Slipping through the net

Latin America’s AML regulations need tightening up.

In few other regions across the world is the illicit flow of money conducted in quite as brazen a manner as it is in Latin America. In the last year alone, Peru’s former prime minister was indicted for money laundering, Nicaragua’s leading newspaper was investigated for fraud, the Bolivian government repealed its AML regulations and Paraguay’s former president was arrested for illicit “enrichment”.

The founder of a São Paulo-based digital payments service explained, “There are significant disparities in AML detection work across Latin America with vastly different legislation and regulatory policies in each country and very different operating environments. We have to take into account the development of the financial sector and payment matrix in each country.”

“There are significant disparities in AML detection work across Latin America with vastly different legislation and regulatory policies in each country and very different operating environments.”

Founder, digital payments service, Brazil.

Indeed, in the specific case of financial systems in Brazil, since the 1990s the country made a significant investment in the sector and set up a new regulatory framework. Today, the regulatory framework in Brazil is one of the strongest in the region. The Central Bank of Brazil and the Council for the Control of Financial Activities immediately request information from banks involved in transactions that could potentially breach AML regulations.

A director specialising in fraud and financial crime at Scotiabank explained, “Although there has been a shift to greater technology use to identify irregular patterns, there is still a delay in the capacity of institutions to detect criminal activity. There is also a challenge in keeping up with increasing sophistication of financial crime.”

“Although there has been a shift to greater technology use to identify irregular patterns, there is still a delay in the capacity of institutions to detect criminal activity. There is also a challenge in keeping up with increasing sophistication of financial crime.”

Director, fraud and financial crime, Scotiabank

Elsewhere across the region however, it is the weakness of financial crime investigation institutions that is the problem. These institutions are fundamental apparatus for fighting money laundering but across many countries in Latin America, they are highly politicised and inefficiently run. A major challenge is simple file-keeping. Data shows that more than 90% of files compiled and held by financial investigations units are never used as legal evidence in court and thus never scrutinised properly.

Back in Brazil, it is still too early to know whether authorities will be inspired by the North American AML model and design their own whistle-blower programme on money laundering. However, in Brazil there are already legal mechanisms to encourage reporting, capable of favouring the detection and dismantling of violations of anti-money laundering legislation.

Financial institutions have the greatest obligations to face financial crimes. Regardless of the national environment, the fact that they are part of an international markets subjects them to greater external pressure, this does not exempt them from continuing to be a greater risk for irregular operations. Right now the main focus is definitively on the welfare bank and the government’s intention to attract remittances from abroad despite knowing of the great movement of resources that crime makes through simulating money transfer operations of compatriots.

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