Money Laundering in Ecuador: A Nation Turned into a Narcostate

Ecuador’s decision to adopt the US dollar as its official currency in 2000 has had an unintended consequence, turning the nation into a prime destination for laundering illicit profits from drug trafficking and other crimes.

The Perfect Storm for Money Laundering

With transactions denominated in dollars, restrictions on currency exchange disappeared, allowing dirty cash to readily enter the country. Dollarisation and lax oversight provided ideal conditions for large-scale laundering to take root.

The Costs of Economic Stabilization

By ditching its unstable national currency, Ecuador was able to stabilise its economy and attract investment but at the cost of opening the floodgates to laundering operations.

A Flood of Traffickers

A flood of traffickers attracted by the ability to launder profits infiltrated the police and armed forces early on after dollarisation. This gave birth to a domestic drug trade in a country that has not had a history of cocaine production.

The Scope of Money Laundering in Ecuador

Government data show most money laundering cases involve foreign individuals, predominantly men, smuggling dollars into Ecuador through airports and seaports. In some reported cases, couriers were caught red-handed with suitcases of cash. Experts estimate laundered funds now account for between 2.5 per cent to 6.3 per cent of Ecuador’s GDP.

Common Techniques

One common technique involves buying goods and services from “ghost” companies used to justify transfers; these are merely phantom entities used to confuse authorities and obscure the source of the funds.

The Consequences of Money Laundering in Ecuador

Ecuador provides an object lesson in how even well-intentioned economic policies can produce damaging criminal side effects. The nation serves as a conduit between producers in Colombia and Peru and international markets, with deadly spillovers at home.

Escalating Violence

The left-leaning Center for Strategic Research says illicit deposits spiked after 2017, coinciding with deregulation that boosted bank profits. In its research, the centre employed an innovative methodology analysing discrepancies between money supply growth and economic activity.

Homegrown Gangs Battle for Control

With billions in profits needing laundering, homegrown gangs now battle for control. Violence has surged along Ecuador’s coast, where criminal factions are locked in fierce turf-battles for supremacy in the cocaine trade.

The Choneros Gang

Notable in the game is the Choneros gang, an offshoot Los Lobos has been linked to the assassination of presidential candidate Fernando Villavicencio.

Ecuador’s Crisis: A Microcosm of Global Failures

Ecuador’s crisis presents a microcosm of the costly failures of global drug policy after decades of fighting supply and cartels. With trafficking and violence instead spreading worldwide, Ecuadorians are going to the poll both scared and hopeful for a new approach.