Ecuador and financial crime

Ecuador and financial crime

The Andean laundry

Worries that organised crime is tightening its grip

IT WAS long an island of tranquillity surrounded by countries racked by guerrillas and drug trafficking. But whereas violence has declined in Colombia and Peru, Ecuador has acquired a reputation as a new capital of financial crime. Last month the Financial Action Task Force, an inter-governmental body, declared that Ecuador has not shown “a clear high-level political commitment” to address its “strategic deficiencies” in fighting money laundering and the financing of terrorism. That put it on a list with the likes of North Korea, Iran and Turkmenistan.

Others have reached similar conclusions. Francisco Huerta, an experienced politician who led a government-commissioned investigation into a Colombian raid on a FARC guerrilla camp just inside Ecuador in 2008, said that the country risks becoming a “narco-democracy”. Tourists, residents and club owners complain of rampant crime in La Mariscal, Quito’s nightlife district where some bouncers are now Russian and many of the customers African and South Asian. Ecuador has become particularly attractive for money launderers because of its combination of weak laws and use of the American dollar as its currency. An American think-tank, the International Assessment and Strategy Centre, reckons that it has become a hub for Russian and Chinese crime syndicates.

The left-wing government of Rafael Correa rejects all of this as factually wrong or ideologically inspired, or both. “There are no Russian or Chinese mafias operating here,” insists Miguel Carvajal, the security minister. But he admits that drugs from Peru and Colombia do pass through. In response the army and the police have patrolled more. They seized more than 73 tonnes of drugs (mostly cocaine) last year, more than double the figure for the previous year. Surveillance of the northern border, almost non-existent before the Colombian bombing raid on the FARC camp, has been stepped up. Mr Correa has sharply increased spending on the police.

But much of the extra money has gone on weaponry rather than urgently needed training, says Fredy Rivera, who was in charge of domestic security at the Interior Ministry. He is one of several officials who recently resigned from a ministry in disarray. An American-supported project to eavesdrop on suspected drug traffickers has been beset with technical problems. An organised-crime unit has been idled by a dispute with the United States, which provides the bulk of its funding, over the control of lie detectors.

The criticism coming from the Financial Action Task Force was more especially damaging. The foreign minister, Ricardo Patiño, says the government does not recognise this body’s right to “dictate policy”. Its recommendations are indeed not binding on governments. But its findings are already making it even harder for local banks and companies to secure foreign loans. That problem began with Mr Correa’s default on $3.2 billion in foreign debt in 2008. Ecuadoreans have difficulties using their credit cards overseas.

Ecuador’s inclusion on the task force’s blacklist seems to be mainly because of its new ties to Iran. The Central Bank has dealings with Iranian banks suspected of financing the country’s nuclear programme, despite the objections of the bank’s own compliance officer. It has received a $40m deposit from Iran’s Central Bank, according to a former central-bank president.

Mr Correa retorted that the government would ignore the task force’s findings. But his attorney-general said that it would seek to overturn them. Mr Carvajal says that Ecuador already complies with 60% of the recommendations and that officials are quietly drafting a bill to outlaw the financing of terrorism. Not for the first time, Mr Correa’s government seems to be pointing in several directions at once.