Ecuador’s Money Laundering Challenge: Drug Trafficking, Dollarization, and a Permeable Banking System

Money laundering has become a major issue in Ecuador, second only to drug trafficking in six surveyed states, according to a recent report by the Ecuadorian Observatory of Organized Crime (OECO). In this article, we’ll explore the reasons behind Ecuador’s money laundering problem, including drug trafficking, dollarization, and structural obstacles.

Drug Trafficking and Money Laundering

The drug trade is a significant contributor to money laundering in Ecuador. With its location between the world’s top two coca-producing nations, Colombia and Peru, Ecuador seized the second-largest volume of drugs in Latin America in 2022, according to the Latin American Financial Action Task Force (GAFILAT). This lucrative drug trade generates substantial illicit revenues, fueling violence and the need for money laundering.

Moreover, foreign criminal organizations, such as those from the Balkans, have increased their presence in Ecuador. They purchase declining banana companies in Manta and Machala, enabling them to launder drug money and control drug transit routes to Europe (InSight Crime).

Dollarization and Money Laundering

Ecuador’s dollarized economy, adopted in 2000, has contributed to the ease of money laundering. With around 88% of global foreign exchange transactions involving the US dollar, ill-gotten funds from drug trafficking and other illegal activities can move freely into Ecuador without needing conversion. Furthermore, regulatory gaps within the country’s financial system have allowed criminal groups to exploit these loopholes. For instance, an estimated $3.5 billion was laundered through Ecuador’s financial institutions in 2021, according to CELAG.

Structural Obstacles and Money Laundering

Institutional limitations hinder Ecuador’s efforts to tackle money laundering:

1. Lack of formal mechanisms for investigating money laundering cases
2. Limited resources and expertise within the judiciary
3. Consequently, the nation’s banking system is a highly attractive target for money launderers
4. Approximately 62.6% of suspicious transaction reports between 2014 and 2018 originated from the banking sector.
5. With no effective collaboration between financial authorities and the judiciary, criminal organizations can perpetuate the money laundering problem by exploiting these vulnerabilities.

In conclusion, Ecuador faces a significant money laundering challenge due to its location in the heart of drug trafficking regions, dollarized economy, and structural obstacles within its financial and justice systems. Addressing these issues will require a multi-pronged approach that includes strengthening regulatory frameworks and improving inter-agency collaboration.