Guatemala: A Haven for Money Laundering and Tax Evasion in Central America

By: Martín Rodríguez Pellecer

Guatemala, a country in Central America, has emerged as a popular destination for money laundering and tax evasion. Economists and analysts note that this illicit activity is driven by two primary reasons: the historically lax regulatory structure and Guatemala’s role as a haven for drug cartels and organized crime in the region.

Reasons for Money Laundering and Tax Evasion in Guatemala

Lax Regulatory Structure

Between 2009 and 2010, court cases resulted in fewer than two dozen convictions, mostly against low-level money mules carrying large sums of cash at La Aurora International Airport. Guatemala’s tolerance of corruption further attracts dirty money from Mexican and Central American narco-traffickers.

Historical Requirement for Capital Flight

Since the late 19th century, Guatemala’s agro-export industry has necessitated a system of capital flight. From 1945 to 2010, the country’s annual GDP has remained around US$30 billion, while tax income has fluctuated between 6 and 10 percent. Tax evasion accounts for an estimated 2 percent of the GDP, or almost double the amount in other countries in the region.

Modernization of Guatemala’s Financial System

The liberalization of the financial system in the 1980s and 1990s and the subsequent drug boom in the hemisphere led to the modernization of Guatemala’s financial legal system. At the same time, illicit smuggling structures were transformed into other illegal trafficking operations involving drugs, weapons, and human trafficking. These criminal organizations needed shell companies to launder their ill-gotten gains.

Guatemala as a “Gray Country”

In 2010, the Organization for Economic Co-operation and Development (OECD) and France listed Guatemala as a “gray country” for its lack of international agreements to share financial information related to money laundering and tax evasion.

Sources of Wealth in Guatemala

Capital in Guatemala comes from three primary sources:

1. Traditional Wealth: Originated from indigo production during the colonial period and later diversified into coffee, sugar, bananas, concrete, and beer. Modern traditional wealth encompasses fortunes ranging from agro-export to global finance.
2. Licit Emerging Wealth: Comes from commercial, industrial, infrastructure, and other businesses related to the state. During the democratic transition (1986-2010), many businessmen and politicians formed political entrepreneurships.
3. Illicit Emerging Wealth: 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.

Political Entrepreneurs and the Traditional Elite

According to economist and political analyst Fernando Carrera, “Political entrepreneurs can be assimilated by the traditional elite through marriages or economic success. However, the illicit entrepreneurs are rejected by the traditional elite and fight violently to gain acceptance.”

Shift in Narcotrafficking and Money Laundering

As part of the “balloon theory,” narcotrafficking shifted from the Caribbean to the Mexican-Central American corridor when the U.S. intensified its efforts to stop drug flights and ships directly to the U.S. Money laundering followed a similar path.

Growing Violence and Corruption

Guatemala has seen growing violence and corruption due to the approximately 400 tons of cocaine transported through its territory each year, with a population of 14 million. The country suffered from a three-decade civil war, which ended in 1996, resulting in 200,000 deaths and 50,000 disappearances.

Fight Against Money Laundering and Corruption

The International Commission against Impunity in Guatemala (CICIG) is working to dismantle organized crime networks within the security and judicial system. The hybrid body, backed by the United Nations, has led to the imprisonment of high-profile individuals, including a former president, generals, colonels, and elite businessmen. However, Francisco Dall’Anese, the current head of CICIG, warns that the Mexican cartels are moving their investments and money-laundering centers to the region, posing a significant threat to Central America.

Challenges in Combating Money Laundering and Corruption

Guatemala has had a strong anti-laundering law since 2001. The Financial Intelligence Unit (IVE) has created one of the best networks for analysis and prevention in the region. However, it faces challenges in terms of capacity and information sharing between criminal investigators and public prosecutors.

The Road Ahead

Guatemala’s journey to combat money laundering and corruption is a long one, and the road ahead will not be easy. The forfeiture law, which allows authorities to confiscate properties when owners cannot prove their legal origin, and the law to fulfill the country’s three commitments to the OECD’s recommendations against money laundering faced strong opposition from economic elites and regional political leaders. However, experts and respected politicians are working to promote change, which they believe could revolutionize Guatemala’s future.