Brazil Crypto Laws Demand Up to 6 Years Prison for Embezzlement

Brazil lawmakers have formally approved a regulatory framework set to govern the country’s crypto sector.

The bill drew attention earlier this year after a previous version passed through the Senate in April. It had since since been stuck in the Chamber of Deputies, the government’s lower house.

Local media reported that the text, written by federal deputy Aureo Ribeiro, includes a new crime: digital asset embezzlement, which appears targeted at exchange operators.

Penalties include prison time between two to six years along with fines, which can also be handed out to entities which operate in Brazil without a physical presence.

There’s also a rule requiring crypto companies such as exchanges and other intermediaries to hold a virtual service provider license, similar to rules set in place across the US and Europe. 

The country’s efforts to regulate local crypto players comes amid turmoil in the wider digital asset space. Strife was most recently prompted by the collapse of FTX, which has left up to one million users out of pocket including regular investors, crypto projects and hedge funds.

Former FTX CEO Sam Bankman-Fried allegedly siphoned user funds to make risky bets across crypto markets via sister trading unit Alameda Research, leading to a multibillion-dollar black hole in its balance sheet and a crippling liquidity crisis.

Brazil lawmakers however disagreed over whether to demand crypto exchanges ensure client funds are segregated from operational cash. This would hypothetically protect customers from corporate malfeasance and other crippling events such as exchange bankruptcy.

But Ribeiro effectively opposed this proposed change, saying it would stifle the crypto market. Currently on hold, the asset segregation issue will be debated at a later date.

Crypto is big in Brazil

Government-appointed bodies will reportedly decide which digital assets can be listed for trade, and relevant companies will have an 180-day grace period to comply with the incoming rules.

Brazil, which has suffered from high inflation for decades, is one of the most active crypto markets in the world, according to recent Chainalysis data. About 5% of its population actively invests in crypto, and more than 900 Brazil-based companies currently accept crypto as payment. 

One silver lining could be that the domino-style tumbling of unregulated crypto firms over the past year may usher in regulated institutions with stronger compliance frameworks and robust risk systems. At least, that’s what Brazil’s incoming crypto regulations could inspire.

Brazil’s bill is already approved, but it will now head for a signature from outgoing president Jair Bolsonaro before his term ends on Dec. 31. Luiz Inácio Lula da Silva is expected to take up office on Jan. 1.

Some lawmakers reportedly preferred the bill be approved during Bolsonaro’s term, over fears Silva may not be as enthusiastic about cryptocurrency.

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