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Compliance Risks in Banking in Guatemala Pose Significant Challenges for Financial Institutions
Guatemala’s banking sector faces significant challenges when it comes to anti-money laundering (AML) compliance, with outdated regulations and uneven implementation creating an environment conducive to money laundering.
Outdated Regulations and Uneven Implementation
The country’s AML system has been described as “sprawling, diverse and complex,” making it difficult for financial institutions to navigate the legal requirements. Extortion is a major problem in Guatemala, with the country experiencing one of the highest rates of extortion in Central America. This not only affects individuals but also drives migration and poses a significant risk to businesses operating in the region.
Political Interference
Political interference has also been a major obstacle to effective AML compliance in Guatemala. In 2019, President Morales expelled CICIG, an international body tasked with investigating serious crime in Guatemala, and dismissed special prosecutors appointed to tackle corruption and money laundering. This lack of political will to combat financial crimes creates an environment where criminal activity can thrive.
Corruption
Corruption is another significant challenge facing Guatemala’s banking sector. Corruption affects all levels of society, with anti-corruption laws often being used against political opponents of the regime. The country’s opaque network of private companies, public contracts and government officials makes it difficult to identify and prevent money laundering.
Economic Inequality
Economic inequality is also a major issue in Guatemala, with less than half the population having a bank account and around 20% not having identification. This lack of financial inclusion creates an environment where criminal activity can flourish.
Estimated Money Laundering in Guatemala
According to estimates, between $1.1 billion and $2.7 billion is laundered every year in Guatemala. The country’s AML policy has been criticized for being outdated and lacking political will, with weak prevention and detection capabilities.
Legal Framework
Guatemala’s legal framework is also severely outdated, with no beneficial ownership legislation or fintech law. Some financial institutions are completely unregulated, creating a significant risk to the banking sector.
Main Money Laundering Laws
The country’s main money laundering laws include:
- Law 67-2001
- Law 58-2005
- Law 55-2010
- Law 58-2020
These laws obligated lawyers and notaries under AML requirements. However, weaknesses in the economy, including credit unions, vehicle sales, real estate and NGOs, create vulnerabilities for money laundering.
Channels Used to Launder Money
A variety of channels are used to launder money in Guatemala, including:
- Banks
- Political campaigns
- Shell companies
- Construction and infrastructure projects
- Misinvoicing
- Even churches
The country’s complex web of facilitators, including bankers, lawyers, notaries, politicians and political operatives, makes money laundering relatively easy.
Lack of Regulation
The lack of regulation of critical financial institutions, including microfinance, credit unions, fintech, mobile money providers and some remittance services, also creates a significant risk to the banking sector. Efforts to improve transparency and anti-corruption have been rolled back by the Morales administration, and the judiciary is highly corrupt.
US Support
However, the US has a significant role in supporting Guatemala, although aid was cut during the Trump administration, which harmed anti-corruption efforts. To better understand the AML challenges facing Guatemala’s banking sector, businesses can download VinciWorks’ free guide to compliance in Latin America and the Caribbean.