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Laundering: Colombia Makes Progress, Challenges Persist
Corruption, slow process, trade-related laundering key challenges.
BY FINANCIAL SERVICES ADVISOR
Inter-American Dialogue
The Colombian government’s financial crimes unit has detected some $20 billion in financial operations over the past three and a half years that have potential ties to money laundering, the unit’s director, Javier Gutiérrez, said Aug. 9. The Financial Information and Analysis Unit has detected approximately 570 channels, including currency trading, cryptocurrencies and fake invoices, through which money is laundered, said Gutiérrez. What are the biggest obstacles facing Colombian authorities in their pursuit of money launderers? How adequate are anti-money laundering safeguards at Colombian banks and other financial institutions? What new actions to fight the crime could Colombia see under the new government of President Gustavo Petro?
Marcelo Buendía Vélez, associate attorney at the Bogotá office of Díaz Reus and former prosecutor in Colombia’s anti-money laundering unit: Colombia has invested a significant amount of resources in the prosecution of money laundering cases, and results have so far been very positive. New investigative techniques, proper training for investigators and prosecutors, and cooperation within public and private entities have been the main reasons for Colombia’s results. However, there is still much to do because money launderers are always searching for new ways to accomplish their goals.
In the fight against money laundering, Colombian authorities face three main obstacles. First, criminality moves faster than authorities, which take too long investigating and then prosecuting. The lack of swiftness in investigations and legal processes is, undoubtedly, one of the main obstacles. Second, there is still a lack of knowledge on investigative techniques to fight nontraditional money launderers. Cryptocurrency or even art markets used for money laundering are among the examples of unexplored cases for most officers in charge of investigating and prosecuting. Third, corruption and money laundering are closely related. Fighting corruption is still one of the duties Colombia must accomplish to adequately combat money launderers, who in many cases are closely linked to corrupt politicians. Thanks to Colombian regulations, the financial system actively cooperates with the authorities. Nevertheless, there is an important challenge in incorporating regulation for new financial services such as virtual wallets or cryptocurrency platforms and apps.
Regarding new actions, the Petro administration will probably have more information exchanges with countries such as Venezuela, Nicaragua, Argentina and Peru. In the past, getting information from these countries was rather difficult. However, now, due to Petro’s relations with these jurisdictions, Colombia could obtain important data.
Julia Yansura, program director for Latin America & the Caribbean at Global Financial Integrity: Global Financial Integrity (GFI) estimates that criminal proceeds in Colombia amount to between $6.5 billion and $16.2 billion a year and that 70 percent of those proceeds are laundered, primarily using channels such as the financial system, the trade system and anonymous companies, to cite a few of the most common.
The announcement by Colombia’s Financial Information and Analysis Unit (UIAF) regarding the detection of $20 billion in suspicious transactions reflects two things: first, Colombia faces a very challenging and complex financial crime landscape, and second, the county’s anti-money laundering (AML) system is working, at least to some extent. That said, Colombia still has a ways to go. Detection is important but not sufficient; Colombian authorities should bolster efforts in financial crime prevention as well as prosecution, which has traditionally lagged. Moreover, Colombia’s AML efforts have focused on the financial system while neglecting trade, despite the fact that the Financial Action Task Force has identified trade-based money laundering (TBML) as one of the three most prevalent forms of money laundering worldwide. GFI identified discrepancies in Colombia’s trade with other countries in the range of $10 billion a year, which is highly concerning and suggests the presence of trade-related financial crimes including money laundering and tax evasion.
In terms of immediate next steps, Colombian authorities should prioritize implementing the country’s beneficial ownership registry. Because many financial crime typologies involve the use of shell companies and front companies, knowing the real, or ‘beneficial’ owners is key to combating financial crimes. While the registry is underway, both the private sector and the government need to do more prior to the Dec. 31 deadline to ensure its success.
Katrina Moscarella, financial consultant at Owl Consultancy Group: Since Colombia’s issuance of the first anti-money laundering/countering the financing of terrorism (AML/CFT) regulations in 1992, the country’s efforts have been focused on strengthening and reinforcing the regulations of its financial system, moving from a compliance approach to one of prevention and effective ness. The Superintendency of Finance has been able to understand and recognize the dynamics of the new financial reality and has been able to respond and adapt to the new challenges. It is also aware that it cannot be oblivious to the dynamics related to virtual assets and decentralized finance. Thus, in July, it issued a draft circular related to the linking of virtual asset service providers to the financial system and the development of operations with virtual assets by supervised entities. Finally, it is worth mentioning that Colombia is constantly developing strategic alliances and strengthening international cooperation in the region, increasing inclusion and banking penetration. Nevertheless, as highly regulated as it is, it is important to note that criminals are savvier than ever and are always pioneering new methods to get around the system. In order to fully stop criminals, a stronger focus needs to be placed on non-bank entities engaged in international trade activities. With the right incentives, companies will be less like to engage in fake-invoicing or be willing to properly scrutinize invoices and receipts to ensure their veracity. Regarding the financial sector, it can be expected that with the aim of fighting crime, Gustavo Petro’s government will focus on the regulation of crypto-assets, decentralized finance and everything related to open banking. Although during the previous government some provisions were issued in this regard, there is still no firm binding regulation that provides legal certainty and confidence for supervised entities to be encouraged to venture into these businesses. Currently, the main obstacles authorities face in pursuit of money launderers are related to linkage of new customers through the use of digital channels.
Republished with permission from the Inter-American Dialogue's biweekly Financial Services Advisor
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