Ecuador: Dollarization Turns Country into Narcostate
The adoption of the US dollar as Ecuador’s official currency in 2000 has inadvertently turned the country into a hotbed of money laundering, experts warn.
The Perfect Storm for Money Laundering
The removal of restrictions on currency exchange opened the floodgates to dirty cash entering the country, creating an ideal environment for large-scale laundering operations. According to Ecuadorian analyst Raul Portero, the country’s lax oversight and weak reporting rules have enabled sophisticated networks to thrive.
- “Suitcases of cash” are being smuggled into the country via porous borders.
- Front businesses and shell companies are used to mask financial transfers.
The Devastating Consequences
The government estimates that up to 6.3% of Ecuador’s GDP is laundered money, with most cases involving foreign individuals smuggling dollars into the country through airports and seaports. This has created a culture of corruption, with criminal networks infiltrating all levels of society, including law enforcement and politics.
- Violence has surged along the coast, where criminal factions are battling for control of the cocaine trade.
- Local gangs have formed alliances with powerful foreign syndicates, including Mexican cartels, Brazilian urban gangs, and La Cosa Nostra.
A Cautionary Tale
The crisis in Ecuador serves as a cautionary tale for nations considering dollarization. Portero warns that lax regulation and enforcement can allow criminal groups to hijack the system, with deadly consequences for citizens.
- Argentina, the second-largest South American economy, is currently considering dollarization.
- The US Drug Enforcement Administration has named Ecuador “one of the most frequented trafficking routes,” with billions in profits needing laundering.
Political Fallout
As Ecuador’s presidential election approaches, candidates are warning of the country’s descent into a “narco-state.” Some accuse outgoing President Guillermo Lasso of dismantling the system put in place by former president Rafael Correa. Others blame Correa for enabling the cartel takeover through corruption and authoritarianism.
- Portero warns that only a sliver of illicit flows gets detected, much less deterred.
- The situation is dire, with billions of dollars in profits needing laundering.
The consequences of Ecuador’s dollarization are devastating, serving as a stark reminder of the importance of effective regulation and enforcement. As nations consider similar measures, they would do well to heed this cautionary tale.