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QUITO, Ecuador – The Financial Analysis Unit (UAF), a government agency in charge of enforcing laws against money laundering, is making it mandatory financial companies report suspicious transactions above US$10,000.
Suspicious transactions are those carried out by individuals or businesses that would not normally deal with large amounts of money or lack documentation to justify the origin and destination of funds, among other criteria, UAF director Gustavo Iturralde said.
In 2011, 47 of 397 reported suspicious transactions were deemed illegal and turned over to prosecutors, Iturralde added.
Of the 47 reports sent to government prosecutors, 25 involved front organizations. Others involved misuse of banking products (13); exploitations of jurisdictional issues (4); misuse of illegitimate businesses (1); the use of false identities, documents or fictitious buyers (1); criminal involvement (1); links to illegal assets (1); and the export of overvalued goods (1).
“So far in 2012, there have been two cases involving front organizations and one involving criminal involvement,” Iturralde said, adding the cases are under investigation.
The large amount of reports corresponds with the increased number of institutions that are required to report suspicious transactions, Iturralde added.
Last year, authorities added 526 new entities, raising the number of institutions – mainly banks, credit unions and brokerage houses – required to report suspicious transactions to 748.
Members of the Ecuadoran financial community support the tightening of regulations.
“Anonymity of participants and the speed of electronic transactions could be factors that make it more difficult to trace certain financial operations and boost the chances of impunity for those who commit these crimes,” said Patricio Peña, the chairman of the Quito Stock Exchange (BVQ).
Ecuador was one of the last countries in Latin America to approve a law against money laundering, creating one in 2005 that became effective in 2007.
Still, the amount of laundered money equaled US$3 billion, which translated to 4% of Ecuador’s gross domestic product (GDP) in 2011.
“The fact that we use the U.S. dollar as currency makes us more vulnerable to money launderers,” Iturralde added.
But Iturralde said tackling money laundering extends beyond the enforcement of regulations.
“Our aim is to make citizens understand that it’s better to get things through work and earning them instead of acquiring things illegally,” he said.
On Feb. 16, the Financial Action Task Force (FATF), an international body whose purpose is the development and promotion of national and international policies to combat money laundering, the financing of terrorism and proliferation of weapons of mass destruction, said Ecuador has some “strategic gaps.”
Ecuador should have stiffer punishments for those convicted of financing terrorist organizations and be more assertive in freezing the assets of those connected to money laundering, according to the FATF.
However, the FATF also praised the Andean nation, saying Ecuadoran officials have shown “a willingness to combat this crime.”
The country’s financial system is also looking for ways to tighten its standards and procedures to curtail money laundering.
The Quito Stock Exchange (BVQ) and the regional development bank Andean Development Corporation (CAF) presented on Jan. 30 a guide for brokerage houses and financial firms for the developing of internal controls against money laundering.
The Analysis of the regulations for preventing money laundering (Análisis de la normativa para la prevención de lavado de activos) seeks to improve the overall operation of the local financial markets by strengthening its security, said Hermann Krützfeldt, a CAF representative in Ecuador.
“The globalization and market integration process mandates a permanent self-regulation and improvement and updating of procedures,” Krützfeldt said.
Mónica Villagómez, executive director of the BVQ, said the manual “is not intended to be a single, static, mandatory document, [but it should be used to] establish a legal and practical baseline.”
The manual defines money laundering as “the concealment of financial assets so that they can be used without detection of the illegal activity that produces them, transforming the revenue into apparently legal funds.”
Know the client, the employees and the market
Villagómez said the manual’s goal “is to generate a national culture that seeks to prevent money laundering and organized crime.”
The manual promotes ongoing security reviews for workers of financial institutions to guarantee their solvency and moral suitability. Companies must evaluate those employees who demonstrate unusual behavior and pay close attention to changes in their standards of living.
Policies must be in place to ensure that workers have adequate and up-to-date information on these directives, the manual states.
Financial institutions must know their clients’ backgrounds, professions and businesses, as well as where they are sending their money, the manual suggests.
Financial security expert Jeannette Forigua said that there is a need to strengthen the systems in place to prevent money laundering and other crimes, especially as Ecuador’s economy grows.
“A globalized system requires strong preventive processes,” she said.