Money Laundering in Ecuador: The Unintended Consequences of Dollarization
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Ecuador’s decision to adopt the US dollar as its official currency has had an unintended consequence - it has turned the country into a prime destination for money laundering. Despite being aimed at stabilizing the economy and attracting investment, this move has created ideal conditions for large-scale laundering operations.
A Perfect Storm of Conditions
- The lack of restrictions on currency exchange after dollarization in 2000 has led to an influx of dirty cash into Ecuador.
- Layers of shell companies mask financial transfers, making it difficult to track the source of funds.
- Weak reporting rules and enforcement provide a prime environment for laundering networks to thrive.
The Extent of Money Laundering
Experts estimate that laundered funds now account for between 2.5% to 6.3% of Ecuador’s GDP. This translates to up to $6.30 of every $100 in the country being laundered money.
Common Techniques Used
- Buying goods and services from “ghost” companies used to justify transfers, which are merely phantom entities used to confuse authorities and obscure the source of funds.
- Smuggling dollars into Ecuador through airports and seaports by foreign individuals, predominantly men.
A Cautionary Lesson
Ecuador’s experience serves as a cautionary lesson for nations considering dollarization. While stable currency and investment may benefit law-abiding industries, lax regulation and enforcement can allow criminal groups to hijack the system.
The Need for Global Cooperation
Reining in laundering remains difficult despite some regulations. Forensic accounting is used to identify suspect transactions. Global cooperation is needed to choke off flows of illicit cash and stem the profound public impacts.
Ecuador’s Crisis: A Microcosm of Global Drug Policy Failures
Ecuador’s crisis presents a microcosm of the costly failures of global drug policy after decades of fighting supply and cartels. With trafficking and violence spreading worldwide, Ecuadorians are going to the polls both scared and hopeful for a new approach.
The Role of Cartel Violence
The country’s crisis is attributed to its role as a cocaine transit point, resulting directly from successes elsewhere. As Colombia cracked down on cartels in the 1990s, routes shifted west, and Ecuador provides a natural corridor due to its location between Colombia and Peru.
Corruption and Gangs
The government has been accused of having been infiltrated at all levels, including the police, courts, and politics. Albanian mafia cells have been reported in the country, and the Choneros gang, an offshoot of Los Lobos, has been linked to the assassination of presidential candidate Fernando Villavicencio.
Violence Surges Along Ecuador’s Coast
Violence has surged along Ecuador’s coast, where criminal factions are locked in fierce turf-battles for supremacy in the cocaine trade. The country’s crisis presents a stark reality, where billions in profits need laundering, while homegrown gangs now battle for control.