Financial Crime World

Ecuador Struggles to Combat Money Laundering Amid Drug Trafficking Boom

QUITO, ECUADOR - A recent study by the Ecuadorian Observatory of Organized Crime (Observatorio Ecuatoriano de Crimen Organizado – OECO) has revealed that money laundering is the second most prevalent criminal economy in Ecuador, behind drug trafficking. The country’s use of the US dollar, booming drug market, and underlying structural issues are hindering efforts to combat the crime.

Concentration of Money Laundering

The study, based on fieldwork and interviews with 116 state security officials, found that money laundering is heavily concentrated around industries that have historically facilitated the appearance of legality, such as:

  • Real estate
  • Secondhand car sales
  • Construction
  • Online gambling

These industries are frequently used by money launderers due to their lack of transparency and ease of cash transactions.

Drug Trafficking: The Main Driver

Ecuador’s role as a drug transit country has driven the growth of money laundering in the country. According to the Latin American Financial Action Task Force (Grupo de Acción Financiera de Latinoamérica – GAFILAT), large-scale drug trafficking is the main driver of money laundering in Ecuador.

  • In 2022, Ecuador seized the second-highest volume of drugs in Latin America.
  • Much of the drugs transiting through Ecuador are destined for international markets.

The Role of the US Dollar

The use of the US dollar has made it easier for criminals to launder their profits. Around 88% of global foreign exchange transactions in April 2022 involved the dollar, according to the Bank for International Settlements.

  • This allows drug trafficking profits in the United States to flow directly into Ecuador without the need for conversion.

Banking System Susceptible to Money Laundering

Ecuador’s banking system is particularly susceptible to money laundering due to:

  • Lack of formal mechanisms to investigate money laundering cases
  • Limited human and technological resources
  • Lack of knowledge of money laundering within the judiciary

The Latin American Strategic Center for Geopolitics (Centro Estratégico Latinoamericano de Geopolítica – CELAG) estimates that around $3.5 billion was laundered through Ecuador’s financial system in 2021.

Addressing Structural Issues

Criminal groups have identified loopholes in the banking system and are taking advantage of them to launder their proceeds. The study highlights the need for Ecuador to address its structural issues and improve its financial regulations to combat money laundering and drug trafficking.

“The criminal groups have taken advantage of these loopholes, and although the banking authorities have raised alerts in the face of suspicious operations, these do not end up in any type of investigation by the prosecutor’s office,” said an OECO researcher.