Guatemala Shifts Towards Risk-Based Approach to Financial Crime
Introduction
Guatemala has long been notorious for its lenient regulatory system, which has facilitated the flow of illicit funds and made it a regional haven for money laundering and organized crime. However, in an effort to tackle this issue, Guatemala is shifting towards a risk-based approach to financial crime.
Understanding the Challenges
Types of Capital
Guatemala’s capital can be categorized into three types:
- Traditional Capital: Historically based on indigo cultivation during the colonial era, evolving into coffee, sugar, and banana industries in the 19th century, and later diversifying into concrete and beer in the 20th century. Today, traditional wealth is concentrated in textile manufacturing, finance, and international enterprises.
- Licit Emergent Capital: This type of capital is based on emerging industries such as tourism, technology, and renewable energy.
- Illegal Emergent Capital: This type of capital is generated through illicit activities such as money laundering, drug trafficking, and human smuggling.
Money Laundering and Tax Evasion
The lack of stringent accountability requirements for Guatemala’s wealthiest individuals has perpetuated money laundering and tax evasion, with significant inflows of illicit funds entering the country. The low number of convictions in court trials between 2009 and 2010, primarily targeting low-level individuals carrying small amounts of cash through the La Aurora International Airport, underscores this issue.
Drug Trafficking
Guatemala has also assumed a strategic role in the drug trafficking pipeline, acting as a crucial transportation hub for cocaine trafficking originating in Colombia and passing through Central America and Mexico before entering the United States. Colombian and Mexican drug trafficking organizations often use Guatemala to acquire and distribute large quantities of cocaine, creating opportunities for local drug trafficking organizations to serve as intermediaries.
Addressing the Challenges
CICIG’s Role
The Foreign Commission Against Impunity in Guatemala (CICIG) has been instrumental in dismantling organized criminal networks and combating money laundering within Guatemala’s security and judicial systems. Established in 2007, CICIG has achieved remarkable success, including the prosecution of former presidents, high-ranking military officers, and wealthy business figures who were previously untouchable.
Proposed Legislative Measures
In response to these challenges, various legislative measures have been introduced aimed at modernizing anti-money laundering (AML) regulations and combating money laundering. The Act Against the Laundering of Money in 2001 and the Act to Prevent and Punish Terrorist Financing in 2005 are outdated, failing to address evolving methods and technologies used in these crimes.
Modernization Efforts
In November 2020, a bill was proposed in Congress to modernize and unify these laws, aligning them with international standards outlined in the Financial Action Task Force (FATF) Recommendations. The proposed bill aims to expand the definition of money laundering and terrorist financing, encompassing a broader range of offenses while also bringing digital wallet services and cryptocurrencies under regulatory oversight.
Conclusion
Guatemala’s shift towards a risk-based approach to financial crime is a crucial step in mitigating the challenges posed by money laundering and drug trafficking. By modernizing AML regulations and combating money laundering, Guatemala can reduce the flow of illicit funds and create a safer and more secure environment for its citizens.