Financial Crime World

Ecuador Struggles to Combat Money Laundering Amid US Dollar Dominance, Booming Drug Trade

Background

A recent study by the Ecuadorian Observatory of Organized Crime (OECO) has highlighted the significant challenges faced by Ecuador in combating money laundering. The country’s use of the US dollar, booming drug trade, and underlying structural issues have hindered efforts to combat this crime.

Money Laundering Hotspots

According to the study, money laundering is concentrated in industries that have historically facilitated the appearance of legality, such as:

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

These sectors are frequently used by money launderers due to their ability to mask illegal proceeds.

Ecuador’s Role in the Drug Trade

Ecuador’s position as a drug transit country plays a significant role in its money laundering problem. Sandwiched between Colombia and Peru, the world’s largest coca-producing nations, Ecuador is a key transshipment point for cocaine before it reaches international markets. This has led to an increase in capital flows, which has strengthened local criminal organizations and fueled violence.

The US Dollar Factor

The use of the US dollar as Ecuador’s official currency since 2000 has also facilitated money laundering. While this move helped combat fiscal indiscipline and reduce poverty, it has also permitted the laundering of assets from illicit economies. The global dominance of the dollar makes it easy for dirty money to move through Ecuador’s financial system.

Vulnerabilities in the Banking System

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

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

As a result, around $3.5 billion was laundered through Ecuador’s financial system in 2021, nearly three times the amount moved annually between 2007 and 2016.

Loopholes Exploited by Criminal Groups

Criminal groups have identified loopholes in the banking system and have taken advantage of them to launder their proceeds. According to the OECO researcher:

  • Although banking authorities raise alerts for suspicious operations, these do not end up in any type of investigation by the prosecutor’s office.
  • This is due to a lack of articulation between the justice system and administrative units that raise alerts.

The struggle to combat money laundering in Ecuador highlights the need for structural reforms and increased cooperation between law enforcement agencies to effectively tackle this crime.