Brazilian authorities see with restrictions the use of virtual currencies like the bitcoin. The main concern of the Brazilian Government at this moment is that this type of instrument be used in connection with pyramid financial schemes.
A pyramid financial scheme, also known as Ponzi scheme1, is a fraudulent investment transaction where an individual or a legal entity, acting as the operator, pays returns to his/her/its investors from new capital received by the operator from new investors, rather than from profit earned by the operator. Operators of Ponzi schemes attract new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally huge or unusually consistent. The perpetuation of these higher returns would require a continuous and ever-increasing flow of money from new investors to sustain the scheme, which never happens. If not stopped by the authorities, sooner or later the whole scheme falls apart, adversely affecting the naïve investors that believed in the operator!
For the Financial Activities Control Council (Conselho de Controle de Atividades Financeiras – COAF), the institution that acts to prevent and combat money laundering and financing of terrorism in Brazil, virtual currencies still does not have enough volume to create problems to the financial system or to be widely used in illegal activities. However, these transactions must be monitored because they represent a risk to the public economy. The risk is to facilitate pyramid financial schemes.
Among more than 1 million communications with evidence of irregularities that COAF receives every year, so far there is no complaint that relates virtual coins with the crimes of money laundering or financing of terrorism. There is, however, guidance on how to deal with this kind of situation. According to the President of COAF, the bitcoin or any other virtual currency cannot be used to justify the origin of assets acquired with such currencies, as they are not recognized by Brazilian law.
One of the ways to obtain virtual currencies is the so-called "mining", consisting of sparing computer time to validate transactions with bitcoins. A person who purchases a real state property with this feature, for example, would need to explain the origin of the virtual currency, if questioned. This is a limiting factor to its use in money laundering transactions. The idea of money laundering is to give a legal explanation to justify the origin of the funds used in the transaction and to simply say that an apartment was purchased with bitcoins is not a valid explanation or an acceptable justification for the Brazilian authorities.
The scheme is named after Charles Ponzi, who became notorious for using the technique in 1920.A pyramid financial scheme is an unsustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public.
1 The scheme is named after Charles Ponzi, who became notorious for using the technique in 1920. A pyramid financial scheme is an unsustainable business model that involves promising participants payment or services, primarily for enrolling other people into the scheme, rather than supplying any real investment or sale of products or services to the public.
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