November 14, 2022
WASHINGTON D.C. November 14th, 2022 (@IllicitFlows) – Anti-money laundering and countering terrorism financing (AML/CFT) standards in Latin America and the Caribbean have not kept pace with emerging technologies and asset classes, according to new research by Global Financial Integrity (GFI). As a growing number of consumers adopt the use of cryptocurrency, governments in the region have failed to prevent, detect, investigate and prosecute financial crimes that may arise in this space.
The new GFI report titled “Cryptocurrencies: A Financial Crime Risk within Latin America and the Caribbean” analyzes the benefits of crypto as well as the potential risks that may emerge, both for consumer financial protection as well as for financial crime. It also maps the responses from governments, private sector, academia and civil society in light of rapidly changing dynamics in the region. The report analyzes five countries – Argentina, Brazil, Colombia, El Salvador, and Mexico— selected because of rising crypto usage as well as unique regulatory aspects and domestic contexts.
According to Tom Cardamone, President & CEO of GFI, “Like other financial products or asset classes, the use of cryptocurrencies has become an issue when they are not regulated properly. This report is a warning siren to the looming threat of money laundering and other financial crime in the region,” he noted. “Financial integrity and transparency are key.”
For this report, GFI conducted interviews with subject matter experts from the public sector, private sector, academia and civil society. As part of the analysis, GFI analyzed publicly available information, including national legislation, international standards and best practices. Interviews and analysis shed light on how crypto is developing in LAC and the risks of use when not regulated appropriately.
Governments in the region need to be aware that cryptocurrencies and crypto products cannot be eliminated or ignored, the report argues. They represent new financial products that are here to stay, and that must be regulated to protect users, investors, and processes of the inherent risks that, as of now, are either not regulated or only partially regulated.
To prepare for the risks presented by cryptocurrencies, GFI makes the following recommendations to governments:
- Take measures to better understand the crypto ecosystem in each country;
- Develop comprehensive, substantive regulation that provides clarity and predictability for users and investors;
- Promote knowledge among citizens and users;
- Promote debate and exchange information among all sectors of society;
- Empower initiatives by the private sector as well as by civil society;
- Follow national and international know-your-customer (KYC) and AML/CFT protocols;
- Follow FATF recommendations on new technologies, Virtual Assets (VAs) and Virtual Assets Service Providers (VASPs);
- Learn from other countries’ experiences;
- Strengthen prosecutorial capacity on crypto related financial crimes.
The report argues that legal predictability is key to effective AML/CFT practices, especially in an ever-changing environment. Clear, effective standards can protect users and empower investors, which will contribute to a country’s development. Government regulation of cryptocurrency does not necessarily mean that these asset classes should be adopted as legal tender; rather, these currencies and related products and services should be addressed as part of the AML/CFT system. In this sense, the users and investors who voluntarily use cryptocurrencies will be protected by a regulatory framework. GFI looks forward to continued collaboration with governments, civil society and the private sector to address these challenges in a constructive manner.
This report is part of a larger project by GFI that analyzes financial crimes in Latin America and the Caribbean. The project’s first report, Financial Crime in Latin America and the Caribbean: Understanding Country Challenges and Designing Effective Technical Solutions covered financial crime trends throughout the hemisphere. It looked at illicit proceeds from corruption, drug trafficking, mineral trafficking, trafficking in persons, and smuggling of migrants. Continuing with this effort, this report is part of a newly four-section initiative to understand financial crime threats in the hemisphere.
ABOUT GFI: Global Financial Integrity is a Washington, D.C.-based think tank, producing high-caliber analyses of illicit financial flows, advising developing country governments on effective policy solutions and promoting pragmatic transparency measures in the financial system to promote global development and security.
Advocacy and Communications Coordinator