moneylaundering Alley: Guatemala’s Dark Reputation as a Money Laundering Haven

By Emma Hernandez

Guatemala’s Unwelcome Reputation

Guatemala, with a modest annual GDP of $30 billion and tax income ranging between 6 and 10 percent, has an unwelcome reputation as a prime destination for money laundering. This is due to its historically lax regulatory structure and its role as a sanctuary for drug cartels and organized crime in the region.

Scale of Tax Evasion and Avoidance

Despite the country’s relatively small economy, tax evasion accounts for an estimated 2 percent of Guatemala’s GDP, almost double the percentage of other countries in the region. Add another 2 percent for tax avoidance.

Criminal Organizations and Shell Companies

Guatemala’s lenient stance towards corruption and lack of accountability for the wealthy fuel this issue. During the 1980s and 1990s, criminal organizations needed shell companies to launder the funds derived from their illicit activities.

“Gray Country” Status

In 2010, the Organization for Economic Co-operation and Development (OECD) included Guatemala in the list of “gray countries,” which haven’t signed international agreements sharing financial information related to money laundering and tax evasion. France also added Guatemala to its list of 18 tax havens.

Sources of Money Laundering

Money laundering in Guatemala stems from three primary sources: traditional capital, licit emerging capital, and illicit emerging capital.

Traditional Capital

Originated from indigo production during the colonial era and diversified into coffee, sugar, bananas, concrete, and beer at the start of the 20th century. Today, it includes textile production, banking, and multinational corporations.

Licit Emerging Capital

Comes from commercial, industrial, infrastructure, and other business-related state transactions, especially since the democratic transition in 1986.

Illicit Emerging Capital

The most profitable industry is drug trafficking, but its influence extends beyond that. Human trafficking, auto theft, arms and weapons trafficking, and the smuggling of cultural and natural resources and products through Mexico, Honduras, and Belize are among the top illicit activities in the region.

The Impact of Money Laundering

All of them launder money, generally independently from each other. Traditional and licit emerging capital profits from exemptions and the lack of law enforcement in tax matters or through state contracts. Illicit emerging capital requires the state to be under its service.

The Shift in Money Laundering Routes

The “balloon theory” has also been applied to money laundering in Guatemala. Initially, cocaine shipments were transported directly into the United States via the Caribbean, but once law enforcement cracked down on this route, cartels shifted their money laundering activities to other markets, leading to the creation of tax havens in the Caribbean, Mexico, Central America, and Panama.

Violence and Corruption

Money laundering involves acts of violence, increasing the corruption and violence in countries like Guatemala. In 2009, there were 6,000 recorded murders in the country, making it a deadly environment for the estimated 400 tons of cocaine transported annually through a territory as large as Florida.

Fighting Money Laundering in Guatemala

The International Commission against Impunity in Guatemala (CICIG) is a UN-backed hybrid body formed in 2007 to dismantle organized crime networks within the security and judicial system. Its work has led to the imprisonment of a former president, generals, colonels, and elite businessmen.

Challenges Ahead

Despite progress, there are still challenges ahead, as the fight against money laundering involves complex and paradigmatic cases. In 2010, two critical laws were debated – the forfeiture law, which would allow authorities to confiscate properties when owners cannot prove their legal origin, and the law intended to fulfill the country’s three commitments to the recommendations against money laundering from the OECD.

Political Resistance and Lobbying

The political elite and regional caciques vehemently opposed these bills, claiming their property and personal security might be threatened by these laws. Experts say the regulations should not scare anyone who did not come into their property via money laundering, tax evasion, or corruption.

The Road Ahead

Political bargaining and lobbying efforts to promote change are just beginning. The actions are an essential condition for the fight against money laundering, which could become a revolution in Guatemala.