Breach of bank secrecy and sharing information with COAF
Recently, the Brazilian Supreme Court, in the extraordinary appeal n. 1.055.941 issued a majority opinion recognizing that it is constitutional for law enforcement agencies to share amongst them bank secrecy data pertaining to individuals who they were investigating. This ruling applies to the Brazilian IRS (or Federal Income Office), to the Financial Intelligence Unit and Prosecutors Offices, State and Federal.
According to the majority opinion, the concept of confidential information that one law enforcement agency can share with another encompasses all banking and fiscal’s data’s of individuals and legal entities, which were obtained within some formal procedure, process or inspection, fostered by the administrative agencies mentioned above.
This topic is extremely relevant as banking and fiscal data’s secrecy amount to fundamental rights under the Brazilian Constitution, which means that the breach and sharing of that information only may happen in exceptional cases.
So much is the case that the Complementary Law 105/2001 provides specific rules about the confidentiality of financial institution’s activities, establishing the exceptional situations in which the non-observance of this important fundamental rights guaranty is justified.
The mentioned statute was proposed by the Federal Senate in 1995 (PL 219/1995) and its justified it is supported in the need of regulation of the theme “banking confidentiality” according international treaties signed by Brazil and also by reason of global need to control the significant raise of crimes against Public Administration, against the financial system and the so-called organized crime, which threat against property of highest relevance to any nation.
In short, the Statute establishes the possibility breaching bank secrecy when needed to investigate crimes, specially terrorism, drug trafficking, contraband or weapon trafficking, kidnapping for ransom, crime against the financial system, Public Administration and tax system, in addition to money laundering and those committed by organized crime (art. 1º, § 4º, from LC).
Furthermore, the mentioned law reinforces the duty of confidentiality applied to financial institutions, it extends similar rules to the Brazil Central Bank and it sets the exceptions that authorize the Judiciary Branch or Parlamentary investigation committee to withdraw the bank secrecy.
Even further, the article 6 of the complementary law 105/2001 also rules the possibility of authorities and tax agents of political divisions and subdivisions analyze “documents, books and records of financial institution, included those relative to deposit accounts and applications, when there is administrative procedure in course and the exams are indispensable for the competent authority”, also imposing on these state agents the DUTY to preserve the data’s.
The article mentioned was object of criticism since the complementary law came into effect. There has been for instance, an Unconstitutional Declaratory Action Claim and extraordinary appeal granted by the Supreme Court.
The reason is because a lot of jurists pointed that it is illegal for the Federal Income Office or the State Treasury to have access to the taxpayer banking data’s without the respective and prior judicial warrant, especially because the confidentiality of banking operation’s constitute a withdrawal of privacy constitutional rights, and as so, it cannot suffer violations without judicial control.
In this regard, the article 5, item X, from Brazil Constitution, sets that “privacy, honor and image of people are inviolable, assurance given to the right for indemnity damages due to the violation”. The item XII from the same dispositive institutes that “the confidentiality of correspondence and telegraphic communication, data’s and telephone communication, excepted in last case, by judicial order, in the hypothesis the law establish for the purpose of criminal investigation or instruction of criminal suit”.
Per this article, the interpretation to most legal scholars is that because the banking secrecy is a ramification of the privacy right, safeguarded by the Constitution in immutable rule clause, its withdrawal for public authorities should not occur without judicial authorization.
About this matter, the Supreme Court has its own case law. For example, the court’s decision in the writ of mandamus 23466, reporting judge Sepúlveda Pertence, established the requirements to breach the banking confidentiality by the Judiciary Branch and the Parlamentary investigation committee.
On the same path, in the rogatory letter 7323, reporting judge Celso de Mello, the Court decided that the Public Prosecutor is not entitled to breach one’s bank secrecy by its own action.
