Financial Crime World

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Money Laundering Thrives in Ecuador, Despite Efforts to Combat Crime

Ecuador’s efforts to combat money laundering are being hindered by a number of factors, despite being considered one of the most vulnerable countries in the region. According to a recent study by the Ecuadorian Observatory of Organized Crime (OECO), money laundering is the second most prevalent criminal economy in Ecuador, behind only drug trafficking.

Concentrated Industries

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

These industries are frequently used by money launderers to conceal their illicit proceeds.

Drug Trafficking’s Role

Ecuador’s role as a drug transit country has played a significant role in fueling the growth of money laundering. The country is sandwiched between Colombia and Peru, two of the world’s largest coca- growing nations, making it an important stopover for cocaine produced in these countries.

The booming illicit drug trade has led to a significant increase in capital flows, which has helped strengthen local criminal organizations. This has also increased the need for local criminal groups to launder their illicit proceeds, with many turning to foreign criminal organizations.

The US Dollar’s Impact

Ecuador’s use of the US dollar as its official currency since 2000 has facilitated money laundering. Around 88% of global foreign exchange transactions in April 2022 involved the dollar, making it an attractive currency for criminals.

“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.”

Structural Obstacles

Ecuador’s ability to successfully pursue money launderers is restricted by several structural obstacles, including:

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

These obstacles have made Ecuador’s banking system particularly susceptible to money laundering.

Banking System Vulnerabilities

The Latin American Strategic Center for Geopolitics 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.

  • 85.2% of suspicious transaction reports between 2014 and 2018 were linked to the financial sector
  • 62.6% of these transactions took place in the banking sector

“This suggests that criminal groups have identified loopholes in the banking system and have taken advantage of them to launder their proceeds,” said an OECO investigator. “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.”