Latin America and Caribbean Struggle with Money Laundering, Despite Strong Legal Frameworks: Report

SÃO PAULO, Brazil – Latin American and Caribbean countries are facing challenges in effectively enforcing anti-money laundering measures, despite having higher adoption rates of legal frameworks compared to the global average, according to a recent report. The 2023 edition of the annual anti-money laundering index produced by the Basel Institute on Governance revealed that the region’s multibillion-dollar criminal economies have turned it into a hub for money laundering. Criminal groups use this region to convert their illicit proceeds into usable assets.

Haiti and Venezuela were ranked as the worst performers in the region, with Haiti topping the world risk rankings. The index criticized Haiti for its weak legal frameworks and high levels of corruption. Venezuela fared slightly better, but its deep-rooted corruption under President Nicolás Maduro still weighed down its score. Suriname, which had not been included in previous reports, ranked as the 16th highest-risk jurisdiction globally and third in the region. Suriname faces challenges due to a lack of corporate transparency and the strong presence of transnational drug trafficking groups.

The index assesses countries on a scale of 0 to 10, with 10 indicating the highest risk of money laundering and terrorist financing. The scores are determined by 18 indicators across five categories: the quality of legal frameworks, corruption and bribery risk, financial transparency and standards, public transparency and accountability, and legal and political risks.

Although countries in the region scored well in terms of the quality of legal frameworks, which accounts for 65% of the total score, they surpassed the global average in every other category. According to the report, corruption and money laundering are closely linked in Latin America and the Caribbean. Rampant corruption contributes to a high risk of money laundering, despite the presence of adequate legal frameworks.

The use of cryptocurrencies in the region poses additional money laundering risks due to the fragility of regulatory systems in most countries. While cryptocurrencies are often designed to be anonymous, the fast evolution of the industry and weak global regulation means that countries need to enhance their efforts to combat the use of cryptocurrencies in money laundering. However, cryptocurrencies still represent a minor avenue for money laundering in Latin America and the Caribbean.

It is important to note that while Haiti ranked as the worst performer in the index, it is not a major money laundering hub. Other factors, such as instability, a weak economy, a weak currency, and ongoing gang conflicts, deter foreign launderers. Conversely, larger countries with low risk can experience higher levels of money laundering than small high-risk islands. For example, Ecuador, which has a comparatively low risk of money laundering, experienced a wave of money laundering alongside increased cocaine trafficking.

In order to address money laundering effectively, stronger regulations for crypto assets service providers and increased oversight and reporting requirements for crypto exchanges are necessary. While Latin America and the Caribbean’s compliance with FATF guidelines on virtual assets is nearly on par with Europe, implementation of these regulations will take time due to limited knowledge of the industry.

Overall, the report highlights the interconnectedness of corruption and money laundering in the region, underscoring the need for stronger anti-money laundering measures and improved coordination between law enforcement agencies. By addressing these challenges, Latin America and the Caribbean can make significant progress in combating money laundering and protecting their financial systems.