Moreover, the Supreme Court, in an evident position to safeguard this fundamental constitutional right, ruled, in the Inquiry 2593, reporting judge Ricardo Lewandowski, for the impossibility of banking information sharing between Police and Federal Income Office without any judicial warrant.
Likewise, in the extraordinary appeal 389.808, decided in 2010, the Supreme Court ruled that Federal Income Office prerogative to have access directly to the taxpayer banking data’s was unconstitutional, under the argument of Constitution supremacy and impossibility of transference of constitutional rights violation from the Judiciary Branch. This opinion was rendered in view of the complementary law 105/2001 mentioned above.
Nevertheless, in the recent years the Supreme Court case law has shifted to an entire opposite position, including to reverse the understanding ruled in the extraordinary appeal 389.808. The Supreme Court, in the extraordinary appeal 601.314, which has been decided along with the Unconstitutional Declaratory Actions n. 2390, 2386, 2397 e 2859, formed a majority to rule that bank secrecy does not have an absolute feature as a constitutional right. And, as so, it can and must be mitigated in the hypothesis wherein the transactions bank are potentially illegal. Thus, the Federal Income Office may share bank secrecy information with the Federal Prosecutors Office even without judicial warrant. It is our professional understanding that this is a vague and unconstitutional concept.
Coincidence or not, this case law shift, which represents the prevalence of the state power at the expense of the individual’s rights, happened in the peak of the Operação Lavajato, internationally recognized as the largest Brazilian operation of fight against corruption. Needless to say that, one of the most evident consequences of Operação Lavajato was the significant raise of social craving for the end of immunity. The people, tired of being scrounged, started to follow the police news and the judgments’ of Supreme Court and many, included law operators, started to defend without glow that the point was to definitely end corruption, supported large-scaled by politicians and businessmen, no matter how.
This social feeling and the fact that Lavajato members and political supporters received became popular protagonists impacted, in an intense way, legal interpretation and, fortunately or unfortunately, it reached the Judiciary Branch, resulting in the change of several understandings of the Supreme Court, as the possibility of provisionary execution of the penalty (habeas corpus 126.291) and the banking confidentiality breach without judicial authorization.
In view of that, the legal interpretation premise shifted to hold that the public interest should prevail when it comes to fighting crimes against the financial system, tax system, money laundering, drug trafficking and organized crime. Based on this rational is that the majority of the Supreme Court optioned by the legality of banking confidentiality breach by fiscal and administrative agencies (before, it was permitted only to the Judiciary Branch).
According to the majority, this new position is justified because only with more transparency in financial activities that is possible to minimize fiscal and tax elusion risks, also important to maintain the Democratic State.
Furthermore, it was considered that after the 2008 crisis, there was a massive international pressure to terminate the bank secrecy and, therefore, allow the State to exercise larger control of individuals’ activities, reason why the banking confidentiality guaranty was relativized.
Indeed, it is not possible to invalidate or disregard the need to fight crimes that unsettle the tax and financial system, the economic order and the Public Administration and much less it is ignored that Brazil is signatory of International Conventions to fight these crimes, which impose the cooperation about sharing fiscal and economic information between States.
However, this premises cannot suit as a legitimate justification to break constitutional guaranties, authorize employees from state’s agencies to promote, without judicial order, inquests in taxpayer life, subject of any kind of administrative verification as many times happens, under the argument of safeguard the public interest at the expense of the private interest.
This is the precise reason why the judges Marco Aurélio and Celso de Mello kept the coherence with the reasons adopted in the judgment of 2010 and preserved their position, pointing that the judicial control about the banking confidentiality is essential because translate an institutional guaranty of rights, freedom and fundamental prerogatives’ protection.
The so-called jurisdiction reserve, the need of previous judicial decision that only upon the suspect of a crime authorizes to except eventual fundamental right violation, especially the banking confidentiality, it is necessary to prevent the so-called prospective investigation, which means, instead begin from a suspicion of certain account, the bank account is investigate to achieve an offense.
