El Salvador

Located on the Pacific coast of the Central American isthmus, El Salvador has one of the largest and most developed banking systems in Central America. Its most significant financial contacts are with neighboring Central American countries, as well as with the United States, Mexico and the Dominican Republic. The growth of El Salvador's financial sector, the increase in narcotics trafficking, the large volume of remittances through the formal financial sector and alternative remittance systems, and the use of the U.S. dollar as legal tender make El Salvador vulnerable to money laundering. In 2006, approximately $3.3 billion in remittances were sent to El Salvador through the financial system. Most were sent from Salvadorans working in the United States to family members. The quantity of additional remittances that flow back to El Salvador via other methods such as visiting relatives, regular mail and alternative remittance systems is not known.

Most money laundering is conducted by international criminal organizations. These organizations use bank and wire fund transfers from the United States to disguise criminal revenues as legitimate remittances to El Salvador. The false remittances are collected and transferred to other financial institutions until sufficiently laundered for use by the source of the criminal enterprise, usually a narcotics trafficking organization.

Decree 498 of 1998, the "Law Against the Laundering of Money and Assets," criminalizes money laundering related to narcotics trafficking and other serious crimes, including trafficking in persons, kidnapping, extortion, illicit enrichment, embezzlement and contraband. The law also establishes the financial intelligence unit (FIU), the Unidad de Inteligencia Financiera (UIF), within the Attorney General's Office. The UIF has been operational since January 2000. The National Civilian Police (PNC) and the Central Bank also have their own anti-money laundering units.

Under Decree 498, financial institutions must identify their customers, maintain records for a minimum of five years, train personnel in identification of money and asset laundering, establish internal auditing procedures, and report all suspicious transactions and transactions that exceed approximately $57,000 to the UIF. Entities obligated to comply with these requirements include banks, finance companies, exchange houses, stock exchanges and exchange brokers, commodity exchanges, insurance companies, credit card companies, casinos, dealers in precious metals and stones, real estate agents, travel agencies, the postal service, construction companies and the hotel industry. The law includes a safe harbor provision to protect all persons who report transactions and cooperate with law enforcement authorities, and also contains banker negligence provisions that make individual bankers responsible for money laundering at their institutions. Bank secrecy laws do not apply to money laundering investigations.

Cooperation between the Attorney General's Office and the police has resulted in the conviction of two individuals for money laundering offenses, and the arrests of several high-profile individuals suspected of money laundering and other financial crimes. Additionally, the Government of El Salvador (GOES) has recently begun to investigate private companies and financial service providers involved in suspicious financial activities. Despite demonstrating a greater commitment to pursue financial crimes over the previous year, the GOES still lacks sufficient prosecutorial and police resources to adequately investigate and prosecute financial crimes.

The GOES has established a secure computerized communication link between the Attorney General's office and the financial crimes division of the police. In addition to providing communication, the system has a software component that filters, sorts, and connects financial and other information vital to money laundering investigations. The system became operational in the last quarter of the year and is expected to greatly enhance investigative capabilities.

To address the problem of international transportation of criminal proceeds, Decree 498 requires all incoming travelers to declare the value of goods, cash or monetary instruments they are carrying in excess of approximately $11,400. Falsehood, omission or inaccuracy on such a declaration is grounds for retention of the goods, cash or monetary instruments, and the initiation of criminal proceedings. If, following the end of a 30-day period, the traveler has not proved the legal origin of said property, the Salvadoran authorities have the authority to confiscate it. In 2006, the PNC seized over $2.2 million in undeclared cash from individuals transiting El Salvador's international airport and land border crossings.

The GOES has established systems for identifying, tracing, freezing, seizing and forfeiting narcotics-related and other assets of serious crimes. Forfeited money laundering proceeds are deposited in a special fund used to support law enforcement, drug treatment and prevention, and other related government programs, while funds forfeited as the result of other criminal activity are deposited into general government revenues. Law enforcement agencies are allowed to use certain seized assets while a final sentence is pending. In practice, however, the process does not often result in the forfeiture of funds that are then channeled to counternarcotics operations. There exists no legal mechanism to share seized assets with other countries. Salvadoran law currently provides only for the judicial forfeiture of assets upon conviction (criminal forfeiture), and not for civil or administrative forfeiture. A draft law to reform Decree 498 to provide for civil forfeiture of assets has stalled in the national legislature.

The GOES passed counterterrorism legislation, Decree No. 108, on September 19, 2006. Decree No. 108 further defines acts of terrorism and establishes tougher penalties for the execution of those acts. Article 29 of Decree No. 108 establishes the financing of terrorism as a criminal offense, punishable by a prison term of 20 to 30 years and a monetary fine ranging from $100,000 to $500,000. The law also granted the GOES the legal authority to freeze and seize suspected assets associated with terrorists and terrorism. However, provisions to improve supervision of cash couriers, wire transfers, and financing of nongovernmental organizations (NGOs) that were included in an early draft were not included in the final law.

The GOES has circulated the names of suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee consolidated list to financial institutions. These institutions are required to search for any assets related to the individuals and entities on the consolidated list. There is no evidence that any charitable or nonprofit entity in El Salvador has been used as a conduit for terrorist financing.

El Salvador has signed several agreements of cooperation and understanding with financial supervisors from other countries to facilitate the exchange of supervisory information, including permitting on-site examinations of banks and trust companies operating in El Salvador. El Salvador is also a party to the Treaty of Mutual Legal Assistance in Criminal Matters signed by the Republics of Costa Rica, Honduras, Guatemala, Nicaragua and Panama. Salvadoran law does not require the UIF to sign agreements in order to share or provide information to other countries. The GOES is party to the Organization of American States (OAS) Inter-American Convention on Mutual Assistance in Criminal Matters, which provides for parties to cooperate in tracking and seizing assets. The UIF is also legally authorized to access the databases of public or private entities. The GOES has cooperated with foreign governments in financial investigations related to narcotics, money laundering, terrorism, terrorism financing and other serious crimes.

El Salvador is a member of the OAS Inter-American Drug Abuse Control Commission (OAS/CICAD) Experts Group to Control Money Laundering and the Caribbean Financial Action Task Force. The UIF has been a member of the Egmont Group since 2000. The GOES is party to the OAS Inter-American Convention against Terrorism, the UN International Convention for the Suppression of the Financing of Terrorism, the 1988 UN Drug Convention, the UN Convention against Transnational Organized Crime and the UN Convention against Corruption. El Salvador is also a signatory to the Central American Convention for the Prevention and Repression of Money Laundering Crimes Related to Illicit Drug Trafficking and Related Crimes.

The Government of El Salvador made advances in 2006 with the passage of counterterrorist financing legislation. El Salvador should continue to expand and enhance its anti-money laundering policies and strengthen its ability to seize and share assets. Remittances are an important sector of the economy, which must therefore be carefully supervised. The GOES should improve supervision of cash couriers and wire transfers as outlined in the Financial Action Task Force (FATF) Special Recommendations on terrorism financing. The GOES should also ensure that sufficient resources are provided to the overburdened Attorney General's office and the financial and narcotics divisions of the police.