Ecuador Grapples with Widespread Money Laundering, Drug Trafficking
Introduction
A recent study by the Ecuadorian Observatory of Organized Crime has revealed that money laundering is the second most prevalent criminal economy in Ecuador, following drug trafficking. The research highlights the challenges faced by authorities in tackling this issue, including the use of the US dollar, a booming drug market, and underlying structural issues.
Money Laundering Hotspots
According to the study, 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, including:
- Real estate transactions
- Cash-intensive businesses (e.g. bars, restaurants)
- Online transactions
The Role of Drug Trafficking
The Latin American Financial Action Task Force has identified large-scale drug trafficking as the main driver of money laundering in Ecuador. The country’s strategic location between Colombia and Peru makes it a significant transshipment point for cocaine, with over 80% of drugs seized in Latin America coming through Ecuador in 2022.
Consequences of Money Laundering
Ecuador’s booming illicit drug trade has led to an increase in capital flows, strengthening local criminal organizations and fueling violence. With many criminal groups turning to foreign organizations to launder their proceeds, the country is seeing a rise in money laundering schemes.
The US Dollar Connection
The use of the US dollar, which was adopted by Ecuador in 2000, has facilitated the movement of dirty money. The global dominance of the dollar allows for easy conversion of drug trafficking profits into clean cash, making it easier for criminals to launder their assets.
Banking System Vulnerabilities
Ecuador’s banking system is also vulnerable to money laundering due to a lack of formal mechanisms to investigate cases and limited human and technological resources. A recent estimate by the Latin American Strategic Center for Geopolitics found that around $3.5 billion was laundered through Ecuador’s financial system in 2021, nearly three times the amount moved annually between 2007 and 2016.
Judiciary Challenges
Ecuador’s judiciary also lacks knowledge of money laundering, making it difficult to effectively pursue criminals. As a result, criminal groups have identified loopholes in the banking system and are taking advantage of them to launder their proceeds.
Combating Money Laundering
In order to combat money laundering, authorities must address these structural issues and work to strengthen financial institutions and law enforcement agencies. The use of alternative currencies, such as cryptocurrencies, also presents an opportunity for criminals to evade detection, highlighting the need for continued vigilance in the fight against financial crime.
Conclusion
Ecuador’s struggle with money laundering is a complex issue that requires a multi-faceted approach to address. By strengthening financial institutions and law enforcement agencies, and working to close loopholes in the banking system, authorities can help to combat this widespread problem and protect the country’s economy.