Ecuador’s Economy Reels from Money Laundering, Experts Say
Money laundering has become a significant concern in Ecuador, with the country’s Observatory of Organized Crime (OECO) reporting it as the second-most prevalent crime after drug trafficking. The issue is exacerbated by Ecuador’s use of the US dollar, a booming illicit drug market, and underlying structural issues that hinder efforts to combat money laundering.
The Prevalence of Money Laundering in Ecuador
According to a recent study, money laundering is heavily concentrated in industries such as:
- Real estate
- Secondhand car sales
- Construction
- Online gambling
These sectors are often used by money launderers due to their perceived legitimacy and ease of use.
Ecuador’s Role in the Illicit Drug Trade
Ecuador’s role as a transit country for illicit drugs has driven the growth of money laundering. As large quantities of cocaine produced in Colombia and Peru pass through the country en route to international markets, it has become a hub for drug trafficking activity. In 2022, Ecuador seized the second-highest volume of drugs in Latin America.
The Impact of Money Laundering on Local Criminal Organizations
The influx of capital from illicit activities has strengthened local criminal organizations, leading to increased violence and a rise in murders by 82% in 2022. As a result, there is a growing need for these groups to launder their proceeds, with many turning to foreign criminal organizations.
The Role of the US Dollar in Facilitating Money Laundering
Experts point out that the use of the US dollar in Ecuador has facilitated money laundering due to its global dominance. The dollarization of the economy has made it easier for dirty money to move through the system, with 88% of global foreign exchange transactions involving the dollar in April 2022.
The Vulnerability of Ecuador’s Banking System
Ecuador’s banking system is particularly susceptible to money laundering due to institutional limitations, including a lack of formal mechanisms to investigate cases and limited human and technological resources. As a result, an estimated $3.5 billion was laundered through the financial system in 2021, nearly three times the amount moved annually between 2007 and 2016.
Experts’ Concerns
Criminal groups have identified loopholes in the banking system and are taking advantage of them to launder their proceeds. “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 investigator. “This happens because there is no articulation between the justice system and the administrative units that raise alerts.”