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| Anti-money
laundering: Latin America |
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The creation, movement
and spending of illegal money represents a greater challenge
for bankers in Latin and South America than possibly anywhere
in the world. The three-fold problem of pervasive illegal drugs
production and selling, political corruption and poorly resourced
regulatory and criminal systems has ensured that money laundering
continues to cast a shadow's over the region's reputation for
financial probity.
The gravity of the problem
is highlighted by a paper recently written by Alberto Chong,
an executive at the Inter-American Development Bank. He wrote,
'Money laundering in the region appears to be quite pervasive,
quite possibly the highest in the world. In fact, overall,
rough estimates of money laundering in the region show it to
be somewhere between 2.5 and 6.3 percent of the regional gross
domestic product.' That may even underestimate the problem,
say some observers, noting that global money laundering may
be as high as ten percent of GDP in the most severely corrupt
economies.
That said, Latin American
countries have beefed up their anti-money laundering to bring
them in line with the requirements of the Financial Action
Task Force. This Paris-based organisation lays down anti-money
laundering protocols for national laws. All countries in the
region now criminalize laundering of drug proceeds and most
have widened the remit of their laws to embrace terrorist finance
and other serious criminality. For example, Guatemala, once
considered a laggard, has adopted best practice, and been removed
from the FATF's blacklist of poorly-compliant countries.
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| Colombia's stance best
demonstrates the role an anti-money laundering strategy can
play in tackling a drug economy. Kristian Hoelge, the Bogota-based
Regional Legal Advisor for the Legal Assistance Programme in
Latin America and the Caribbean, United Nations Office on Drugs
and Crime (UNODC), says, ' Colombia has been very quick at
doing something about it. They have an inter-institutional
committee working on an anti-money laundering strategy, in
the same way as you might have one on corruption or drugs.
This is not just a question of reaction after the event, but
of prevention. It assists people to see that money laundering
is a bad thing. They have also developed typology exercises,
to show they are getting on top of the issue. Other countries
do not have this level of sophistication. Colombia deserves
a lot of credit for that. But at an operational level, things
are not up to speed.' |
| Enforcement, rather than
an up-to-date legal system, is the region's greatest challenge,
says Saskia Rietbroek-Garces, Executive Director, Association
of Certified Anti-Money Laundering Specialists (ACAMS). She
says, ' Latin America is struggling with problem of having
no adequate sources to implement the laws. They can have a
money laundering law modelled on the finest principles, but
if you do not have the money to pay for the agents who enforce
these laws and computers to track down suspicious activity
reports, then nothing is going to happen.' Low levels of convictions
is all Latin American countries, with the possible exception
of Colombia, pinpoint the region's enforcement problem. Colombia
has achieved some 250 convictions since 1997, when its first
anti-money laundering laws were introduced. But the sum of
convictions for money laundering across the rest of the region
is below one hundred. |
| The implementation issue
has been highlighted by the Drug Abuse Control Commission (CICAD),
an agency of the Organization
of American States (OAS), which wrote in its latest
report. 'Certain deficiencies persist at the operational and
training levels and in the availability of human and financial
resources for this purpose. These deficiencies hamper effective
prosecution of this offence which is reflected in the low number
of convictions in the Hemisphere.' |
| Money laundering prosecutions
are invariably complex, relying on financial expertise as well
as detective work. One scheme attracts particular attention
from law enforcers. This is the informal infrastructure for
moving the proceeds of dollars earned in the United States
from the sale of drugs into the region's peso-based economy.
The infrastructure, called the Black Market Peso Exchange (BMPE),
is the world's biggest money laundering system, according to
the US government's National Money Laundering Strategy. It
works in the following way. Agents hired by drug producers
in Latin America arrange for US-based manufacturers exporting
to Latin America to be paid with the dollar proceeds of drugs
sales. At the same time, the agents arrange for local importers
to pay the drug producers with pesos. As a result, the drug
dollars are cleaned, and the drug producers retrieve their
funds. This secret parallel trade to Latin America is said
to be worth between $5 billion and $10 billion annually. |
While complexity is undoubtedly
one reason for the region's low conviction level, another is
the high incidence of corruption. It is suspected prosecutions
of high profile launderers who may be both rich and politically
powerful, are impeded by the use of influence and blatant graft.
Rietbroek-Garces points to the region's poor showing in Transparency
International's Corruption Index and argues , 'C orruption
is so rampant. Even Costa Rica which is supposed to have a
good reputation for probity, has been hit by scandals involving
presidents and ex-presidents. Dirty money is like water, it
will always find the path of least resistance. So long as these
countries are not beefing up their money laundering laws and
their anti-corruption efforts, then launderers will find a
way to use financial institutions.' Best evidence for this
was the way Peru's president Alberto Fujimori and his spy chief,
Vladimiro Montesinos, were able to loot the country of many
hundreds of millions of dollars, which were laundered through
Swiss private banks. Fujimori fled to Japan in 2000 when his
activities were exposed.
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