El Salvador’s Money Laundering Challenges: Bitcoin, Political Interference, and Chinese Investment
El Salvador, a small Central American nation, finds itself at the intersection of digital currency innovation and money laundering risks. In this article, we examine El Salvador’s key money laundering challenges and how organizations must navigate these risks when conducting business in this jurisdiction.
Understanding El Salvador’s Money Laundering Landscape
With global efforts to combat money laundering continuing, businesses must be aware of the distinctive risks and regulations in various regions. In this section, we delve into El Salvador’s money laundering landscape and explore the challenges that organizations may face when assessing customer, geographic, or matter risk.
- Download our free compliance guide for a more comprehensive understanding of the key AML risks and challenges in Latin America and the Caribbean.
Key Challenges in El Salvador
1. Dollar economy and Cryptocurrency
El Salvador’s use of the US dollar as its primary currency, combined with Bitcoin, presents unique challenges for anti-money laundering (AML) controls. The ease with which foreign cash can be considered legal tender raises concerns related to bulk cash smuggling and money laundering. The government’s recent decision to declare Bitcoin legal tender adds another layer of complexity and risk due to price fluctuations and regulatory ambiguity.
Bullet points:
- El Salvador uses the US dollar and Bitcoin as legal tender.
- Bulk cash smuggling and money laundering concerns.
- Price fluctuations and regulatory ambiguity surrounding Bitcoin.
2. Chinese influence
Significant Chinese investment, primarily in construction and trade, has contributed to increased money laundering risks. El Salvador’s vulnerabilities for layering have amplified due to this influx of foreign capital.
Bullet points:
- Chinese investment in construction and trade.
- Amplified layering risks due to foreign capital influx.
3. Political interference
Despite the Bukele administration’s anti-corruption rhetoric, concerns over political involvement in the country’s financial sector have arisen. The government’s decisions to terminate cooperation with the Organization of American States anti-corruption body and prevent banks from closing accounts of individuals under investigation have raised red flags among international regulators.
Bullet points:
- Political involvement in El Salvador’s financial sector.
- Termination of cooperation with anti-corruption body.
- Prevention of account closures for individuals under investigation.
4. Extortion
El Salvador continues to grapple with gang violence and extortion, accounting for approximately 3% of the country’s GDP. These illicit activities pose significant challenges for businesses operating in the region.
Bullet points:
- Gang violence and extortion.
- Approximately 3% of GDP affected by illicit activities.
5. AML enforcement and legislation concerns
The Financial Action Task Force (FATF) has identified weaknesses in El Salvador’s AML framework, including the country’s weak implementation of AML laws and rampant political impunity. If these concerns are not addressed, El Salvador could face grey or even blacklisting.
Bullet points:
- Weak implementation of AML laws.
- Rampant political impunity.
- Potential for grey or blacklisting.
An estimated $378 million to $946 million is laundered each year in El Salvador. Organizations must navigate these risks and understand the relevant compliance landscape when conducting operations in this region.
El Salvador’s Key Money Laundering Laws
El Salvador’s key money laundering laws include:
- Law on Money and Asset Laundering
- Special Law Against Acts of Terrorism
- Banking Law
- Law on Citizen Participation
- Law on Access to Public Information
- Bitcoin Law
Understanding the AML Challenges and Risks in Latin America and the Caribbean
For businesses planning to operate in Latin America and the Caribbean, it is crucial to have a deep understanding of the unique AML challenges and risks presented by each country. Download our free guide provides an overview of these challenges and assesses country-by-country AML risks and laws to support your business in mitigating risks and maintaining compliance.