Financial Crime World

Ecuador’s Financial Sanctions Evasion: A Growing Concern

Ecuador’s financial system has become a hotbed for money laundering, with the country’s use of the US dollar, booming drug trade, and structural issues hindering efforts to combat the crime.

Money Laundering in Ecuador

According to a recent study by the Ecuadorian Observatory of Organized Crime (OECO), money laundering is the second most common crime in the country, after drug trafficking. The study 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 to disguise their illegal activities.

Ecuador’s Role in Drug Trafficking

Ecuador’s role as a drug transit country is driving the growth of money laundering in the country. The country’s location between Colombia and Peru, the world’s two largest coca- growing nations, makes it a key hub for cocaine trafficking. This has led to:

  • A significant increase in capital flows
  • Strengthening local criminal organizations
  • Fueling violence

The US Dollar Factor

The use of the US dollar as Ecuador’s official currency is also exacerbating the problem. The global dominance of the dollar facilitates the movement of dirty money, with around 88% of global foreign exchange transactions involving the dollar.

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

As a result, criminal groups have identified loopholes in the banking system and are taking advantage of them to launder their proceeds.

Alarming Statistics

In 2021, an estimated $3.5 billion was laundered through Ecuador’s financial system, nearly three times the annual amount between 2007 and 2016. The majority of suspicious transaction reports were linked to the financial sector, with:

  • 62.6% occurring in the banking sector

Lack of Coordination Hindering Efforts to Combat Money Laundering

The lack of articulation between the justice system and administrative units that raise alerts is also hindering efforts to combat money laundering. While banking authorities have raised alerts for suspicious operations, these do not often lead to investigations by the prosecutor’s office.

Conclusion

Ecuador’s financial sanctions evasion is a growing concern, with the country struggling to combat the flow of dirty money. The lack of effective mechanisms to investigate and prosecute money laundering cases is allowing criminal groups to take advantage of loopholes in the banking system and continue to launder their profits.