Brazil: Brazil Releases Exchange Controls

On March 24, 2010, the Brazilian Monetary Council (Conselho Monetário Nacional – CMN) and the Central Bank of Brazil (Banco Central do Brasil – Bacen) adopted a series of measures to consolidate and simplify the normative acts and proceedings applicable to the international capitals and the exchange market regulations in our jurisdiction. These measures are summarized below.

1. Consolidation of the Rules on Foreign Capital

CMN approved Resolution No 3844, consolidating in only one single normative act, all the general provisions regarding foreign capital in Brazil, dealing exclusively with the registry of flows of direct investments, offshore credits, royalties, transfers of technology and international leasing transactions.

Bacen Circular No. 3491 regulated the matter, contemplating operational issues, simplifying the registration procedure of these transactions and eliminating the bureaucracy requirements that cannot be justified nowadays. These new provisions have already been included in the Exchange Market and International Capitals Regulations (Regulamento do Mercado de Câmbio e Capitais Internacionais – RMCCI) in order to organize in an orderly manner all the applicable regulations currently in force. Consequently, as a result of this systematic organization, 60 former normative acts, comprising regulations, circulars and circular-letters, were revoked, including 320 other very ancient measures which were no longer applicable in practice and deemed to be in disuse or completely outdated.

These changes are expected to reduce the effective cost of these transactions and the related administrative expenses for both the public and private sectors as well as to provide more legal security to such operations.

Other important novelties introduced by the new rules are the following:

  • From now on, all financial transfers from Brazil to other countries and from abroad to Brazil, either in Brazilian currency or in any foreign currency, related to foreign capital flows governed by CMN Resolution 3844, will have to follow the general rules applied to the Brazilian exchange market, that is, they must obey and comply with the law (principle of legality), have reasonable economic grounds and be duly supported by proper documentation.
  • It is no longer necessary to obtain a specific authorization or prior manifestation of Bacen to perform any such transfers.
  • The involved agents are released from the previous obligation of furnishing to Bacen any information that Bacen may obtain through other sources and/or by means of its own internal mechanisms.

2. Rules for Alienation of Depositary Receipts (DRs) Abroad

CMN also approved Resolution No. 3845, allowing Brazilian resident companies which are issuers or offerors of Depositary Receipts (DRs) to maintain abroad (i.e. outside Brazil) the proceeds of the sale of the DRs. This permission, however, does not apply to DRs of financial institutions, which continue to be subject to different rules.

The matter has been regulated by Bacen Circular No. 3492, which contemplates operational issues. From now on, for the purpose of updating the foreign investment registration with Bacen, the amount obtained with the sale of the DRs which does no enter into Brazil within a five day-term must be automatically considered by the Brazilian custodian as maintained abroad.

In the event that the foreign investor prefers to redeem the DRs and register the corresponding value as a new modality of investment, such as, for example, direct foreign investment or fixed income investment, the change will be conditioned upon the closing of a symbolic exchange transaction.

The transfer of funds abroad for the purpose of reimbursement of expenses incurred by the foreign institutions involved in the process of launching the DRs can be performed in the same manner of the other exchange transactions, that is, regardless of any prior manifestation of Bacen.

3. Simplification of Exchange Transactions

Among the several measures announced, it was also divulged Bacen Circular No. 3493, which updates the RMCCI, giving continuity to the improvement process of the Brazilian exchange market conducted by Bacen during the last years. The main alterations that need to be highlighted are the following:

  • Waiver of the requirement of simultaneous exchange contracts for payment of premiums or indemnities linked to international reinsurance, when the funds transit in foreign currency accounts held in the name of entities of the insurance sector.
  • Permission for Brazilian non-banking institutions authorized to deal in exchange to maintain more than one foreign currency account in the same city of Brazil. The intention of the Brazilian authorities with the adoption of this new measure is to increase the competition in the negotiations of international transfers by means of these agents, in order to benefit ultimately the users that make the remittances and their counterparts that receive the proceeds in foreign currency.
  • Exclusion of the exchange regulations of the need to maintain an exclusive registration form (ficha cadastral) just for exchange transactions, since the general anti-money laundering rules in force already requires the existence of a similar registration form that must be kept by all institutions authorized to deal in exchange.
  • Permission for the exchange offices (postos de câmbio) of an institution authorized to deal in exchange to perform the same transactions allowed to its agencies. This measure creates an opportunity to increase the offer of banking services.
  • Creation in the RMCCI of a specific section about the use of payment orders in Brazilian currency originated from abroad, to make it clear to the several participants of the market that there is such possibility.
  • Increase of the term for settlement of exchange contracts entered into by the Secretariat of the National Treasury (Secretaria do Tesouro Nacional – STN) from 360 days to 750 days, counted as from the date of the contract. This measure gives to the transactions to be effected by the STN the same treatment of the exchange transactions made in the inter-banking market.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Walter Stuber
Adriana Maria Gödel Stuber
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