In 2007, the Financial Action Task Force for South America (GAFISUD) published a mutual evaluation on Ecuador's compliance with the Financial Action Task Force's (FATF) 40 plus 9 recommendations. The report concluded that Ecuador is noncompliant with 28 of the recommendations, including all nine special recommendations on terrorist financing. Ecuador has no law criminalizing the financing of terrorism, and with respect to the FATF recommendation on the criminalization of money laundering, Ecuador earns only a partially compliant rating. The mutual evaluation identifies shortcomings in the Ecuadorian anti-money laundering framework, one of which is the lack of clarity regarding what constitutes money laundering offenses. Another is the inefficiency of the sanctioning process. At the time of the mutual evaluation, the Ecuadorian financial intelligence unit (UIF) had not yet become operational. However, a 2008 U.S. Department of State (DoS) report notes that the UIF became operational on December 1, 2007. Ecuador is a party to the 1988 UN Drug Convention, the UN International Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, and the UN Convention against Corruption.

General Overview

The Financial Action Task Force for South America (GAFISUD) conducted a mutual evaluation with Ecuador and published its findings in a 2007 report (hereafter referred to as the 2007 mutual evaluation) in which it states that Ecuador is non compliant with 28 of the Financial Action Task Force's (FATF) 40 plus 9 recommendations (R) and special recommendations (SR), compliant with one, largely compliant with one, and partially compliant with 19. The most striking finding of the report is that Ecuador is noncompliant with all of the FATF special recommendations relating to terrorist financing. The report is published in Spanish and, as of June 2008, there is no English version of this report publicly available.

Money laundering is criminalized in Ecuador in accordance with the Law Against Money Laundering (hereafter referred to as Law No.13 of 2005), which came into force in October 2005. This law criminalizes the laundering of illicit funds from any source and penalizes the undeclared entry of more than US$10,000 in cash or other convertible assets. A 2008 report by the U.S. Department of State (DoS) finds that the legislation lacks clarity on whether conviction is required for a predicate offense to prosecute for money laundering. Another significant deficiency relates to the fact that money laundering is only considered a criminal activity if the amount of funds laundered exceeds US$5,000. With regard to the lack of a counterterrorist financing law, the DoS report notes that the Ministry of Foreign Affairs, Superintendence of Banks and Insurance, and the Association of Private Banks collectively drafted a law against terrorist financing in 2004. However, since a preliminary debate in Congress in 2006, the draft has seen no revisions and remains pending for lack of further debate.

The 2005 law established Ecuador's financial intelligence unit (UIF) under the purview of the National Council Against Money Laundering headed by the solicitor general. At the time of the 2007 mutual evaluation, the UIF was not operational. However, The DoS report notes that, on December 1, 2007, the UIF became operational. In that same month, the UIF received 61 suspicious transactions reports (STRs) and referred 20 of them to the judicial police and Attorney General's Office for review. Although the UIF is fully functional now, the DoS report notes that the unit is seeking technical support and improved software to spruce up its analytical capacity. The UIF is also empowered to exchange information with other FIUs based on reciprocity. Other agencies involved in anti-money laundering (AML) measures and initiatives include the National Council Against Money Laundering responsible for freezing and seizure of illicit funds.

Ecuador is party to the 1988 UN Drug Convention, the UN International Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, the UN Convention against Corruption, and the Inter-American Convention against Terrorism. In addition, the Government of Ecuador is a member of the OAS Inter-American Drug Abuse Control Commission Experts Group to Control Money Laundering. Ecuador and the United States also became party to a bilateral Agreement for the Prevention and Control of Narcotics Related Money Laundering in 1993 and an Agreement to Implement the United Nations Convention against Illicit Trafficking in Narcotic Drugs and Psychotropic Substances of December 1988. However, the DoS report adds that Ecuador is one of the two South American countries that do not belong to the Egmont Group. The Ecuadorian FIU has signed memoranda of understanding with the FIUs of Argentina, Brazil, Bolivia, Chile, Colombia, Panama, and Peru for the exchange of information.

