GUATEMALA
Summary
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Sanctions

None

FAFT AML Deficient

No

Higher Risk Areas

 

US Dept of State Money Laundering Assessment

Not on EU White list equivalent jurisdictions

Corruption Index (Transparency International & W.G.I.)

World Governance Indicators (Average Score)

International Narcotics Control Majors List

Offshore Finance Centre

Compliance of OECD Global Forum’s information exchange standard

Medium Risk Areas

 

Non - Compliance with FATF 40 + 9 Recommendations

Weakness in Government Legislation to combat Money Laundering

Failed States Index (Political Issues)(Average Score)

 

 

ANTI-MONEY LAUNDERING

 

FATF Status

Guatemala is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

 

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Guatemala was undertaken by the Financial Action Task Force (FATF) in 2016. According to that Evaluation, Guatemala was deemed Compliant for 15 and Largely Compliant for 14 of the FATF 40 Recommendations.

Key Findings

The Republic of Guatemala has various legislative, regulatory and institutional structures standing to cope with the fight against money laundering and terrorist financing (ML/FT). The level of compliance of the country is highlighted regarding most of the technical criteria of the FATF Recommendations. However, in certain areas of the AML/CFT system of Guatemala, improvements to achieve better effectiveness outcomes are required.

It is important to stress the activities of Guatemala in risk identification through the National Risk Assessment (NRA). In general, there is an adequate level of understanding of ML risks, as well as an adequate level of coordination and cooperation by the authorities and the private sector. However, in the case of TF risks, both the authorities and the Obligated Subjects (hereinafter OSs) still need a better understanding of the associated risks.

The financial intelligence generated by the Financial Intelligence Unit (Intendencia de Verificación Especial –IVE–, in Spanish, hereinafter IVE) is used by the competent authorities both in ML investigations as in predicate offences and asset forfeiture processes. The IVE gathers information from several sources of OSs and government agencies. In the field of TF, given the absence of TF related cases, verification of the existence and use of financial intelligence on TF was not possible.

Guatemala has provided evidence on combating ML and predicate offences related to most of its identified threats. It is also empowered to forfeit assets from the proceeds of illegal activities. Additionally, the country has a property management system that allows their administration and disposition. However, while there is a legal mean which provides for the Court forfeiture of property of corresponding value, this law has not been applied in practice yet in the case of asset forfeiture procedures.

Deficiencies in the appropriate criminalization of TF would affect the effectiveness in the fight against TF. There has not yet been any case or investigation on TF. Guatemala has recently created the prosecution agency specialized in TF, which is considered a positive step in the fight against TF.

Guatemala has taken regulatory measures for the implementation of United Nations Security Council (UNSC) Resolutions 1267/1989 and 1988 on terrorist funds and assets and UNSC Resolutions 1718 and 1737 on funds and assets related to the financing of proliferation of weapons of mass destruction (FPWMD). However, the regulatory framework still needs to be strengthened to enforce the obligations set out in Recommendations 6 and 7, particularly regarding the implementation of UNSCR 1373.

Financial Institutions (FIs) in the financial system are aware of the nature and level of ML risks in their sector and, in general, have appropriate policies and procedures to mitigate and control these risks. However, in the case of microfinance institutions (except those registered as non-profit organizations (NPOs) that meet the criteria to be considered OSs), they are not yet OSs to the AML/CFT regulations in Guatemala.

It is observed that designated non-financial businesses and professions (DNFBPs or non-financial OSs), still need to increase their efforts to adequately understand their obligations, as well as the ML/TF risks to which they are exposed. Activities carried out by lawyers and notaries referred to by the FATF Standards are not all subject to AML/CFT regulations and they are not supervised for such purpose. Casinos and video lotteries are not OSs under AML/CFT regulations.

The IVE performs the supervision of AML/CFT obligations of FIs and DNFBPs with a ML/TF riskbased approach (RBA). Although the IVE has imposed some monetary sanctions on OSs, it is considered that these are limited and that the sanctions regime is not proportionate, dissuasive or effective.

