Ecuador Wants Off the Money-Laundering List

By Gonzalo Ortiz

QUITO, May 20, 2010 (IPS) - "It sounds incredible, but it's just a matter of a letter that wasn't turned in on time," Ecuador's attorney general said in regards to the Financial Action Task Force decision to qualify the country as "posing a risk to the international financial system."

Ecuador's inclusion on the list of "high risk" nations means the FATF determined the South American nation has failed to fulfil the recommendations for preventing and punishing both money laundering and terrorist financing.

Difficulties are already arising for some banks and businesses. "Lines of credit haven't been cut, but the correspondent banks have requested much more information from the Ecuadoreans," César Robalino, executive chair of Ecuador's private bank association, said at a press conference on Tuesday.

Foreign banks have even sent missions to monitor the security practices for transactions in Ecuadorean banks, which already have their own compliance officers and specialised committees on their boards of directors, said Robalino.

The FATF is an inter-governmental body created in 1989 by the Group of Seven most industrialised countries (Britain, Canada, France, Germany, Italy, Japan and United States), and now has 35 members (33 nations and two regional organisations).

Its aim is to oversee and promote policies to fight money laundering and the financing of terrorism by states and financial institutions; yet, among its members are notorious tax havens, such as Switzerland, Luxembourg and the Dutch island of Aruba. Today, FATF is guided by the Group of 20, a bloc of industrial powers and emerging nations that have led efforts to weather the global financial storm that erupted in 2008 in the United States.

Angola, Ethiopia and North Korea are the three other nations joining Ecuador on the list that the FATF issued Feb. 18 in its public statement. Those countries, says FATF, have not complied with its recommendations. In a special declaration, the task force accused Iran of financing terrorist activities.

According to Attorney General Diego García, the other four countries do not even engage in dialogue with FATF, while Ecuador collaborates with the task force and is a member of the regional organisation, the South American Financial Action Task Force (GAFISUD), founded in 2000.

The GAFISUD website states that it was "created on the model of the FATF and has adopted the Forty Recommendations issued by FATF as the most widely recognised international standard for countering money laundering and the Special Recommendations against terrorism financing."

The reason Ecuador was included on the list, in García's reckoning, is that the FATF members believed that the government "had not confirmed an absolute commitment at the highest political level" to put all the recommendations into practice.

"They don't say that we haven't fulfilled our obligations. On the contrary, they recognise Ecuador's efforts, but they believe we are lacking a declaration from the highest level in terms of the will to resolve the existing deficiencies and to implement the action plan," he added.

The official is planning a meeting next week of the National Council Against Money Laundering, which would then send a project to Congress on reforming financial standards.

Ecuador has had anti-money laundering laws on the books since October 2005, but needs to make up for the shortcomings that emerged when they began to be implemented, said the attorney general.

The reforms would clarify the laws and include harsher penalties for money laundering and related illicit activities, and would make Ecuador more efficient in freezing accounts and seizing assets when necessary, García said.

With these steps and a clear letter about Ecuador's political commitment, García hopes that this country will be removed from the list at the next plenary meeting of the FATF, to be held Jun. 21-25 in Amsterdam.

"FATF is obligated to remove us from that list if we submit an action plan and commitment from the highest level," he said.

President Rafael Correa and Foreign Minister Ricardo Patiño have both spoken publicly about the possibility of cancelling cooperation with FATF and its recommendations, and creating a new body to monitor financial practices.

But García said that as Ecuador's representative to the FATF he had not yet received any such instructions, so he is continuing his efforts "to get Ecuador off the list."

In the opinion of financial expert María Laura Patiño, the FATF action could be a reaction to an agreement signed by Quito and Tehran that allows the Export Development Bank of Iran (EDBI) to act through Ecuador's Central Bank.

The EDBI and Iran's Central Bank "have been on special lists for some time," said Patiño, and even though "no operations have been carried out, this can have consequences."

García rules out that theory, pointing out that the FATF official documents do not mention the agreement with Iran.

The agreement with Iran has created other problems, however. The president of Ecuador's Central Bank, Diego Borja, travelled in mid-May to the United States to explain the extent of the pact to officials at the U.S. Federal Reserve.

As he explained upon his return, "there was a danger that they wouldn't send dollar currency to Ecuador," which would be a disaster because this country replaced its national currency with the dollar a decade ago. Borja said U.S. officials proved understanding of Ecuador's position in regards to the agreement with Iran.