Sanctions and Offshore Companies: What Brazilians Must Comply With

Offshore companies owned by Brazilians must respect three layers of rules. Law 13,810/2019 enforces in Brazil the sanctions of the UN Security Council. Law 9,613/1998 punishes money laundering. And the sanctions of OFAC (US) and the European Union apply to anyone under the jurisdiction of those regimes, which includes any US LLC.

Which sanctions rules apply to Brazilians with offshore companies?

Four different regimes can reach the same structure, each with its own scope. The table below summarizes who is bound, according to the text of each official source.

The practical consequence: a Delaware or Wyoming LLC is an entity organized in the US. Under OFAC FAQ 11, it must comply with US sanctions even if the member lives in Brazil. See what changes in each jurisdiction for offshore structures and the particulars of the Delaware LLC for Brazilians.

What does Law 13,810/2019 require in Brazil?

It makes the sanctions of the United Nations Security Council (UNSC) immediately enforceable in the country and prohibits anyone from breaching them. Art. 6 gives immediate enforceability to the resolutions and to the designations of the sanctions committees. Art. 8 prohibits Brazilians, resident or not, and anyone in Brazilian territory, from breaching those sanctions, including by making assets available, directly or indirectly, to sanctioned persons or entities.

Central points of the text:

• •Asset unavailability. This is the prohibition on transferring, converting, moving, making available or disposing of the assets, directly or indirectly (art. 2, II). It does not make the holder lose ownership (art. 4). Acts of disposal over assets made unavailable are void and ineffective, subject to the rights of good-faith third parties (art. 5).
• •Deadline. The persons in art. 9 of Law 9,613 must comply "without delay" and without prior notice to the sanctioned parties. The law defines "without delay" as immediately or within a few hours (art. 2, V, and art. 9).
• •Reporting. The unavailability and attempted transfers are reported to the Ministry of Justice and Public Security, to the regulator and to Coaf, Brazil's financial intelligence unit (art. 11).
• •Official list. The Ministry of Justice and Public Security maintains the list of persons and entities with unavailable assets (art. 26).
• •Enforcement. The regulators guide, supervise and apply the applicable administrative penalties (art. 25, sole paragraph).

The law also provides for unavailability at the request of a foreign central authority, but only when the request meets the designation criteria of the UNSC resolutions (art. 3, II). The unilateral sanctions of the US and the EU do not arise from this law. They apply by the jurisdiction of each regime, as the sections below show.

How does Law 9,613/1998 apply to offshore structures?

In two ways: as a crime and as a duty of registration and reporting. Art. 1 punishes whoever conceals or disguises the nature, origin, location, disposition, movement or ownership of assets, rights or values derived, directly or indirectly, from a criminal offense, with imprisonment of 3 to 10 years and a fine. Having a company abroad is not a crime. Using it to hide the origin of illicit funds is.

Art. 9, XIV, d, includes among the obliged entities individuals or legal entities that provide, even occasionally, services of advisory, consulting, accounting, auditing, counseling or assistance in operations to create, operate or manage companies, foundations, trusts or similar structures. That explains why consultancies, banks and accountants ask for documents.

These obliged entities must:

1. •Identify clients and keep an up-to-date register (art. 10, I).
2. •Keep a record of transactions above the threshold set by the competent authority (art. 10, II).
3. •Report to Coaf, within 24 hours and without informing anyone, including the person named in the report, the proposal or execution of the operations listed in art. 11, II.

Non-compliance leads to administrative sanctions, applied cumulatively or not: a warning; a variable fine not exceeding twice the value of the operation, twice the actual or presumed profit obtained, or BRL 20,000,000.00; temporary disqualification of up to ten years from serving as a manager; and revocation or suspension of the authorization to operate (art. 12). When your provider asks for a full registration, it is complying with the law, not creating bureaucracy.

What does OFAC prohibit and who must comply?

OFAC administers US economic sanctions. According to FAQ 11, all "U.S. persons" must comply: citizens and permanent residents wherever located, all individuals and entities in the US, and all entities organized in the US and their foreign branches. In certain programs, foreign subsidiaries of US persons are also bound.