The issuance and the circulation in the market of bearer shares are forbidden. The IVE has efficiently disseminated typologies regarding legal persons and arrangements. Information on beneficial ownership of corporations cannot be gathered reliably, since legal entities are not obliged to gather such information from their shareholders, irrespective of the fact that they may be natural persons or legal persons or arrangements. Access to information on legal persons or arrangements cannot be performed in a timely and effective fashion for the OSs to conduct their CDD.

Guatemala has a wide range of legal and administrative instruments to foster international cooperation from all relevant agencies aimed at preventing and combating ML/TF. In this sense, the country has provisions in force to provide broad levels of collaboration with foreign authorities.

 

Risks and general situation

Pursuant to the ML/TF NRA, the major threats were drug trafficking, illicit cross-border transportation of cash, goods smuggling and extortion. Also, active/passive bribery, offence including embezzlement and corruption of public officials are legally defined as medium crime threats in the ML context. In terms of vulnerabilities, the ML/TF NRA detected as medium-high funds transfer companies (FTC) and the credit union had medium-high level of importance as vulnerable to ML activities. On the side of DNFBP, casinos –video lotteries, lawyers and notaries are not subject to AML/CFT requirements and ML/TF NRA regulations determined a high level of vulnerability to ML for those activities.

Guatemala has considered, with a limited scope, the ML/TF risks of the volume of the informal economy and the impact in the context of ML/TF. Additionally, microfinance companies, whose activity is not regulated and not subject to obligations, were not considered in the ML/TF NRA, with the exception of funds from microcredits loaned by entities in the microfinance sector which in the context of risks related to financial inclusion were rated with a medium-low vulnerability level. The ML/TF NRA determined that TF represents a medium-low level of threat.

 

US Department of State Money Laundering assessment (INCSR)

Guatemala is categorised by the US State Department as a Country/Jurisdiction of Primary Concern in respect of Money Laundering and Financial Crimes.

OVERVIEW

 

Guatemala continues to be a transshipment route for South American cocaine and heroin destined for the United States, and for cash returning to South America. Smuggling of synthetic drug precursors is also a problem. Reports suggest the narcotics trade is increasingly linked to arms trafficking.

 

Guatemala continues incremental progress in its ability to investigate and prosecute money laundering and other financial crimes, with a key agency beginning to provide technical assistance to other nations. However, there remain vulnerabilities due to a lack of complete coordination by the Public Ministry (PM) prosecutors, and the tendency of the jurisdiction to treat money laundering as a stand-alone crime, rather than coordinating money laundering cases with those involving extortion, corruption, or trafficking.

Open issues for Guatemala include: improved communications between the Special Verification Agency (IVE), Guatemala’s FIU, and the PM; development of more internal capacity for financial crime investigations at the PM, including combined efforts by different Ministry offices; greater coordination among different financial supervision entities, including the IVE and other parts of the Superintendent of Banking; institutionalization of coordination between the PM and the National Secretariat for Administration of Forfeited Property (SENABED), the entity in charge of seized asset administration; and greater autonomy for SENABED. Additionally, relevant agencies remain chronically understaffed.

 

In order to improve efficiencies and maximize the effectiveness of a solid legal framework to address AML issues, Guatemala should continue to use vetting and corruption investigations to weed out those elements that hinder trust within and among relevant agencies.

 

VULNERABILITIES AND EXPECTED TYPOLOGIES

 

Illicit funds come from various sources, with drug trafficking only one among them. Others include institutional corruption, extortion, human trafficking, commerce of other illicit goods, and tax evasion. Money is most notably laundered through real estate transactions, ranching, the concert business, and the gaming industry. It is also laundered through serial small transactions below the $10,000 reporting requirement, either in small banks along the Guatemala-Mexico border, or by travelers carrying cash to other countries. Guatemala does not currently prohibit structuring of deposits to avoid reporting requirements.