The Principles

1. Legal Systems and Related Institutional Measures

NC

The 2007 mutual evaluation notes that Ecuador is partially compliant with R1 and R2 relating to the criminalizing of money laundering. The report notes that among the shortcomings in the Ecuadorian anti money laundering framework is the lack of clarity regarding what constitutes money laundering offenses and the inefficiency of the sanctioning process. According to the 2008 U.S. DoS report, money laundering is criminalized in accordance with the Law No. 13 of 2005 which came into force in October of the same year. This law criminalizes the laundering of illicit funds from any source and penalizes the undeclared entry of more than US$10,000 in cash or other convertible assets. The DoS report notes that the legislation lacks clarity on whether a conviction is required for a predicate offense to prosecute for money laundering. Another significant deficiency relates to the fact that money laundering is only considered a criminal activity if the amount of funds laundered exceeds US$5,000. Ecuador is non compliant with SR-II relating to the criminalizing of terrorist financing, as indicated in the 2007 mutual evaluation. The DoS report states that the financing of terrorism has not been criminalized in Ecuador. The DoS adds that, although the Ministry of Foreign Affairs, Superintendence of Banks and Insurance, and the Association of Private Banks collectively drafted a law against terrorist financing in 2004, since a preliminary debate in Congress in 2006, the draft has seen no revisions and is pending for lack of further debate.

Ecuador is non compliant with R3 relating to the confiscation, freezing, and seizing of the proceeds of crime. The 2007 mutual evaluation reports that regulation of confiscated proceeds is incomplete and lacks specificity. The report also notes that Ecuador is noncompliant with-SR II relating to the freezing of funds used for terrorist financing. Ecuador is partially compliant with R26 and R30 regarding the financial intelligence unit, the UIF, and its functions. According to the mutual evaluation, the UIF had been established by law but, at the time of the evaluation, the UIF was not yet fully operational. Ecuador is noncompliant with R32 relating to statistics provided by the FIU. According to the U.S. DoS report, Law No. 13 of 2005 established the FIU under the purview of the National Council Against Money Laundering headed by the solicitor general. The UIF became operational on December 1, 2007. In the same month, it received 61 STRs and referred 20 of them to the judicial police and Attorney General's Office for review. All entities governed by the 1994 Financial System Law, including banks, savings and credit institutions, and investment companies, must report "unusual or unjustified" transactions to the UIF within 48 hours. Also, the UIF is empowered to exchange information with other FIUs based on reciprocity. The DoS report notes that the UIF is seeking technical support and improved software to spruce up its analytical capacity.

Regarding the recommendations relating to law enforcement authorities (R27) and the powers of such competent authorities (R28), the mutual evaluation observes that Ecuador is partially compliant with the former and largely compliant with the latter. On R27, the report notes that the appropriate authorities lack sufficient resources to properly investigate money laundering and terrorist financing activities. The 2008 U.S. DoS report notes that Law No. 13 of 2005 established the National Council Against Money Laundering, which is the body responsible for freezing and seizure of funds. Furthermore, financial institutions under the supervision of the Superintendence of Banks and Insurance (SBS) currently report suspicious transactions to the SBS. The mutual evaluation finds Ecuador non compliant with SR-IX on cash couriers.

2. Preventive Measures - Financial Institutions

NC

The 2007 mutual evaluation found Ecuador to be noncompliant with R5 through R8 on customer due diligence (CDD). However, the 2008 U.S. DoS report notes that financial institutions under the supervision of the SBS are required to establish "know-your-client" provisions. Ecuador is noncompliant with R9 on politically exposed persons and partially compliant with R4 on financial institution secrecy or confidentiality. The DoS report notes that banking secrecy does not constitute a legal impediment in AML and anti-terrorist-financing investigations. According to the 2007 mutual evaluation, Ecuador is partially compliant with R10 on record keeping, and the DoS report notes that the SBS-regulated institutions must maintain financial transaction records for up to ten years. However, the mutual evaluation states that not all financial institutions are required to maintain records; only those regulated by the SBS are obligated to do so. Furthermore, the competent authorities have no supervisory process in place to assess the proper implementation of record keeping by financial institutions. Ecuador is noncompliant with SR-VII on wire transfer rules, according to the 2007 mutual evaluation. The report also notes that Ecuador is non compliant with R11 and R21 on monitoring unusual transactions and business relationships with higher risk countries.

