El Salvador Grapples with Anti-Money Laundering Challenges
Threatened by Grey Listing
SANTO DOMINGO, El Salvador - The small Central American nation of El Salvador is facing intense pressure to strengthen its anti-money laundering (AML) measures, as the Financial Action Task Force (FATF) warns it could be grey listed if significant progress is not made.
High-Risk Environment
El Salvador’s use of Bitcoin as legal tender, significant Chinese investment, political interference, and rampant gang violence have all contributed to a high-risk environment for money laundering. According to estimates, $378 million to $946 million is laundered every year in El Salvador.
Weak AML Policy Implementation
El Salvador’s AML policy has been criticized for its weak implementation, with the country failing to demonstrate sufficient progress in addressing the risks. The government has been warned that if it does not take concrete steps to improve its AML regime, it could face grey listing by the FATF, a move that would severely impact the country’s international reputation and financial stability.
Key Money Laundering Laws
- Law on Money and Asset Laundering
- Special Law Against Acts of Terrorism
- Banking Law
- Law on Citizen Participation
- Law on Access to Public Information
- Bitcoin Law
However, these laws have been criticized for their lack of transparency and enforcement.
Regulatory Challenges
One major weakness in El Salvador’s AML regime is its failure to implement rapid updates to the country’s laws and regulations. Additionally, regulatory and compliance difficulties around the Bitcoin law and KYC procedures threaten the country’s international reputation and could result in grey listing by the FATF.
Strengthening Efforts
Despite these challenges, El Salvador has some strengths, including:
- Close relationship with the US
- Receipt of technical assistance from the World Bank to develop a regulatory framework for Bitcoin
- Request for training from the US on improving judicial efficiency
- Collaboration with the country’s prosecutor general to improve anti-corruption efforts
Challenges and Corruption
However, these efforts have been hampered by political interference and corruption, with investigations and prosecutions often failing to result in action. Around 90% of financial crime and corruption cases referred to the country’s prosecutor will not result in any action.
Consequences of Grey Listing
Experts warn that if El Salvador is grey listed, it could face significant economic consequences, including:
- Increased scrutiny from international financial institutions
- Decreased foreign investment
- Damaged reputation as a stable and secure place for business
Supporting Businesses
In response to these challenges, VinciWorks has created a guide designed to support businesses operating in Latin America and the Caribbean, providing an overview of key AML challenges and issues, as well as a country-by-country assessment of AML risks and laws.