams (phishing, ransomware) into cryptoassets and moving them to complicate tracking.

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The third typology category relates to the real estate sector:

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C. Typologies related to the real estate sector

20. Purchase and sale of real estate at atypical prices: acquiring or selling properties at prices significantly above or below market value, with the difference paid in cash or through obscure means.

21. Cash payment for property acquisition: paying a large portion of a property's value in cash or through multiple transfers from unrelated third parties.

22. Use of “straw persons” ("stooges") or shell companies in real estate acquisition: registering properties in the name of third parties or companies to conceal the true owner and the source of funds.

23. Luxury renovations and construction without funding: undertaking high-value construction projects without the owner or responsible company having a clear financial capacity to do so.

24. Property exchanges at different values: swapping properties with declared values that do not reflect reality, aiming to “legalize” money.

25. Atypical real estate financing: obtaining real estate financing with a large down payment of dubious origin, or repaying a financing loan early in an unexplained manner.

26. Subletting or renting properties at inflated prices: paying rents well above market value, or by companies without a clear justification for such expenses, to legitimize the outflow of illicit money.

27. Acquisition of real estate at judicial or extrajudicial auctions by third parties: using intermediaries to purchase properties at auctions with funds of dubious origin.

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The fourth typology category relates to specific professionals and activities:

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D. Typologies related to specific professionals and activities

28. Use of attorneys or law firm accounts: moving client funds through the firm's accounts under the guise of “client funds” or fee payments, without proper transparency regarding the origin and destination.

29. Use of accountant or accounting firm accounts: moving funds for clients or shell companies through the firm's accounts to mask their origin.

30. Art and antiques trade: buying and selling high-value, portable items with subjective valuations, facilitating money laundering through over- or under-valued transactions.

31. Jewelry and precious metals trade: acquiring and reselling high-value jewelry, gemstones, and precious metals, often with cash payments or payments from third parties.

32. Luxury vehicle, aircraft, and vessel market: purchasing and selling high-value goods, frequently with cash payments or through complex corporate structures.

33. Casinos and gambling: exchanging illicit cash for chips, placing minimal bets, and then cashing out chips for checks or transfers to simulate legitimate winnings.

34. Atypical factoring activities: conducting receivables assignment transactions with non-traditional parties, transactions involving shell companies, or using discount rates incompatible with the market.

35. Unlicensed exchange bureaus (“black markets”): conducting informal currency exchanges or transactions at off-market rates for money laundering purposes.

36. Religious organizations with large financial movements: religious entities that receive and move large volumes of resources with little transparency or connection to their declared activities.

37. Trade in durable goods and electronics (large volumes): companies that sell these goods and demonstrate cash flow or inventory levels that are incompatible with their market segment or size.

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The fifth typology category relates to cash transactions:

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E. Typologies related to cash transactions

38. Inconsistent cash deposits and withdrawals: conducting significant cash deposits or withdrawals that are inconsistent with the client's professional activity, profile, or financial capacity.

39. Structuring deposits or withdrawals (“smurfing”): making multiple cash deposits or withdrawals in amounts just below mandatory reporting thresholds (e.g., BRL 30,000.00 for financial institutions) to avoid reporting to COAF.

40. Cash deposits by unidentified third parties: frequent cash deposits into an account made by different individuals who are not the account holder and have no apparent connection to them.

41. Payment of bills or invoices in cash by third parties: recurring payment of a third party's obligations in cash, done systematically and without justification.

42. Transportation of large volumes of cash: evidence of the physical transportation or movement of large sums of cash without a clear, legitimate origin or destination.

43. Constant exchange of small-denomination notes for large-denomination notes: individuals who regularly exchange large volumes of low-denomination banknotes for higher denominations, or vice versa, without a commercial justification.

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The sixth typology category relates to bank transfers and transactions:

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F. Typologies related to bank transfers and transactions

44. Atypical international transfers: sending or receiving large international wire transfers with no apparent economic purpose or inconsistent with the client's profile, especially to or from tax havens or high-risk jurisdictions.

45. Transfers between accounts with no logical connection: frequent movement of funds between accounts of different holders, or between accounts of the same holder at different banks, without a clear justification.

46. Circular transactions: a sequence of credit and debit transactions that ultimately return funds to the original account or holder, creating a circular pattern to obscure a money trail.

47. Transactions incompatible with the client's profile: financial activities that deviate radically from the client's established behavioral pattern in terms of amount, frequency, type, or counterparties.

48. Rapid account opening and closing: accounts that are opened and closed within a short period, exhibit high transaction volumes, and lack an economic rationale.

49. Use of “mule” accounts: accounts that receive large sums and immediately transfer them to other accounts, with minimal time elapsed, acting as a pass-through.

50. Multiple and split transfers to a single beneficiary: numerous small-value transfers originating from different accounts sent to a single beneficiary account to avoid monitoring thresholds.

51. Transactions with third parties unrelated to the declared business: clients who conduct transactions with individuals or companies that have no apparent connection to their stated economic activity.

52. Misuse of credit cards (fraud or accumulation of unjustified debt): accumulating significant credit card debt to justify the inflow of funds used to pay it off, or using cards for atypical purchases and cash advances.

53. Exchange transactions involving rarely used foreign currencies: buying or selling large volumes of currencies not commonly used for international trade or travel, without a plausible justification.

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The seventh typology category relates to investments and capital markets:

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G. Typologies related to investments and capital markets

54. Atypical securities transactions: buying and selling stocks, bonds, or other securities in large volumes without a clear investment strategy, often involving significant unjustified losses or suspicious counterparties.

55. Use of omnibus or grouped accounts: using investment fund or intermediary accounts to pool resources from multiple investors, thereby obscuring the identity of the ultimate beneficial owner.

56. Investments in insurance and pension plans: investing large sums in pension plans or life insurance policies with quick redemption clauses, followed by early redemption and transfer of funds to different accounts.

57. Early redemption of investments without justification: redeeming long-term investments prematurely, incurring loss of profitability without a plausible reason, often followed by unusual fund movements.

58. Anomalous hedging operations: using futures contracts, options, or other derivatives to move large volumes of money without a clear financial hedging strategy, or to generate fictitious losses or gains.

59. Purchase and sale of public or private securities with price discrepancies: trading securities at values significantly different from market prices to