The key challenges of AML compliance in Latin America and the Caribbean

Whether conducting risk assessments or reviewing client due diligence, it is vital to understand the risks and responsibilities of money laundering challenges for different jurisdictions.

In this article, VinciWorks considers the key AML challenges and laws in Honduras, and what organisations should consider when assessing customer, geographic or matter risk.

For more on the key AML risks and challenges in Latin America and the Caribbean, download our free guide to compliance.

Click here to download a free copy.

Key risks

• State-sponsored drug trafficking – the US has named former president Juan Orlando Hernández as a ‘state-sponsor’ of drug trafficking. The new president, Xiomara Castro, is a former first lady whose husband, former president Manuel Zelaya, has been accused of taking $500,000 in bribes from drug traffickers. Drug trafficking gangs are protected by the political system, which has allowed local production to flourish in Honduras, beyond the country only being a transit point. 
• Corruption – corruption is endemic in Honduras, with the country ranking 146th out of 180 countries and receiving the second lowest score in Central America. Hondurans have deteriorating confidence in their institutions and anti-corruption efforts. Corruption costs around $2 billion a year, 12.5% of the country’s GDP. 
• Organized crime – Honduras is one of the most violent countries in the region. Violence is frequent and conducted by local drug trafficking groups, criminal gangs, drug cartels from Mexico and Colombia, as well as corrupt security forces.
• Extortion – this is a common problem in Honduras and the estimated value of such activity is at least $200 million a year.

Criminal proceeds

An estimated $351 million – $878 million is laundered every year in Honduras.

AML policy summary

Honduras is seen to have a lack of political will to deal with money laundering and weak institutions. It also has weak prosecution and investigation efforts, however it is seen as having stronger detection and prevention measures. 

Legal summary

There are concerns of backsliding in the legal framework. A new criminal code lowers the sentences for corruption and drug trafficking cases from as high as 20 years to as little as four years. Stricter slander and defamation laws have muzzled reporting about crimes and corruption, and seriously threaten freedom of expression and of the press. 

The main money laundering laws in Honduras are:

• The 2015 Special Law on Asset Laundering – this updates and establishes systems of prevention and control to combat money laundering
• The 2015 Law Regulating Designated Non-Financial Activities and Professions – established measures to regulate DNFBPs
• The 2010 Law on Definitive Deprivation of the Domain of Goods of Illicit Origin – focused on identifying, locating, and securing goods or assets with illicit origins. 

Weaknesses

Endemic corruption hampers the country at all levels. During the height of the pandemic, the head of the government agency tasked with procuring medical supplies sold off five of seven mobile hospitals and pocketed $47 million.

Drug money is also endemic in the system, particularly in politics. There is a lack of beneficial ownership information, as well as ownership of assets used to facilitate drug smuggling such as aircraft and boats.

The justice system has often sided with the corrupt as well. Former first lady Rosa Elena Bonilla de Lobo was convicted on charges of fraud and embezzlement, but that decision was later overturned by the supreme court. An appeals court also ended prosecution of public officials charged with a vast corruption scheme in which millions of government funds were embezzled for political purposes, using sham nonprofits linked to the family of former President Hernández.

Lawyers are seen as key gatekeepers to the financial system, giving an easy point of entry for money laundering. Honduras is heavily involved in money laundering schemes involving real estate in Panama and the US. 

Honduras ended the mandate of the Support Mission against Corruption and Impunity in Honduras, which had investigated significant networks of public and private corruption and aimed to strengthen the regulatory system. US technical assistance has also stuttered. 

Strengths

The election of leftist Xiomara Castro could mark a turning point. Her victory broke 12 years of rule by the National Party which had become synonymous with drug trafficking and corruption under the previous Hernández administration. 

Castro acknowledges that drug gangs have ‘captured’ state institutions, but disentangling and dismantling criminal structures deeply embedded in the state by the National Party, and supported by corrupt security forces, will be a key challenge. 

More information

VinciWorks has created a guide designed to support businesses that currently operate in Latin America and the Caribbean, or are planning to, or seeking to expand to new countries in the region. This guide provides an overview of some of the key AML challenges and issues and includes a country-by-country assessment of AML risks and laws. 

Click here to download a free copy.