Ecuador – Know Your Customer (KYC) Rules

 

 

Ecuador is a major drug transit country. With a dollarized economy and geographic location between two major drug producing countries, Ecuador is highly vulnerable to money laundering. Ecuador has emerged as a meeting ground for multiple transnational criminal and terrorist organizations and an important part of a pipeline that moves not only cocaine but humans, weapons, precursor chemicals, and illicit cash.

Corruption is a significant problem in Ecuador and facilitates money laundering. Since only major banks have active money laundering controls in place and a substantial percentage of transactions take place through unregulated money exchange and remittance companies, there is no reliable way to judge the magnitude of illicit finance in the country. There is evidence money laundering is also taking place through trade and commercial activity, as well as through cash couriers. Deficient financial supervision and weakly regulated casinos have been additional vulnerabilities for money laundering. The Ecuadorian government has announced its intent to close all gambling outlets in 2012.

KNOW-YOUR-CUSTOMER (KYC) RULES:

 

Enhanced due diligence procedures for PEPs:

 

PEP is an abbreviation for Politically Exposed Person, a term that describes a person who has been entrusted with a prominent public function, or an individual who is closely related to such a person. The terms PEP, Politically Exposed Person and Senior Foreign Political Figure are often used interchangeably

    • Foreign PEP: NO
    • Domestic PEP: NO

Ecuador – KYC covered entities

 

The following is a list of Know Your Customer entities covered by Ecuadorian Law:

    • Financial institutions
    • Insurance providers (including private insurance)
    • Cooperatives
    • Trust and fund managers
    • Money transfer companies and parallel couriers
    • Brokerages
    • Casinos and gaming halls

Ecuador – Suspicious Transaction Reporting (STR) Requirements:

 

Number of STRs received and time frame: 38 in 2010

Number of CTRs received and time frame: 21,208,744 from January to April 2011

The following is a list of STR covered entities covered by Ecuadorian Law:

    • Banks
    • Savings and credit institutions
    • Investment companies, stock exchanges, and mutual funds
    • Exchange houses
    • Credit card administrators
    • Money transmitters
    • Mortgage companies
    • Insurance and reinsurance companies
    • Trusts
    • Fund managers
    • Sellers of vehicles, aircraft, and watercraft
    • Brokerages
    • Couriers
    • Real estate agents
    • Casinos and other gambling enterprises
    • Dealers of precious metals and stones

MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:

 

Prosecutions: 49 in 2011
Convictions: One in 2011

ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:

The Government of Ecuador (GOE) made progress in December 2010 when it enacted amendments to the country‘s anti-money laundering law (Law 2010-352). The law appears to strengthen the mandate of the Financial Analysis Unit (FAU), Ecuador‘s financial intelligence unit, and expands the role of the National Anti-Money Laundering Council, which oversees the FAU.

On balance, the legal reforms strengthen Ecuador‘s legislation with regard to financial crimes. However, the amended law includes new language that complicates seizures of illicit funds, by explicitly placing the burden of proof on the GOE to prove the illicit origin of funds in money laundering or cash smuggling cases. This provision has brought convictions to a virtual halt. A further impediment to processing bulk cash seizure cases is a lack of regulations defining pertinent authorities and administrative processes.

Law 2010-352 also includes provisions that seek to criminalize terrorist financing by creating an autonomous offense. However, the law does not contain an explicit reference to ―terrorist financing;‖ does not define ―funds‖ or ―assets;‖ does not appear to cover attempts to commit the offense; and appears to require a connection to a specific act of terrorism. Ecuador also lacks adequate procedures for the freezing of assets in accordance with relevant UNSCRs. Ecuador has a lengthy criminal process for confiscating terrorists‘ assets.

Oversight in the financial sector has improved. In 2011, Ecuador issued a number of resolutions to clarify reporting requirements, including for the private insurance system, trust and fund managers, money transfer companies, and casinos, which have resulted in the imposition of penalties on a range of entities for noncompliance.

The GOE should continue to work to ensure its AML/CFT legislation and programs adhere to international standards, particularly with regard to the criminalization of terrorist financing, and the ease with which assets linked to illegitimate sources can be confiscated. The GOE should harmonize its legislation to eliminate conflicts that hinder successful money laundering investigations and prosecutions. The GOE should ensure the FAU is fully functional and meets international standards, and should also ensure that reporting requirements — covering an expanded group of obligated parties — are enforced. The GOE should make a dedicated effort to train judges, prosecutors and investigators so they understand the country‘s applicable AML/CFT legislation and regulations. More effort also should be given to effective border enforcement. It is important for the GOE to take all necessary steps to comply fully with international AML/CFT standards to which it has formally committed through its membership in GAFISUD.