 

Authorities are increasingly effective in conducting sound investigations of financial crimes, with the limitations noted above. Guatemalan investigations still face political headwinds with rampant corruption at all levels of government, both elected and within the existing bureaucracies, the latter often tied to low pay and traditional practices to supplement income. In both cases, improved transparency, increased professionalism, and ongoing efforts to investigate and eliminate corruption are making a difference.

 

There is a category of “offshore” banks in Guatemala in which the customers’ money is legally considered to be deposited in the foreign country where the bank is headquartered. These “offshore” banks are subject to the same AML regulations as local banks.

 

Guatemala has 14 active FTZs. FTZs are mainly used to import duty-free goods utilized in the manufacturing of products for exportation, and there are no known cases or allegations that indicate FTZs are hubs of money laundering or drug trafficking activity.

 

The Central America Four Border Control Agreement among El Salvador, Guatemala, Honduras, and Nicaragua allows for free movement of the citizens of these countries across their respective borders. As a result of this agreement, Guatemalan customs officials are not requiring travelers crossing their land border to report cash in amounts greater than $10,000, as required by law.

 

KEY AML LAWS AND REGULATIONS

Guatemala has a solid AML legal framework. The KYC and STR regulations, however, are not as effective as they might be, given the lack of coordination and cooperation by relevant government agencies, and lack of manpower.

 

Guatemala is a member of both the CFATF and GAFILAT, both FATF-style regional bodies.

 

Guatemala and the United States do not have a MLAT. Other mechanisms are used to exchange relevant information.

 

AML DEFICIENCIES

 

While Guatemala does exercise enhanced due diligence for PEPs, there are other deficiencies. Detected weaknesses include DNFBPs such as notaries, attorneys, and casinos or video lotteries, as being at high risk for serving as money laundering vehicles. The casinos in particular are an area where further legislation is necessary. Casinos are currently unregulated and a number of casinos and games of chance operate, both onshore and offshore. Otherwise, the required legislative frameworks are in place to address primary concerns regarding money laundering.

 

ENFORCEMENT/IMPLEMENTATION ISSUES AND COMMENTS

 

Although a recent report highlighted the strengths of the IVE and its ability to investigate money laundering and the legal frameworks are useful, there remain procedural challenges that limit the efficiency of the IVE and the PM, a shortage of staff to adequately address the demand for investigation and analysis, and the ongoing problem of a lack of collaboration and cooperation among offices in the PM, at times even within offices, based on lack of trust because of rampant societal corruption.

 

In the 12 month period ending July 31, 2016, the PM office in charge of money laundering prosecutions received 411 accusations, filed charges in 100 cases, and obtained 42 convictions.

 

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SANCTIONS

There are no international sanctions currently in force against this country.

 

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BRIBERY & CORRUPTION

 

Index

Rating (100-Good / 0-Bad)

Transparency International Corruption Index

28

World Governance Indicator – Control of Corruption

26

 

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INVESTMENT CLIMATE - Executive Summary (US State Department)

President Otto Pérez Molina has continued programs initiated by prior administrations to promote foreign investment, enhance competitiveness and expand investment in the export, energy, and tourist sectors. In the World Bank’s 2014 Doing Business Report, Guatemala improved 14 positions from 93 to 79 of 189 ranked economies and was listed as one of the top ten economies improving the most in 2012/2013. The Report also listed Guatemala as one of the top 50 improvers in the world and one of the top five improvers in the Latin American and Caribbean region since 2005. Hundreds of U.S. and other foreign firms have active investments in Guatemala.

However, mining has historically been a sensitive issue in Guatemala, and operations in Guatemala have been subject to protests. The United States has also raised concerns with the Government of Guatemala’s adherence to its CAFTA-DR obligations with respect to the effective enforcement of both its labour laws and its environmental laws.

Complex and confusing laws and regulations, inconsistent judicial decisions, bureaucratic impediments and corruption continue to constitute practical barriers to investment.

