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Corruption and crypto test Latin American money laundering laws
Latin American and Caribbean countries face many obstacles to effectively combating money laundering, even though the region ranks above the global average in terms of adoption of legal frameworks, according to a new report.
The 2023 editing of the Anti-Money Laundering Index produced annually by the Basel Institute on Governance highlighted how billions of dollars from Latin America and the Caribbean criminal economies have transformed the region into a money laundering hub where criminal groups turn their ill-gotten earnings into usable assets.
Haiti and Venezuela were once again the worst performers on the index in the region. Haiti tops the global risk rankings, with the index criticizing the country’s weak legal frameworks and high levels of Corruption. Venezuela, however, is doing slightly better deep-rooted corruption under the presidency of Nicolas Maduro, its score fell.
Suriname, which was not previously included in the report, ranks 16th most at risk jurisdiction in the world and third in the region. The country is hampered by the lack of corporate transparency and the strong presence of transnational companies. drug trafficking groups.
The index ranks countries on a scale of 0 to 10 based on their vulnerability to money laundering and terrorist financing, with 10 corresponding to the highest risk. A country’s scores are determined by 18 indicators divided into five categories: the quality of a country’s legal frameworks, the risk of corruption and bribery, transparency and financial standards, transparency and accountability public, and legal and political risks.
The quality of legal frameworks represents 65% of the total score. Overall, countries in the region performed well in this category with an average score of 5.52, slightly lower than the global average of 5.62. However, in all other categories, the region’s average score exceeds the global average.
Below, InSight Crime presents three key points from the Basel Index to explain what it reveals about Latin America and the Caribbean’s anti-money laundering capacity.
Corruption and money laundering closely linked
Corruption and money laundering are closely linked in Latin America and the Caribbean, the report highlights, with widespread corruption generating high risks despite adequate legal frameworks.
Corruption and bribery risks increased in the region in 2023, the report said, with countries scoring an average of 5.42 for this indicator, well above the global average of 5.02.
This score reflects previous InSight Crime coverage, which highlighted the impact of anti-corruption efforts. blocked in the region in recent years, as governments are unwilling or unable to address the long-standing impact of criminal groups on politics.
In 2023, for example, Paraguay elected Santiago Peña as president, an establishment candidate with strong ties to criminal actors. Colombia, a country with historic links between politicians and drug traffickers, has once again been devastated scandal when President Gustavo Petro’s son admitted to receiving money from criminals intended for his father’s campaign.
Like other criminal economies, corruption and bribery generate illicit revenue for public officials that must be laundered. This places additional pressure on governments’ anti-money laundering capabilities, which are already hampered by lack of resources and inadequate coordination between law enforcement agencies, according to Julia Yansura, director environmental crime and illicit financing within Financial Accountability and Corporate Transparency (FACT). ) Coalition.
“There is an unfortunate trend in the region where the laws are really good on paper, but they are not fully put into practice,” she told InSight Crime.
Corruption can also directly hinder money laundering investigations. In Honduras, lawmakers amended an anti-money laundering law in 2022 to make it harder to prosecute launderers. The reform absolved some politicians, leading to strong suggestions of corruption. In Guatemala, corrupt officials armed anti-money laundering laws to attack political opponents, thereby harming investigations of criminals.
Risk versus reality
Although the index ranks countries based on their vulnerability to money laundering, it does not measure the actual amount of money laundering in a given country.
For example, Haiti, the worst-performing country on the index, is not a major money laundering hub. Instability, a shaky economy and a weak currency, all fueled by a gang conflictchase away foreign launderers, Yansura said.
“The criminals’ preference is to move these funds to a large economy with a strong currency,” she explained, citing the example of Panama, long a country of money laundering. hub because of its dollarized economy and its central place in international trade.
The European Union and the G7 Financial Action Task Force (FATF) have often pressured small Caribbean island nations to improve their anti-money laundering standards. Out of 27 jurisdictions in Latin America and the Caribbean with complete Basel Index data, many Caribbean island countries rank near the top in the region in terms of money laundering risk. Saint Kitts and Nevis was considered the fifth highest risk, the Bahamas ninth and Barbados 11th.
SEE ALSO: 3 factors that make Ecuador a money laundering hub
But large, low-risk countries may face greater total money laundering than small, high-risk islands.
In Ecuador, where the risk of money laundering is relatively low (19th in the region), a recent wave money laundering has been accompanied by an increase cocaine trafficking. An estimated $3.5 billion – the equivalent of around 75% of Barbados’ total GDP – was laundered through Ecuador’s financial system in 2021, according to the Latin American Strategic Center for Geopolitics (Centro Estratégico Latinoamericano de Geopolitics).
In Uruguay, the region’s least risky jurisdiction according to the index, cases of money laundering linked to drug trafficking doubled between 2018 and 2022, and experts have warned that legal loopholes and limited law enforcement capabilities have attracted money launderers to the country’s financial system.
Cryptocurrencies and money laundering
THE increase The use of cryptocurrencies in Latin America, where most countries have weak regulatory systems, poses money laundering risks. Many crypto wallets are designed to be anonymous, making it difficult to track suspicious activity.
The rapid evolution of the crypto industry and weak regulation of the sector globally means countries need to “double down” on the use of cryptocurrencies for money laundering, states the report. But cryptocurrencies remain a minor method of money laundering in Latin America and the Caribbean.
The instability of cryptocurrencies means they are unlikely to become a major avenue for money laundering anytime soon, Kenneth Rijock, an independent financial crime expert, told InSight Crime.
“Cryptocurrencies are so volatile,” he said. “Even money launderers are afraid to use it because it may have value today and be worthless tomorrow. »
SEE ALSO: The digital Wild West: Latin America is not prepared for crypto-crime
Stricter regulations for crypto asset service providers and recent convictions involving crypto exchanges could also deter criminals. The Basel Index found that Latin America and the Caribbean’s compliance with FATF guidelines on virtual assets is almost comparable to Europe and much higher than other regions like South Asia and Africa.
Increased monitoring and reporting requirements for crypto exchanges will make a difference, but they will take time to implement, said Marianne Richardson, research coordinator at IBI Consultants, a firm specializing in security issues in Latin America .
“Many people, including governments, still don’t know how it works,” she told InSight Crime in May last year.