Non-US persons also have limits. The same FAQ states that they may not cause or conspire to cause a violation of the sanctions by US persons, nor engage in conduct that evades US sanctions.

When an asset is blocked, FAQ 9 clarifies three points:

• •To block is to freeze, not to confiscate. The asset cannot be transferred, withdrawn or traded.
• •The holder keeps ownership but does not exercise the normal powers of an owner without OFAC authorization.
• •Anyone subject to the rules must report the blocked asset to OFAC within 10 business days.

Blocked persons include, among others, those on the SDN List (Specially Designated Nationals and Blocked Persons) and those blocked by the 50 Percent Rule.

What is OFAC's 50 Percent Rule and how does it affect partners and structures?

It is the rule under which the property of entities owned, directly or indirectly, 50 percent or more in the aggregate by one or more blocked persons is considered blocked (FAQ 401). "Indirectly" means ownership through other entities that are themselves owned 50 percent or more by blocked persons.

Example 1 of FAQ 401 shows the chain effect: blocked person X owns 50 percent of entity A, and A owns 50 percent of entity B. A and B are considered blocked. In structures with layered holding companies, a small stake at each level can add up to the threshold.

Control without ownership is treated differently. Under FAQ 398, an entity that is controlled, but not owned 50 percent or more by blocked persons, is not automatically blocked by the rule. OFAC may, however, designate it, and recommends caution with entities in which blocked persons hold a significant stake below 50 percent or control by other means. Contracts signed by a blocked person also call for attention.

How do European Union sanctions work?

They are measures adopted by the Council of the EU, binding on those under European jurisdiction. The European Commission states that the EU maintains more than 40 sanctions regimes, some determined by the UNSC and others adopted autonomously. Decisions to adopt, renew or lift them belong to the Council, and the regime becomes applicable EU law when published in the Official Journal.

The points that matter for an offshore structure:

• •Possible measures: arms embargoes, entry restrictions, asset freezes and other economic measures, such as import and export restrictions.
• •Scope: the obligations apply to EU nationals, persons located in the EU and anyone doing business in the EU.
• •Enforcement: it is for the Member States and national authorities to investigate breaches and apply effective, proportionate and dissuasive penalties.
• •Consultation: the Commission maintains the consolidated list of financial sanctions and points to the EU sanctions map and a helpdesk aimed at European companies.

If your structure has a bank, partner, provider or counterparty in the EU, this layer adds to the others.

What compliance program does OFAC expect from a company?

OFAC strongly encourages organizations under US jurisdiction, and also foreign companies that do business with the US, with US persons or in US-origin goods and services, to adopt a risk-based sanctions compliance program. The document "A Framework for OFAC Compliance Commitments" points to five components:

1. •Management commitment.
2. •Risk assessment.
3. •Internal controls.
4. •Testing and auditing.
5. •Training.

For a family holding company or an operating LLC, the proportionate version is simple: know who the partners and beneficiaries are, where the counterparties are, which lists to check and who decides when something is a "match". To structure the flow, see the compliance service and the guide on offshore structures in regulated sectors.

How should a Brazilian with an offshore company get organized?

With a repeatable routine, done before opening the structure and reviewed with each new counterparty.

1. •Map the structure. List partners, ultimate beneficiaries, managers, banks and countries involved, including intermediate layers.
2. •Check the official lists. Use OFAC's SDN List, the EU consolidated list of financial sanctions and the list of the Ministry of Justice and Public Security (Law 13,810, art. 26).
3. •Apply the 50 Percent Rule. Add up direct and indirect stakes, as in FAQ 401, and record the calculation.
4. •Keep the registration and the evidence. Maintain the identification of clients and counterparties and the record of the check, with the date and the list used.
5. •If there is a match, do not move funds. Suspend payments and transfers and seek legal advice. For obliged entities, Law 13,810 and Law 9,613 impose reporting; for those subject to OFAC, FAQ 9 covers the reporting of blocked property.
6. •Review periodically. Lists and ownership change, and a check done when the account was opened does not cover future payments.

Structures involving Wyoming and other US jurisdictions should treat compliance with OFAC rules as routine, not as an exception.