Financial Crime World

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Risk-Based Approach to Anti-Money Laundering in El Salvador: New Report Analyzes Virtual Assets Ecosystem

A new joint publication by Global Financial Integrity (GFI) and the Cyrus R. Vance Center for International Justice (Vance Center) sheds light on the legal framework for virtual assets in El Salvador, assessing financial crime risks and making key recommendations to policymakers.

Background

The report comes at a critical juncture as El Salvador prepares for its mutual evaluation by the Latin American Financial Action Group (GAFILAT), which will assess the country’s measures to combat money laundering and the financing of terrorism. The evaluation is set against the backdrop of El Salvador’s adoption of Bitcoin as legal tender in 2021, making it the first country in the world to do so.

The Report

The report, titled “The Virtual Assets Ecosystem in El Salvador: Strengthening Financial Integrity and Transparency,” aims to help El Salvador leverage the benefits of technological innovation while mitigating risks. Through a balanced analysis, the authors identify areas that require regulation, including the need for more transparency in the virtual asset sector.

Key Findings

  • The report is divided into two parts: the first half analyzes El Salvador’s current regulatory landscape, and the second half assesses financial crime risks related to virtual assets in El Salvador from an anti-money laundering (AML) and countering the financing of terrorism (CFT) perspective.
  • The authors analyze financial crime risks for common predicate offenses such as drug trafficking, extortion, migrant smuggling, and misappropriation of public funds.

Recommendations

The report concludes with key recommendations to policymakers in El Salvador:

1. Adopt Reforms Strengthening AML/CFT Measures

  • Ensure robust oversight over virtual assets and service providers.
  • Engage with the legal and business community in developing regulations and technical standards.

2. Enhance Transparency and Access to Public Information

  • Ensure transparency and access to public information on contractual and operational processes, fraud and mismanagement investigations, and the use of public funds.

3. Increase Supervision Over Virtual Asset ATMs

  • Increased supervision over virtual asset ATMs, especially those operating in high-risk jurisdictions.
  • Education and training opportunities for the financial sector on identifying red flag indicators in crypto transactions.