According to the judge Celso de Mello: “without reasonable cause (to be valued by the Judiciary Branch and not by the Tax Administration), the disclosure of banks accounts is not possible, under penalty of inadmissible consecration of state will and unacceptable oppression of the individual by the State, then the breach of confidentiality decree cannot transform on an instrument of indiscriminate and ordinary debauchery of the financial life of people in general“.
Anyway, as from 2016, with the definitive decision from the majority of the Supreme Court about the constitutionality of article 6, from the Complementary Law 105/2001, which means, the Supreme Court started to considerate legal the access of banks data by Federal Income Office and State Treasury without judicial authorization, it seemed there was no additional discussion under this theme.
However, another question, equally relevant, was evoked, this time the Judiciary Branch was urged to decide about the possibility (or not) of these agencies – Federal Income Office, State Treasury and Financial Intelligence Unit – shift the banking information obtained from the procedures to the investigative agencies, as the police or the Public Prosecutor: the information’s sharing.
In such terms, for example, the Superior Court of Justice decided, in 2017, in the judgment of Habeas Corpus Appeal n 65.436 that “for criminal purposes, it is not admissible that confidentialities datas obtained directly from the Federal Income Office be shared with Public Prosecutor or Police Authority, for use in criminal action, because the achievement has not judicial authorization, which violates the criminal jurisdiction reserve”.
However, because of repeatedly decisions from the Supreme Court before the judgment of the extraordinary appeal mentioned (601.314), insisting that it is possible to use data obtained by the Federal Income Office in its administrative procedure, for purpose of instruct criminal action – as for example, the extraordinary appeal 998.818, 1.073.398, 1.090.776 and 1.064.554 – the Superior Court of Justice changed the position and allowed the sharing of evidence between administrative agencies and investigative agencies.
As a result of an inexistent definitive position about the subject, the Brazilians Courts started to adopt, each one of them, their own case law about the theme.
This is exactly why, on April, 2018, the Supreme Court granted general repercussion certiorari for extraordinary appeal 1.055.941– which means, the Court determined that the theme had social and legal relevance, transcending personal interests. Thus, the Plenary of the Supreme Court accepted to analyze the possibility of sharing proofs from banking and fiscal data obtained by Federal Income Office, without judicial authorization with Public Prosecutor for criminal purposes.
In this context, before the merit judgment of the extraordinary appeal 1.055.941, the judge Dias Toffoli, attending request from a third part interest in the process, on July, 2019, temporarily determined the suspension of all judicial procedures with this subject (sharing data between inspection agencies without judicial authorization, also including information obtained by the Financial Intelligence Unit, former COAF).
It was signed in Toffoli’s decision: “the responsible for paradigm’s report shall determine the overcrowding; he won’t do it, however, by obligation due the law, but according his judgment of need and adequacy, observing the arguments presented by the parts, all in the context of his jurisdictional competence”.
Accordingly, as it had been recognized the general repercussion of the topic, during four months, the investigations and criminal actions obtained by the Federal Income Office, State Treasury and Financial Intelligence Unit, former COAF, were suspended, either by official initiative or by express request from investigates or defendants motions submitted in procedures whose respective proofs derived from this way of sharing information.
On November, 2019, however, the extraordinary appeal 1.055.941 had its merits decided and, by the majority, the Supreme Court ruled that it is legitimate and licit the sharing of proofs obtained at administrative-fiscal procedures with law enforcement agencies regardless of any prior judicial warrant.
In other words, bank statements obtained by the Federal Income Office, State Treasury or the reports prepared by Financial Intelligence Unit, former COAF can be shared with Federal Police, Civil Police and Public Prosecutor’s office.
