Financial Crime World

EL SALVADOR AT RISK: FAILURE TO COMBAT MONEY LAUNDERING COULD LEAD TO GREY LISTING BY FATF

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Background

El Salvador, a small Central American country with a growing economy, is facing mounting pressure to strengthen its anti-money laundering (AML) regime. The Financial Action Task Force (FATF), an intergovernmental organization that sets global standards for combating money laundering and terrorist financing, has warned the country that it risks being grey listed if it fails to demonstrate significant progress in this area.

Challenges Faced by El Salvador

  • Corruption and Money Laundering: El Salvador has a reputation for corruption and money laundering, with estimates suggesting that between $378 million and $946 million is laundered annually.
  • Use of Bitcoin as Legal Tender: The Bukele administration’s decision to make Bitcoin legal tender has raised regulatory concerns, while the influence of Chinese investment has driven key corruption and money laundering risks.
  • Regulatory Challenges: Financial institutions in El Salvador face challenges with financial stability due to the dramatic fluctuations in the value of Bitcoin.

Failure to Strengthen AML Regime

Despite these challenges, El Salvador’s AML regime remains weak, with a lack of political will to implement necessary reforms. The government has terminated cooperation with the Organization of American States’ anti-corruption body and prohibited banks from closing accounts of people being investigated for financial crimes.

Consequences of Failure

The US has banned dozens of El Salvadorians from entering the country due to corruption allegations, including several senior members of President Bukele’s administration. The FATF’s warning is clear: if El Salvador fails to demonstrate significant progress in combating money laundering, it risks being grey listed and eventually blacklisted by the international community.

Proposed Measures to Strengthen AML Regime

To address these concerns, El Salvador must take concrete steps to strengthen its AML regime. This includes:

  • Implementing Rapid Updates to Laws and Regulations
  • Improving Transparency around Beneficial Ownership
  • Increasing Cooperation with International Partners
  • Enhancing Know-Your-Customer (KYC) Procedures for Financial Institutions

Conclusion

El Salvador is at risk of being grey listed by the FATF due to its failure to combat money laundering. The country must take concrete steps to strengthen its AML regime and demonstrate its commitment to combating corruption and financial crime.