AML in Guatemala

Guatemala has emerged as a favored destination for money laundering due to two key factors: its historically lenient regulatory system, which facilitates tax evasion, and its role as a safe haven for drug cartels and organized crime within the region. The country’s lax approach to combating corruption creates an inviting environment for the influx of illicit funds from Mexican and Central American narcotraffickers, as wealthy individuals and entities face little scrutiny and accountability measures. This leniency is evident in the low number of convictions resulting from court trials between 2009 and 2010, with less than two dozen individuals found guilty, mainly involving low-level couriers caught carrying cash at La Aurora International Airport.

Guatemalan capital has three primary origins: traditional capital, licit emergent capital, and illegal emergent capital. In the colonial era, indigo cultivation was the source of conventional wealth held by the aristocracy. Over time, this wealth diversified into coffee, sugar, and bananas during the nineteenth century, and later expanded to include industries like concrete and beer in the twentieth century.

Today, traditional capital has shifted its focus to sectors such as textile manufacturing, finance, and international enterprises, reflecting a more diverse range of investments. From agro-export industries to global finance, Guatemala’s wealth has evolved to encompass various economic activities.

Since at least 2013, the FBI and DEA have been actively involved in significant investigations targeting Drug Trafficking Organizations (DTOs) operating in Guatemala. Both agencies have highlighted the strategic significance of Guatemala as a key transportation hub in the cocaine trafficking pipeline. This pipeline originates in Colombia and passes through Central America and Mexico before reaching various locations within the United States.

Guatemala’s strategic location makes it attractive to Colombian and Mexican DTOs, who use it to acquire and sell large quantities of cocaine to avoid detection by US law enforcement. This creates numerous opportunities for Guatemalan DTOs to act as intermediaries, receiving and reselling the cocaine. In order to exploit these opportunities, Guatemalan traffickers often rely on the cooperation of government officials and members of the corporate sector in the country.

The Foreign Commission Against Impunity in Guatemala (CICIG – Comisión Internacional Contra la Impunidad en Guatemala) is a unique agency supported by the United Nations (UN), consisting of both Guatemalan and international investigators and prosecutors. Its establishment in 2007 aimed to dismantle organized criminal networks and combat money laundering within the security and judicial systems. Over the years, CICIG’s efforts have led to the arrest of several high-profile figures, including a former president, generals, colonels, and wealthy individuals who were previously considered untouchable by the national justice system. As a result, the commission has been hailed as a role model for the region in addressing criminal impunity in Guatemala.

Currently led by Costa Rican Francisco Dall’Anese, CICIG identifies the wealth channeled by Mexican cartels into investment and money-laundering hubs within the region as the most significant danger. The allure of the vast profits that can be gained through money laundering is undeniable. Around 10% of the proceeds from the annual transportation of 400 tons of cocaine from South America to the United States end up staying in Guatemala, amounting to approximately $500 million or 2% of the country’s GDP. Moreover, a considerable portion of the national budget, about $400 million, is spent without adhering to international transparency rules, increasing the risk of corruption.

In 2001, Guatemala enacted the Act Against the Laundering of Money to prevent, regulate, oversee, and penalize money laundering activities. Subsequently, in 2005, the Guatemalan Congress passed the Act to Prevent and Punish Terrorist Financing.

However, despite categorizing money laundering and terrorist funding as crimes, the legislation governing these activities was passed sixteen and twenty years ago, respectively. Over time, the methods used to commit these crimes have evolved, incorporating currently unregulated economic actions, new instruments, technologies, and sophisticated systems that were not anticipated in the original bills. As a result, these laws have become outdated and less applicable in many cases.

To address these shortcomings, a new bill was introduced in November 2020 to modernize and consolidate the Act Against the Laundering of Money or Other Assets and the Act to Prevent and Punish Terrorist Financing. The objective is to incorporate the most current practices and international standards outlined in the Financial Action Task Force (FATF) Recommendations. This includes adopting a risk-based approach, expanding the definition of money laundering crimes to encompass a broad range of predicate offenses, and addressing terrorist financing not only in relation to specific terrorist acts but also funding of terrorist organizations and individual terrorists.

The proposed legislation also includes broadly defined terms for “Obliged Persons,” potentially encompassing companies that provide digital wallet services or deal with cryptocurrencies. Consequently, these entities may be required to comply with reporting obligations and adhere to prohibitions established by the bill. As digital wallets and cryptocurrencies are currently unregulated under Guatemalan law, this legislative proposal aims to bring them under a regulatory framework for greater oversight.