Ecuador, according to the 2007 mutual evaluation, is noncompliant with R13 on STRs for money laundering activities, and with SR-IV on STRs relating to terrorist financing. Despite the mutual evaluation's assignment of noncompliance ratings, the 2008 U.S. DoS report notes that, in December 2007, the UIF received 61 STRs and referred 20 of them to the Judicial Police and Attorney General's Office for review. In addition, the report notes that financial institutions regulated by the SBS are required to report suspicious transactions. Ecuador is, per the mutual evaluation, partially compliant with R14 on protection and tipping-off requirements and compliant with R19 on other forms of reporting. The 2008 DoS report notes that entities governed by the Financial System Law which includes banks, savings and credit institutions, investment companies, stock exchanges, mutual funds, exchange houses, credit card administrators, money transmitters, mortgage companies, insurance companies, and reinsurance companies, must report all "unusual and unjustified" transactions to the UIF within 48 hours. Ecuador is only partially compliant with R25 on guidelines and feedback provided by competent authorities to financial institutions.

With regard to R15 on internal controls, the mutual evaluation rated Ecuador as partially compliant, citing that the current legislation on internal controls applies only to banks and credit bureaus. Ecuador is non compliant with R22 on foreign branches and subsidiaries and R18 relating to shell banks. Ecuador is noncompliant with R17 on sanctions; R23 on regulation, supervision, and monitoring; and R25 on guidelines and feedback that relate to the supervision of financial institutions. Ecuador is partially compliant with R30 regarding the UIF and its functions, but it is noncompliant with R32 relating to statistics provided by the UIF. The 2008 U.S. DoS report notes that the SBS is responsible for oversight of both offshore and onshore financial institutions.

3. Preventive Measures - Designated non-Financial Business and Professions

NC

According to the 2007 mutual evaluation, Ecuador is noncompliant with all FATF recommendations pertaining to this principle: R12, R16, R20, R24, and R25.

4. Legal Person and Arrangements & Non-Profit Organizations

NC

The 2007 mutual evaluation finds Ecuador partially compliant with R33 and R34 regarding beneficial ownership information for legal persons and legal arrangements respectively. The report notes that there is an ineffective application of the legal control process. Ecuador is noncompliant with SR VIII on the supervision and regulation of non profit organizations. The U.S. DoS report adds that there are no measures in place preventing the misuse of charitable or nonprofit entities to finance terrorist activities.

5. National and International Co-operation

NC

Ecuador is partially compliant with R31 on national cooperation and noncompliant with R32 on statistics as reported by the 2007 mutual evaluation. Ecuador is also partially compliant with R35 on international conventions. As reported by the 2008 U.S. DoS report, Ecuador is a party to the 1988 UN Drug Convention, the UN International Convention for the Suppression of the Financing of Terrorism, the UN Convention against Transnational Organized Crime, the UN Convention against Corruption, and the Inter-American Convention against Terrorism. The 2007 mutual evaluations finds Ecuador non compliant with SR-I on the implementation of UN instruments. Ecuador is partially compliant with R36 relating to mutual legal assistance (MLA), however, is noncompliant with R38 on MLA for confiscation and freezing. The DoS observed that the SBS cooperates with the U.S. by requesting financial institutions to report transactions involving known terrorists, whether designated by the United States as Specially Designated Global Terrorists pursuant to Executive Order 13224 (on terrorist financing) or named on the consolidated list maintained by the UN 1267 Sanctions Committee. As of March 2008, no terrorist finance assets had been identified in Ecuador. Also, no steps have been taken to prevent the use of gold and precious metals to launder terrorist assets. According to the 2007 GAFISUD report, Ecuador is noncompliant with SR-V on international cooperation.

According to the 2007 mutual evaluation, Ecuador is partially compliant with the FATF's recommendations relating to extradition. These are R37 on dual criminality and R39 on extradition. According to the report, there are no simple proceedings on extradition in Ecuador. Ecuador is partially compliant with R40 on other forms of cooperation. The Ecuadorian FIU has signed memoranda of understanding with the FIUs of Argentina, Brazil, Bolivia, Chile, Colombia, Panama, and Peru for the exchange of information. However, the DoS report adds that Ecuador is one of the two South American countries that do not belong to the Egmont Group.