Paraguayan authorities have announced historic sanctions against a major Brazilian bank in the latest case of Latin American governments cracking down on financial institutions that do not comply with anti-money laundering regulation.
On October 29, Paraguay’s Ultima Hora announced that the Central Bank of Paraguay (Banco Central del Paraguay – BCP) had imposed a $9.64 million fine on Brazil’s Banco Itaú for breaking anti-money laundering regulations last August 2020.
The bank had allegedly failed to report suspicious transactions to the Secretariat for the Prevention of Money or Property Laundering (Secretaría de Prevención de Lavado de Dinero o Bienes – SEPRELED), thereby violating Article 19 of Paraguay’s Law No. 1015 concerning money laundering.
This was the largest fine related to money laundering in Paraguayan history, Diego Marcet, general director of SEPRELED’s legal department told Radio Universo, adding that a lack of adherence to anti-money laundering regulations was systemic.
In response, Banco Itaú’s stated the fine was due to a specific incident on August 21 that the bank had reported itself and that it had a strict and rigorous money laundering prevention policy, according to news website RDN. The bank reportedly already lost its first appeal on September 9 but it may do so again.
And this is but the latest fine Banco Itaú has faced of late. In October 2019, Brazil’s Operation Car Wash (Lava Jato) anti-corruption probe found Banco Itaú had enabled $16.4 million worth of illegal transactions used for the payment of bribes. This was followed one month later by the city of São Paolo fining Itaú a gargantuan $662 million for evading state taxes. And in June 2019, the bank agreed to return $13.1 million to the 4.7 million customers it over-charged from 2008 to 2018, as well as paying a penalty of nearly $2 million.
InSight Crime Analysis
Big banks in Latin America have wilfully ignored anti-money laundering controls while profiting from illicit flows. Yet the surprising sanctioning of Banco Itaú by Paraguayan authorities may mean such impunity is finally beginning to be challenged.
In 2019, Paraguay was named in one index as the country with the second-highest risk of money laundering in Latin America. That same year, Brazilian authorities requested the extradition of former Paraguayan President Horacio Cartes (2013-2018) to face money laundering charges related to the Odebrecht scandal.
Paraguay’s role as South America’s main provider of both marijuana and counterfeit goods mean there is plenty of dirty money swirling around, while endemic police corruption, struggling judicial systems and the penetration of Brazilian organized crime mean the state lacks any meaningful enforcement capacity of even basic illegal activities, let alone more sophisticated financial crimes.
Yet this case may highlight tentative progress in Paraguay, with the aforementioned index noting a slight decrease in Paraguay’s vulnerability since 2017. This is perhaps due to a delayed effect of important steps taken in 2015 to combat the problem, such as the creation of an anti-money laundering unit within the Attorney General’s Office.
Paraguayan law enforcement are heavily dependent on Brazilian intelligence to conduct raids, making the fining of Banco Itaú particularly interesting. Investigating money laundering within an international bank is a complex matter yet Brazilian authorities appear not to have played a role with Itaú not having been sanctioned in Brazil on the same charges.
Brazilian banks became enmeshed in their own scandals during the “Lava Jato” investigation, which discovered that the country’s five biggest banks, including Itaú, had allowed the laundering of some $325 million used to pay bribes. Paraguayan financial institutions, particularly currency exchanges, have also laundered money for Brazilian criminal groups.
The most famous scandal related to banks laundering criminal proceeds came in 2012 when HSBC was famously fined $1.9 billion in the United States and $27.5 million in Mexico for negligently laundering over $881 million for Mexican and Colombian cartels.
But hopes the record sanctions would lead to substantive change never transpired. In September 2020, a new investigation by Connectas and Quinto Elemento Lab revealed that a former HSBC official, who had allegedly enabled corrupt clients to maintain their bank accounts in violation of the bank’s regulations, was now a senior anti-money laundering official in the Mexican government.