 

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FURTHER REPORTS

IMF Report: Guatemala - 2016 Article IV Consultation (Extract)

Corruption

The 2015 political crisis has brought an anti-corruption agenda to the fore. Corruption is deeply-rooted in Guatemala. The global competitiveness report (2015–16) lists corruption as one of the most problematic factors for doing business in Guatemala. During 2015, the International Commission against Impunity in Guatemala (CICIG) helped unveil cases of tax graft, money laundering, and illegal funding, which led to the arrest of top officials in the Tax and Customs Authority (SAT) and the Social Security Institute, and to the indictment of former President Perez Molina and Vice President Baldetti. Amid broad national discontent, traditional political parties lost support in favor of President Morales, who took office in January 2016 on a platform of no-tolerance against corruption.

A central priority in the fight against corruption is the tax administration (SAT). Unveiled cases of taxgraft in 2015 have sharply eroded the credibility of an already ailing SAT, weakened tax compliance, and ledto collection losses. The new government has adopted emergency actions to regain control over customs and institute a new SAT law recently approved by Congress aimed at strengthening governance and removing bank secrecy constraints to tax enforcement starting in 2017. A strategic plan for tax and customs administration is being developed, with Fund assistance.

In late 2015, Congress approved changes to strengthen the governance and transparency of government’s procurement practices. Key innovations are the creation of an e-outlet (“Guatecompras”) to provide transparent information on procurement transactions and the introduction of reverse auctions to enhance competition among suppliers. The new bill on procurement forbids government contracts with state officials and sponsors of political parties. It also improves the technical capacity of government’s awarding committees, and sets up penalties for collusion or noncompetitive practices in supplying the government. The authorities are also developing a strategy to increase fiscal transparency, with Fund assistance.

The anti-corruption effort extends to Congress, the Judiciary, and political parties. New organic laws were passed to improve the accountability of Congress and enhance the independence of the Judiciary in 2016. The bills reduce conflict of interest by discouraging deputies from switching political parties and constrain their hiring of excessive staff. The bills also reduce discretion in the removal of the general attorney; grant him/her with broader powers to designate prosecutors and strengthen criminal investigation. More recently, Congress passed bills to increase the transparency of funding of political parties, set guidelines to develop the judicial service, and enhance recruitment and promotion of civil servants in Congress based on merit. A civil service initiative for the Executive is also under way.

The government plans to reform the Constitution to further strengthen the Judiciary. Congress will soon consider reforms to broaden access to justice, strengthen the role and protection of judges, and reduce abuses of immunity granted to government officials. In the meantime, a stricter application of the rule of law has led to multiple legal proceedings against the illicit use of government funds, money laundering, and bribery, which have led to the recovery of past-due taxes and other assets.

Financial Integrity in Guatemala

The loss of CBRs has been limited but the risks from money laundering activities are real. So far, only four correspondent banks have canceled accounts with four small Guatemalan banks. The small scale of business in Guatemala, high operational and compliance costs, the risk of enforcement actions, and the change in the business model of foreign banks, are the likely reasons for the loss. Nonetheless, three of the affected local banks have foreign credit lines with other correspondent banks. Moreover, the overall value of the foreign credit lines has continued rising in 2015 and the amount drawn stands at $4.9 bn (22 percent of credit to the private sector). The number of correspondent banks has also increased. However, there are other risks. Several bank managers and small individual customers are under money laundering investigations though the banks involved have remained well-capitalized and liquid.

The supervisor has stepped up vigilance and contingency planning. Tougher AML/CFT laws aimed at strengthening controls on activities such as remittances transfers, leasing, and factoring are under consideration. The supervisor is improving enforcement of the policy of knowing the final beneficiaries of bank operations. Harsher penalties for non-compliance with the reporting of suspicious transactions are under way. Guatemala’s Financial Intelligence Unit (IVE) has undertaken a national risk assessment and has increased the number of on-site inspections, which helped uncover several money laundering schemes and enhance customer due diligence. The authorities have also developed a proposal for an “open bank” intervention, which could facilitate the strengthening of ailing systemic institutions by temporarily placing them under public sector management.

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