Criminal groups use legitimate institutions to launder money as the government turns a ‘blind eye’

Why have Ecuadorian bank and cooperative deposits increased 30% in two years while the national economy remains stagnant? Why have the country’s stock exchanges seen record investments? Why do new condominium projects in Cuenca sell out within hours?

Experts say that billions of criminal dollars are laundered through legitimate institutions in Ecuador.

These are questions that Edison Vergara, a money laundering and organized crime specialist says the government should be asking. “Billions of dollars are being laundered by criminal organizations, mostly drug traffickers, through legal businesses and institutions in the country and the government looks the other way,” he says. “We have absolute proof this is happening because of court cases such as Blanqueo Fito and Comandos de la Frontera, but there is no systematic plan to confront it.”

According to Vergara, legal mining operations are also laundering large amounts illegal money with little oversight by the Ministry of Energy. Many of those in the ministry’s mining oversight office are being bribed to ignore the practice, he says.

According to Vergara, criminal groups, especially those with international connections, have become “highly sophisticated” at using banks, real estate projects and even retail businesses to launder money. “Because these institutions are legally constituted, often owned by wealthy people with personal relationships to government officials, they avoid scrutiny,” he says. “In the case of banks, the managers will tell you they have no way of determining where the money comes from, simply saying the depositors’ paperwork is in order.”

Vergara adds that the launderers are “masters of disguise” and use a variety of “legitimate facades” to move money through the institutions and from businesses to banks. “In a few cases, bribes are paid, but in most there is no need since the banks and businesses are happy to receive the cash,” he says.

Romel Carrillo, a retired Quito banker, claims the government is reluctant to confront banking and financial cooperative owners and officials. “If there was a major crackdown on illegal money moving through the system it could be disastrous. Important people could be exposed, even arrested.”

Besides the banking system, Carrillo says that “hundreds of millions, maybe billions of dollars” are channeled through real estate projects. “A good example of this, if the government wants to take a close look, is in the building boom in Cuenca,” he says. “There are a 100 residential and business mid-rise and high-rise projects under construction there and when the units go on sale they sell out within days, sometimes hours, and it’s well known that most of the money is coming from Guayaquil and the coast. Of course, almost all the sales are cash transactions.”

Like Vergara, Carrillo criticizes the government for turning a “blind eye” to money laundered through banks, businesses and real estate development. “The focus is mostly on gang leaders and the little drug people,” he says. “If they decide to follow the money some major heads will roll.”