Brazil Combats Crypto Crime with Licensing Mandates and Pre-Trial Asset Sales

Brazil's central bank and government are advancing a dual-pronged approach to combat organized crime and regulate its booming crypto sector, with new rules requiring crypto firms to obtain licenses and a legislative proposal allowing the pre-trial sale of seized cryptocurrencies. The measures aim to address the growing use of digital assets for illicit activities while positioning Brazil as a regulatory leader in Latin America.

The central bank's latest framework, effective February 2026, mandates that all virtual asset service providers (VASPs)—including exchanges, custodians, and brokers—secure authorization by November 2026, as a Yahoo Finance report details. Firms must hold capital reserves ranging from $2 million to $17.8 million, depending on their operations, and comply with stringent anti-money laundering (AML) and cybersecurity requirements, according to a Yahoo Finance report. Stablecoin transactions and cross-border crypto transfers are now classified as foreign exchange operations, subject to reporting and compliance obligations, as noted in the Yahoo Finance report. The rules also cap unauthorized international transactions at $100,000 and require firms to report stablecoin payments and transfers to self-custody wallets, as noted in the Yahoo Finance report.

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The regulatory push is part of Brazil's broader effort to integrate crypto into its financial system. With a $319 billion crypto market—nearly a third of Latin America's total—the authorities have emphasized the need to curb fraud and money laundering, as noted in the Yahoo Finance report. Central Bank President Gabriel Galipolo highlighted concerns over stablecoins, which account for 90% of crypto activity in Brazil and are increasingly used for payments rather than investments, creating challenges for oversight, as noted in a CoinTelegraph report.

Parallel to the regulatory overhaul, President Luiz Inácio Lula da Silva introduced the "anti-faction bill," which would permit authorities to liquidate seized cryptocurrencies during criminal investigations, treating them like foreign currency or securities, as a Coindesk report details. The legislation, under urgent congressional review, allows financial institutions to convert seized crypto into fiat currency before trial outcomes are finalized, a move aimed at dismantling the financial infrastructure of gangs like Comando Vermelho, as the Coindesk report notes. This follows a high-profile police operation in Rio de Janeiro's favelas that killed 121 alleged gang members, underscoring the government's crackdown on organized crime, as reported in the Coindesk report.

Critics argue the rapid compliance timeline and high capital requirements could stifle competition, particularly for smaller firms, as noted in the Yahoo Finance report. Bernardo Srur of the Brazilian Association of Cryptoeconomy called the framework "necessary" but warned the short transition period might deter innovation, as reported in the Yahoo Finance report. Conversely, regulators defend the measures as essential for balancing innovation with security, ensuring crypto operates under the same standards as traditional finance, as noted in the Yahoo Finance report.

The combined regulatory and legislative actions signal Brazil's intent to lead in digital asset governance. By aligning crypto with foreign exchange rules and enabling swift asset liquidation, the country aims to curb illicit flows while fostering a transparent market. However, challenges remain, including ensuring fair valuation of seized crypto and protecting defendants' rights if acquittals occur, as noted in the CoinTelegraph report.