Financial Crime World

Ecuador’s Financial Crime Hotspot: Money Laundering Thrives Amidst Drug Trafficking, Dollarization, and Structural Issues

A new study by the Ecuadorian Observatory of Organized Crime (OECO) has revealed that money laundering is the second most prevalent criminal economy in Ecuador, following drug trafficking. The country’s use of the US dollar, booming drug market, and underlying structural issues are all contributing to this problem.

Money Laundering Hotspots

The study found that money laundering is heavily concentrated in industries that have historically facilitated the appearance of legality, such as:

  • Real estate
  • Secondhand car sales
  • Construction
  • Online gambling

These industries are often used by money launderers due to their ability to conceal illegal activities.

Role of Drug Trafficking

Ecuador’s role as a drug transit country is a major driver of money laundering. The country’s proximity to Colombia and Peru, the world’s two largest coca-producing countries, makes it an attractive location for drug traffickers. In 2022, Ecuador seized the second-highest volume of drugs in Latin America, leading to a significant increase in capital flows and strengthening local criminal organizations.

Use of US Dollar Facilitates Money Laundering

The global dominance of the US dollar allows drug traffickers to launder their profits without the need for conversion, making it easier than in neighboring Colombia. This makes Ecuador’s financial system particularly susceptible to money laundering.

Banking System Vulnerabilities

Ecuador’s banking system is vulnerable to money laundering due to:

  • Lack of formal mechanisms to investigate money laundering cases
  • Limited human and technological resources
  • Lack of knowledge of money laundering within the judiciary

The country’s financial system has been estimated to have laundered around $3.5 billion in 2021, nearly three times the annual amount moved between 2007 and 2016.

Challenges in Investigating Money Laundering

The OECO researcher stated that although the banking authorities raise alerts for suspicious operations, these do not end up in any type of investigation by the prosecutor’s office. This is due to a lack of articulation between the justice system and administrative units that raise alerts.

Conclusion

Ecuador’s struggle to combat money laundering highlights the need for a comprehensive approach that addresses both structural issues and criminal organizations involved. The country must work to:

  • Strengthen its financial institutions
  • Improve cooperation between law enforcement agencies
  • Increase public awareness of the dangers of money laundering

Only by addressing these issues can Ecuador effectively combat money laundering and protect its financial system from criminal activity.