Effectiveness in the fight against drug trafficking

Uruguay: different but not immune to the context

Today marks one week since the second round (ballotage) of the national elections in Uruguay, and in the past seven days I have read, seen and heard numerous reports and comments from foreign journalists, especially Argentines, surprised, almost stupefied by the fact that the President-Elect has pronounced his first words a few minutes after his victory in the elections was known in a tone of dialogue with the citizenry as a whole, and of respect and conciliation with those who did not vote for him. The speech of the defeated candidate also had that republican character by congratulating his contender and offering collaboration to the next government to "think with long lights."

On Sunday 11/24/2024, the Uruguayan people and their main political leaders gave a new example of our uniqueness in a regional and global context of division, lies and attacks of all kinds on rivals and hate speech and fragmentation. And the next government and the next opposition have the historic opportunity to transform these intentions into effective actions through the adoption of State Policies, based on basic coincidences on some issues such as, for example, measures to combat child poverty and policies to prevent the advance of the scourge of drug trafficking.

This year I participated in the XII CPLDFT Americas Congress (Congress on the Prevention of Money Laundering and Financing of Terrorism of the Americas, Montevideo, Hyatt Hotel 5 and 6/Aug/2024) in which Dr. Guillermo García Orué, a Paraguayan lawyer specializing in the prevention of money laundering, presented intelligence studies that show how the Paraná – Paraguay Waterway can be used to transport drugs to Uruguay, transforming us into a country of collection and transit, increasing the threat of the emergence and connection of local criminal groups with foreign organizations such as the PCC (First Command of the Capital) of Brazil, and raising a hypothesis of a possible shift of some illicit activities from the triple border Paraguay/Brazil/Argentina to the border Santana do Livramento (RS – Brazil) – Rivera (Uruguay),? given the geographical characterization of two twin cities, with a dry border, as well as the similarity of the existence of Arab communities and border trades.?

Uruguay is an example of democratic-republican stability in its social and political institutions in a region permeated by hatred and divided into irreconcilable halves; but we are not immune to the contagion of highly structured criminal practices that will inevitably seek to infiltrate our society and our politics. In this article I will analyze specifically how to attack the bases of support of drug trafficking through an effective Prevention of Money Laundering, only possible through the coordination of the main Political Parties of Uruguay agreeing on the adoption of a long-term institutional and legal framework, that is, plans and actions "with long lights" or State Policies that transcend the rotation of the parties in government.

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Financial intelligence: key to defeating organized crime

Drug trafficking, human trafficking, smuggling and corruption, through increasingly complex and difficult to trace processes, insert money from illicit activities into the formal economic circuit (money/asset laundering), affecting the stability of the financial system and the security of people.

The ?National? Secretariat for the Fight against Money Laundering and the Financing of Terrorism (SENACLAFT) of Uruguay defines money laundering as follows:

"It is the mechanism used to conceal or disguise the origin, location, nature, ownership or control of assets and/or property obtained illegally, through criminal activities such as drug trafficking, financing of terrorism, smuggling, illegal arms trafficking, trafficking in persons, prostitution, extortion, fraud, misappropriation, child prostitution, criminal activities related to crimes of genocide,? war crimes and crimes against humanity, among others."

"The crime of money laundering in its different modalities is legislated in our law in articles 30 to 33 of Law No. 19,574, while the preceding criminal activities are those listed in article 34."

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Money laundering sustains organized crime; it enables its emergence and favors its expansion. I reproduce the words of the Argentine senator and former radical representant Maximiliano Abad: "If we enter any news portal, or watch the series and movies that in recent years have taken over streaming platforms, we are going to find the same result: mafias fall when the mechanisms through which they formalize money are severely damaged. Reality and fiction, this time, coincide."

Financial intelligence is an indispensable tool to identify and cut off the flows of money that give more power to mafias, providing mortal blows to drug trafficking by making it difficult to launder and promoting the recovery of assets, strangling organized crime by depriving it of its sources of financing.

There are numerous reasons that explain the importance of financial intelligence in the prevention and repression of drug trafficking:

• Visibility of criminal networks: Financial intelligence makes it possible to map criminal networks, identify their key actors and understand how they operate. By analyzing financial flows, money can be traced from its illicit origin to its final destination, making it easier to identify those responsible and to dismantle criminal organizations.
• Early detection of suspicious activity: Through the analysis of large volumes of financial data, unusual patterns, non-obvious links between entities, and suspicious transactions that could indicate money laundering activities and other crimes can be detected. This allows authorities to act proactively and prevent illicit funds from being integrated into the formal economy.
• Asset recovery: Financial intelligence is critical to identifying and tracking illicit assets, making them easier to seize and recover. These assets can be used to compensate victims of crime and to finance programs to prevent and combat organized crime.
• International cooperation: Financial intelligence facilitates cooperation between countries, as it allows information on transnational criminal networks to be shared and financial flows to be traced across borders.

