Sunday, March 06, 2005

Money Laundering in El Salvador

The State Department's 2005 International Narcotics Control Strategy Report was released this week, and Salvadoran papers were all about what great progress the government had made. I decided to take a look, especially curious about the money laundering volume and what it had to say, given the persistent rumors of money laundering through the enormous construction of an endless number of commercial malls.

First, the context:
Located on the Pacific coast of the Central American isthmus, El Salvador has one of the largest and most developed banking systems in Central America. Its most significant financial contacts are with neighboring Central American countries, as well as with the United States, Mexico, and the Dominican Republic. The January 2001 adoption of the U.S. dollar as legal tender, along with the size and growth rate of the financial sector, makes the country a potentially fertile ground for money laundering.
Then, the problem:
Most money laundering is related to narcotics-trafficking, and, to a lesser degree, kidnapping, corruption, counterfeiting, fraud, and contraband. Criminal proceeds laundered in El Salvador are primarily from domestic criminal activity. There is no significant black market for smuggled goods. Most money laundering occurs through fund transfers between local banks and banks in the United States, the Dominican Republic, and Europe. El Salvador’s financial institutions engage in currency transactions that include large amounts of U.S. currency, and could involve the proceeds of international narcotics-trafficking. It is believed that money laundering proceeds may be controlled by narcotics-traffickers or organized crime.

Decree 498 of 1998, the "Law Against the Laundering of Money and Assets," criminalizes money laundering related to narcotics-trafficking and other serious crimes, including trafficking in persons, kidnapping, extortion, illicit enrichment, embezzlement, and contraband. The law also establishes the Unidad de Investigación Financiera (UIF), El Salvador’s financial intelligence unit (FIU), which is located within the Public Ministry. The UIF has been operational since January 2000. The Policía Nacional Civil (PNC) and the Central Bank also have their own anti-money laundering units.
And then, what El Salvador has managed to do about this:
There were no arrests for money laundering or terrorist financing in 2004. However, two persons were prosecuted on charges of money laundering in 2003. One was convicted and sentenced to serve a prison term of seven years. This was the first conviction for money laundering under Decree 498.
In summary, here are the facts:
  • El Salvador is "potentially fertile ground for money laundering," especially given it's central role in finance throughout the region, and given dollarization of the economy.
  • Large currency transactions "could involve the proceeds of international narcotics trafficking." But in case you're not reading well between the lines, "It is believed that money laundering proceeds may be controlled by narcotics-traffickers or organized crime." Now why would you have a belief about the origins of a money laundering problem that is only potentially a problem?
  • Despite this belief that money laundering exists, and that it may be related to narcotics trafficking, State can't put anything concrete about it in this report because, rather conveniently, there were no arrests for money laundering in 2004, and in fact there's only been one conviction in the past five years that the Financial Intelligence Unit in the Attorney General's office has been functioning.
And we wonder why there's no bad news to report?

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