Financial Crime World

Ecuador’s Financial Crime Prevention Strategies Hampered by US Dollar, Booming Drug Market, and Structural Issues

Money Laundering: The Second-Most Prevalent Criminal Economy in Ecuador

A recent study by the Observatory of Organized Crime (Observatorio Ecuatoriano de Crimen Organizado - OECO) has found that money laundering is the second-most prevalent criminal economy in Ecuador, behind only drug trafficking. The study was based on fieldwork and interviews with 116 state security officials.

Industry Concentration and Structural Issues

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

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

Certain economic activities are frequently used by money launderers. The country’s role as a drug transit country is also driving money laundering, with large-scale drug trafficking being the main driver of this crime.

US Dollar and Money Laundering

Ecuador’s use of the US dollar has facilitated money laundering. The global dominance of the dollar makes it easy for dirty money to move around the world.

  • Ecuador adopted the US dollar in 2000
  • This has allowed for the laundering of assets from illicit economies
  • Limited formal mechanisms to investigate money laundering cases and limited resources hinder efforts to combat money laundering

Structural Obstacles

A lack of:

  • Formal mechanisms to investigate money laundering cases
  • Human and technological resources
  • Knowledge of money laundering within the judiciary

restricts Ecuador’s ability to successfully pursue money launderers. This has led to a permeable banking system that is particularly susceptible to money laundering.

Consequences

According to the Latin American Financial Action Task Force (Grupo de Acción Financiera de Latinoamérica - GAFILAT), 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.

  • The majority of these transactions took place in the banking sector
  • Criminal groups have identified loopholes in the banking system and are taking advantage of them to launder their proceeds

Recommendations

Experts say that Ecuador needs to address underlying structural issues to effectively combat money laundering. Until then, efforts will likely be hindered.

Key Takeaways

  • Money laundering is a significant problem in Ecuador
  • The use of the US dollar has facilitated money laundering
  • Structural obstacles limit Ecuador’s ability to successfully pursue money launderers
  • Addressing these issues is crucial for effective anti-money laundering efforts