Ecuador’s Anti-Money Laundering Efforts Hampered by US Dollar, Drug Trade, Structural Issues
Quito - A recent study has revealed that money laundering is the second-most prevalent criminal economy in Ecuador, with efforts to combat the crime hindered by the country’s use of the US dollar, a booming drug market, and underlying structural issues.
Money Laundering Hotspots
According to the Ecuadorian Observatory of Organized Crime (Observatorio Ecuatoriano de Crimen Organizado - OECO), money laundering is heavily concentrated around industries that have historically facilitated the appearance of legality, such as:
- Real estate
- Secondhand car sales
Certain economic activities, including:
- Construction
- Online gambling
- Are frequently used by money launderers.
Main Driver of Money Laundering
The study found that large-scale drug trafficking is the main driver of money laundering in Ecuador. The country’s location as a drug transit point between Colombia and Peru has led to a significant increase in capital flows, which has helped strengthen local criminal organizations.
US Dollar Facilitates Money Laundering
Ecuador’s adoption of the US dollar in 2000 has also facilitated the movement of dirty money. Around 88% of global foreign exchange transactions in April 2022 involved the dollar, according to the Bank for International Settlements.
“The dollarized economy is what anchors all organized crime transactions, specifically as it relates to drug trafficking,” said an OECO researcher. “There is a representative inflow of cash dollars coming in from illicit drug trafficking transactions, and that is where the dollarized economy plays a crucial role for money laundering.”
Banking System Susceptible to Money Laundering
Ecuador’s banking system is particularly susceptible to money laundering due to:
- Institutional limitations, including:
- Lack of formal mechanisms to investigate money laundering cases
- Limited human and technological resources
- Lack of knowledge of money laundering within the judiciary
- Loopholes in the banking system that criminal groups have taken advantage of
Estimated Money Laundering Figures
The most recent estimate by the Latin American Strategic Center for Geopolitics (Centro Estratégico Latinoamericano de Geopolítica - CELAG) reported that around $3.5 billion was laundered through Ecuador’s financial system in 2021, nearly three times the $1.2 billion moved annually between 2007 and 2016.
“This suggests that criminal groups have identified loopholes in the banking system and have taken advantage of them to launder their proceeds,” said the OECO researcher. “Although the banking authorities have raised alerts in the face of suspicious operations, these do not end up in any type of investigation by the prosecutor’s office.”
Conclusion
The study highlights the need for Ecuador to strengthen its anti-money laundering regulations and institutions to effectively combat money laundering and drug trafficking.