Countries/Jurisdictions of Primary Concern - Ecuador
Ecuador is a major drug transit country. With a dollarized economy and geographic location between two major drug producing countries, Ecuador is highly vulnerable to money laundering. Corruption is a significant problem in Ecuador and facilitates money laundering. There is no reliable way to judge the magnitude of money laundering activity in the country because only major banks have active money laundering controls and a large number of transactions take place through loosely-regulated money exchange and financial cooperatives. There is evidence that money laundering occurs through trade and commercial activity, as well as through cash couriers. Large amounts of undeclared currency entering and leaving Ecuador indicate that transit of illicit cash is a significant activity.
Deficient financial supervision is an additional vulnerability for money laundering. Structuring (smurfing) is also a serious problem in Ecuador, especially along the northern border with Colombia where low-level criminals frequently cross the border into Ecuador to make deposits into financial institutions under the $10,000 threshold, thereby avoiding currency transaction reporting (CTR) requirements. Some observers note that money laundering is an important component in Ecuador’s financial sector and authorities lack the will to crack down on this activity.
Ecuador first appeared in the FATF’s Public Statement in June 2012. The FATF stated Ecuador was not making sufficient progress in addressing strategic AML/CFT deficiencies. The FATF’s October 24, 2014 Public Statement acknowledges Ecuador’s commitment to address strategic deficiencies in its AML/CFT regime, including the enactment of a new penal code and regulations that address AML/CFT issues. Nonetheless, the FATF noted that Ecuador has not made sufficient progress in implementing its action plan, and certain strategic deficiencies remain, including the lack of adequate procedures to identify and freeze terrorist assets and imprecise procedures for the confiscation of funds related to money laundering.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: http://www.state.gov/j/ct/rls/crt/
Do FINANCIAL INSTITUTIONs engage in currency transactions related to international narcotics trafficking that include significant amounts of US currency; currency derived from illegal sales in the U.S.; or illegal drug sales that otherwise significantly affect the U.S.: YES
criminalizATION OF money laundering:
“All serious crimes” approach or “list” approach to predicate crimes: All serious crimes
Are legal persons covered: criminally: YES civilly: YES
Know-your-customer (KYC) rules:
Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: YES
KYC covered entities: Savings banks, offshore banks, foreign and domestic private banks, credit information offices, currency exchanges, credit unions, foreign branches of financial institutions, mutual companies, public financial institutions, offices representing foreign banks, financial corporations and groups, credit card companies, insurance providers (including private insurance), cooperatives, trust and fund managers, money transfer companies, couriers, and brokerages
Number of STRs received and time frame: Not available
Number of CTRs received and time frame: Not available
STR covered entities: Banks, finance companies, credit unions, and mutual savings and loan societies; insurance and reinsurance companies; international bank branches subject to Ecuadorian financial sector supervision; stock exchanges and brokerage firms; fund administrators and trusts; cooperatives, foundations, and NGOs; sellers of vehicles, watercraft, and aircraft; money transfer and courier services, including operators, agents, and agencies; tourism agencies and operators; individuals and corporations dedicated to real estate investment, sales, and construction; casinos (now banned), gambling houses, bingo parlors, slot machines, and race tracks; pawnshops; dealers of jewels, metals, and precious stones; art and antiques dealers; notaries; property and mercantile registrars
money laundering criminal Prosecutions/convictions:
Prosecutions: Not available
Convictions: Not available
Records exchange mechanism:
With U.S.: MLAT: NO Other mechanism: YES
With other governments/jurisdictions: YES
Ecuador is a member of the Financial Action Task Force on Money Laundering in Latin America (GAFILAT), a FATF-style regional body. Its most recent mutual evaluation can be found at: http://gafilat.org.iplan-unix-03.toservers.com/content/biblioteca/
Enforcement and implementation issues and comments:
Key deficiencies in Ecuador’s AML/CFT regime and serious obstacles to successful prosecutions remain despite the enactment of Ecuador’s new penal code in August 2014. The new law is somewhat contradictory, stating that money laundering is an autonomous crime, yet placing the burden of proof on prosecutors to “investigate” the illicit origins of the money. In many cases, this unclear wording has led to confusion over the law’s proper interpretation.
The failure of the new code to specifically criminalize bulk cash smuggling means there is no significant deterrent for this serious issue – failure to declare at a port of entry is punishable only by a 30 percent administrative fine. Furthermore, the law only addresses cash/currency, omitting the smuggling of other financial instruments (bearer bonds, cashier’s checks, debit cards, gold, etc.). Authorities can pursue money laundering charges against bulk cash smugglers, but convictions are nearly impossible to obtain in these cases as bulk cash smuggling is considered a “flagrant” crime and authorities are only given 30 days to investigate (in other money laundering cases they are given 90 days to investigate once an arrest is made). In some cases, the authorities are required to advise a suspect that s/he is under investigation, which often results in key evidence disappearing. Police and prosecutors also lack the resources to carry out thorough investigations. Statistics on money laundering prosecutions and convictions are not available, but anecdotal evidence suggests prosecution and conviction numbers are in the single digits.
Ecuadorian authorities have noted trade mechanisms may be used for laundering activities. In August, media outlets reported the Attorney General saying the government had uncovered more than $130 million in suspicious exports to Venezuela using the Sistema Uniario de Compensacion Regional (SUCRE) trade credit system. Thus far, the government has seized $57 million related to these transactions.
The new penal code criminalizes terrorist financing in Article 367 whereas previous legislation did not list terrorist financing as a specific crime. Nonetheless, the new law fails to comply fully with international standards on the freezing of terrorist assets, although Article 69 of the new penal code addresses the freezing of assets in felony criminal cases, including terrorist financing.
The Superintendence of Banks and Insurance and the Superintendence of Companies provide regulatory oversight of banks and most other institutions that are required to report financial transactions, but financial cooperatives fall under the Superintendence of the Popular and Solidarity Economy. Financial sector experts note that a lack of adequate oversight in this area facilitates money laundering through the cooperatives.
In 2014, Ecuador demonstrated some commitment to combat financial crimes by enacting its new penal code and working to resolve outstanding deficiencies. The government should follow through on its commitment to take all necessary steps to comply fully with international AML/CFT standards. Ecuador should work to enforce the AML/CFT provisions contained in the new penal code. This would help ensure that its AML/CFT legislation and implementing regulations adhere to international standards, particularly with regard to the freezing of terrorist assets. In order to secure money laundering convictions, Ecuador should reform its law to criminalize bulk cash smuggling, give prosecutors additional time to investigate cases, and allow for investigation without notifying a suspect that s/he is under investigation. Rooting out money laundering and related government and private sector corruption will require commitment by the government. Ecuador should require its financial intelligence unit to provide STR/CTR statistics publicly and ensure it has the resources needed to deter money laundering in Ecuador. The government should make a dedicated effort to train judges, prosecutors, and investigators so they understand completely the country’s applicable AML/CFT legislation and regulations.