Ecuador Confronts Daunting Challenges in Effort to Combat Money Laundering

Money laundering has emerged as the second most prevalent economic crime in Ecuador, according to a recent study by the country’s Observatory of Organized Crime (OECO). The research highlights the complex web of challenges that law enforcement and financial authorities face in tackling this issue.

Key Challenges Faced by Ecuador in Combating Money Laundering

Ecuador faces three significant obstacles in its efforts to combat money laundering:

1. Ecuador’s Role as a Transit Country for Drug Trafficking

• The country’s strategic location between Colombia and Peru makes it an ideal hub for cocaine production and trafficking.
• This dynamic has led to a significant increase in capital flows, which has strengthened local criminal organizations and fueled violence.

2. The Use of the US Dollar

• Ecuador adopted the US dollar in 2000, facilitating the movement of dirty money globally.
• The global dominance of the dollar enables drug traffickers to launder their proceeds more easily, as they can flow directly into Ecuador without the need for conversion.

3. Permeable Banking System

• A lack of formal mechanisms to investigate money laundering cases, limited human and technological resources, and a lack of knowledge about money laundering within the judiciary have created an environment in which criminal groups can exploit loopholes in the banking system.

Estimates of Money Laundered through Ecuador’s Financial System

According to estimates by the Latin American Strategic Center for Geopolitics (CELAG), around $3.5 billion was laundered through Ecuador’s financial system in 2021, nearly three times the amount moved annually between 2007 and 2016.

Need for Improved Coordination between Justice System and Administrative Units

OECO researchers highlight the need for improved coordination between the justice system and administrative units that raise alerts about suspicious operations. “Although 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.

Ecuador’s Efforts to Combat Money Laundering

To address this complex issue, Ecuador must prioritize strengthening its institutions, improving coordination between law enforcement agencies, and enhancing financial regulation to prevent the flow of illicit funds. Only through a comprehensive approach can Ecuador effectively combat money laundering and reduce its role as a transit country for drug trafficking.