EXCLUSIVE | Possible Crypto-Asset Laundering Sets Off Alarm Bells in Colombia

The country’s anti-money laundering czar Javier Gutiérrez López spoke to Bloomberg Línea, in his first comments to the media, of allegedly suspicious transactions carried out over the last four years

Colombia's Financial Information and Analysis Unit (UIAF) reveals that, between 2014 and 2021, it has received 1,379 reports of operations suspected of being illicit that involve cryptocurrency transactions
August 01, 2022 | 07:40 PM

Bogotá — Colombia is advancing in the regulation of crypto assets from the financial and legal angle. However, one major, and not just in Colombia but globally, is how much crypto currencies favor illicit organizations working locally and internationally to mobilize resources for money laundering, financing terrorism and even feeding corruption networks.

In an interview with Bloomberg Línea, Colombia’s anti-money-laundering czar, Javier Gutiérrez López, director of the country’s Financial Information and Analysis Unit (UIAF), says the financial watchdog “has already detected possible money laundering and terrorist financing operations using virtual assets”.

The UIAF closely monitors transactions in the financial system and in the real sector of the economy, in order to detect anomalies associated with possible money laundering operations and report them to the authorities.

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However, while the UIAF receives information from more than 23,000 entities obliged to report their transactions, from the financial sector, the real economy and designated non-financial entities such as intelligence agencies, law enforcement agencies and the Prosecutor’s Office itself, among other sources, due to the sensitive information it analyzes, it is not common for the UIAF to divulge the information it compiles.

Gutiérrez López, who has been UIAF director since September 2018 and who has been at the watchdog for 12 years in a number of positions, was speaking with the press for the first time about how Colombia is faring in its anti-money laundering efforts, and what challenges the country faces in financial intelligence, especially with regards to the protection of non-profit entities and the advance in the use of virtual assets in the country.

In fact, in the last four years, alerts have been triggered concerning around 50 trillion Colombian pesos ($11.6 billion) in possibly suspicious operations of money laundering analyzed, equal to what the incoming government of President-elect Gustavo Petro aims to collect with its tax reforms.

The UIAF has produced 550 intelligence reports, averaging 13 per month on average, over the last four years, 35% of which were related to alleged instances of corruption, involving some five trillion pesos and 1,139 individuals and companies.

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”It’s no secret that money laundering and terrorist financing through virtual asset mining is due to the fact that illegal money can be used to acquire computer tools for mining, or to pay for the mining service; in this way, illegal money that drives the initial offer can be mixed with legal money.”

Javier Gutiérrez, director of UIAF

Possible laundering with crypto

Gutiérrez told Bloomberg Línea that “virtual assets appear in suspicious transaction reports, and in UIAF intelligence reports, associated with movements of money of illicit origin for possible money laundering and financing of terrorism in transactions by transnational criminal networks”.

And specifically regarding virtual assets, the UIAF head revealed that, between 2014 and 2021, it has received 1,379 reports of suspicious operations involving transactions with such assets.

For this reason, the government issued Resolution 314 in December last year, which requires virtual asset service providers to send reports of individual and multiple operations with such assets, as well as those that appear doubtful.

On this point, Gutiérrez states that, despite the controls, there are still holes in the government’s anti-laundering armor.

Javier Gutiérrez, UIAF directordfd

“It’s no secret that money laundering and terrorist financing through virtual asset mining is due to the fact that illicit money can be used to acquire computer tools for mining, or to pay for the mining service; in this way, illicit money that drives the initial offer can be mixed with legal monies,” Gutiérrez says.

He points out that, in addition to mining, there are several elements that can cast a shadow on such transactions.

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“The main characteristic is that virtual assets are pseudo-anonymous. The lack of information to establish who is the originator of the funds, who carries out the transaction, what is the destination of the resources and who is the final beneficiary, is undoubtedly the biggest challenge.”

In order to move forward in the fight against laundering, Gutiérrez says it is important to identify who performs mining, their financiers, who issues the virtual assets, and who acquires them. He warns however that there is still a way to shield against the misuse of digital currencies.

“Our goal is not to stigmatize virtual assets, we want to protect them from the penetration of illicit money. But it is necessary to evaluate and understand the risk in operations with digital assets, and move toward a single anti-money laundering regulation. Colombia must issue regulations that define the country’s position on the issue, including whether or not to prohibit such assets. For this, a framework law would be appropriate, and the issuing of regulations that feed a sanctions scheme,” he says.

The need to protect nonprofits

The fact is that money laundering goes beyond crypto, however, and to attack the financing of transnational criminal organizations, the UIAF has developed 15 projects to give strength to the anti-money laundering system through public policies, and it has worked on strategies such as one that aims to accelerate the gathering of intelligence information, and the so-called dynamic and effective anti-money laundering system (SDE), which is a mechanism that makes it easier to tie up the loose ends of money, people and resources.

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“Our goal is not to stigmatize virtual assets, we want to protect them from the penetration of illicit money. But it is necessary to evaluate and understand the risk in operations with digital assets and move towards a single anti-money laundering regulation”

Javier Gutiérrez, director of UIAF

Gutiérrez told Bloomberg Línea that one of the challenges of the incoming government is accelerating the work for the evaluation “of the risk of terrorist financing through non-profit entities”, as required by the Financial Action Task Force (FATF).

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“Without stigmatizing, the objective is to protect these organizations, which aid society, from being used by terrorist groups for criminal purposes,” warns Gutiérrez.

Another challenge is to close the gaps between the FATF recommendations and the gaps that Colombia still has, he says. For example, the mandate of the United Nations Security Council in the area of financial sanctions, and the freezing of assets of persons or entities designated as terrorists by that body must be complied with.

In addition, Gutiérrez insists that the anti-money laundering regime needs to be extended much more to all activities and professions, and therefore proposes the creation of a regulatory body to supervise this aspect.

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“Although progress has been made with the regulations of the Superintendency of Companies to cover lawyers, accountants, real estate and dealers in precious metals and stones, the regulatory scheme does not cover the entire universe,” Gutiérrez says.

Translated from the Spanish by Adam Critchley