Judge Alexandre de Moraes wrote the majority opinion, according to which it was defined the constitutionality of the sharing of the reports prepared by Financial Intelligence Unit and the fiscal procedure from Federal Income Office and State Treasury with the Public Prosecutor’s office and Police and the receiving agency must safeguard the confidentiality of this information. This means that the police inquiry or the criminal procedure will be confidential and only the involved parts (accusation and defense) and police and judicial authority will have access to the court files, a measure that is so evident that the emphasis given in the decision should be dispensed.
Moreover, the decision established that the sharing only can occur by formal means and determined that the agencies adopt procedures capable of avoid the data leak, under penalty of investigation. It is important to observe that the complementary law 105/2001 already foresees the penalty of one to four years of reclusion when occurs the breach of banking confidentiality outside the hypotheses authorized in the legislation. Thus, the Supreme Court decision that authorizes the data sharing, regarding the duty of confidentiality, does not bring anything new besides the mandatory already established in the law.
In the favorable votes to the sharing data, the judges affirmed, once again, that there is no absolute fundamental right and that requiring judicial authorization to share the proof obtained could jeopardize the inspection function of the Federal Income Office, the State Treasury or the Financial Intelligence Unit.
Further, the judges declared that the sharing has basis in the complementary law 105/2001 itself, which had already been considered constitutional according the Supreme Court. It also has basis in the law 9613/98, which provides that the COAF should take measures to combat money laundering crime and to communicate the authorities “to commence procedures when conclude for the existence of crimes foresee in the law, indication of its practice or any other illicit”.
Judges Celso de Mello and Marco Aurelio issued a dissenting opinion that only with the previous jurisdictional control it will be possible avoid excess from the State and, therefore, the access and the sharing of confidentiality information from an individual can only occur with judicial authorization.
Moreover, the dissenting Judges emphasized that fishing expedition for evidences by the investigation agencies are obnoxious, and this should be the reason why the jurisdiction reserve was indispensable.
Notwithstanding the dissenting (and much grounded) opinion of Judges Marco Aurelio and Celso de Mello, once again, the public interest prevailed under the individual right, raising the chance of pernicious prospective investigation, procedure that visibly attempt against constitutional guaranties.
Despite this shifting opinion, that implies the adoption of new premise, in which predominates the public interest over individual rights, the Supreme Court, as public recognized for some of its members, cannot be oblivious to the public clamor and the social yearnings that this new understanding again can represent. Mostly if, as it is expected, the experience of this new rule application shows roundly that the most civilizing advanced is to preserve the individual rights devoted in the Constitution.
It was exactly what happened with the Court understanding about the possibility of provisory execution of penalty. The Court decided, in 2009, for the prohibition of the penalty anticipation before the case is covered by res judicata, in the habeas corpus 84.078. In 2016, at the height of Lavajato operation, the Court changed the position, in the judgment of the habeas corpus 126.292, to allow the execution of a sentence ruling after an appeal panel confirms the verdict, inasmuch as, for Court, it was not a violation of the presumption of innocence clause. In 2019, the Supreme Court once again reviewed this position in the judgment of Constitutional Declaratory Actions. The Court affirmed that the Constitution “is clear about the presumption of innocence principle and does not open field for semantic controversies”, preventing, thus, the provisory execution of penalty, which represents a true victory of fundamental rights guaranty.
To sum up, since the publication of the complementary law 105/2001, there were many discussions and understandings about its legality and constitutionality. In 2016, it was decided that IRS and other administrative agencies could have access to confidential evidences’ regardless of judicial warrant, even though these agencies are not impartial. Finally, in 2019, the Supreme Court decided for the possibility of the IRS and other administrative agencies to share evidences they obtained with law enforcement authorities. It only remains to wait to see if such positions will eventually be changed.
Authors: Pedro Luiz Cunha Alves de Oliveira and Julia Mariz
Alves de Oliveira e Salles Vanni
Address: Bela Cintra Street, 772, 9th floor, Consolação.
Zip Code: 01415-002
São Paulo/ SP
Tel.: +55 (11) 3736-6100
Practice: Business Criminal Law (white collar crimes)