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Financial intelligence is based on the collection, analysis, and dissemination of financial information. The data is obtained from various sources, such as banks, exchange houses, public registries and intelligence agencies, which allows the competent authorities to act in coordination by complying with the following stages:

• Data collection: Large amounts of financial data are collected from a variety of sources. In addition to accessing the State's own databases and those of the other agencies involved, it is possible to access national and international, white, black, PEP (Politically Exposed Persons) lists, as well as registry databases, data extraction from social networks and the deep web & dark web, true market places for criminal networks.
• Data analysis: Analytical and "deep dig" tools and techniques are used to identify hidden patterns, non-obvious trends, and relationships between data (relevant entities). There are also tools capable of crawling all types of text documents (PDF, Word, HTML, ??website feeds, etc.) to identify relevant entities, their links to other entities and their properties (ELPs), extract these entities and add them to link analysis diagrams.
• Profiling: Profiles are created of key actors involved in criminal activities, allowing for an understanding of their modus operandi and networks. The tools described in the previous point generate graphic evidence in the form of link diagrams, which are created by analysts and investigators, used by police and prosecutors, and generally accepted as evidence by judges.
• Dissemination of information: Relevant information is shared with the competent authorities so that they can take action accordingly. It is essential that all actors potentially involved in the fight against drug trafficking and money laundering maintain communication and information exchange mechanisms, which will enhance the capacities for the prevention, detection and prosecution of these crimes.

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Financial intelligence is an essential component of the fight against drug trafficking. By providing a clear view of the finances of criminal organizations, it allows authorities to make more informed and effective decisions to combat this scourge. Money laundering by organized crime is a problem of enormous magnitude and complexity. Obtaining an exact figure on the percentage of global or Latin American GDP that money laundering represents is extremely difficult due to the clandestine nature of this crime. However, I will reproduce some estimates from the Fourth Update of the Regional Threats Report on Money Laundering and Terrorist Financing issued in July 2024 by GAFILAT (Financial Action Task Force of Latin America), which allow us to have a general idea of the magnitude of the problem.

·?????? Smuggling: According to the ALAC (Latin American Anti-Smuggling Alliance), smuggling generates an estimated profit of almost 2% of Latin America's GDP, ?which corresponds to about US$ 210,000 million per year, affecting industries such as steel, metalworking, tobacco, liquor, medicines, cosmetics, plastics, footwear, textiles and cybersecurity.

·?????? Environmental crimes: In July 2021, the FATF (Financial Action Task Force) issued a new report on the relationship between environmental crimes and money laundering. According to this report, and based on estimates made by other international organizations, just considering crimes related to deforestation are estimated to have illicit profits at the global level ranging between 51 and 152 billion dollars of the United States of America. Meanwhile, with respect to the crime of illegal mining, it is estimated that the illicit flows generated by this activity amount to between 12 and 48 billion of the same currency.

·?????? Smuggling of migrants and human beings: Human trafficking is estimated to be one of the most profitable crimes; the ILO (International Labour Organization) estimates that forced labour in the private economy generates $236 billion in illegal profits annually.

·?????? Illicit trafficking of narcotic drugs and psychotropic drugs: The 2023 World Drug Report of the UNODC (United Nations Office on Drugs and Crime) established that 69% of the area under coca cultivation in 2021 corresponded to Colombia, 21% to Peru and 9% to the Plurinational State of Bolivia. In addition, cocaine production in South America reached a record 2,304 tons (pure cocaine)? in 2021.

·?????? Tax crimes: The most recent estimates for the region by ECLAC ?(Economic Commission for Latin America and the Caribbean) determined that losses ?associated with non-compliance with income tax and VAT in Latin America reached 6.3% of GDP in 2017, a figure equivalent to 335,000 million dollars.

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From the analysis of the typologies presented in the GAFILAT 2024 report, the following determining crimes (precedents) were identified: crimes of corruption and bribery; tax crimes; participation in organized criminal groups; drug trafficking; trafficking in persons and smuggling of migrants; illicit transport of money across borders; environmental crimes; smuggling; crimes related to robbery and extortion.

The products most used by criminals and criminal organizations to launder assets in the region were:

·?????? Cash : 14%

·?????? Bank transfers: 14%

·?????? Domestic and international transfers: 11%

·?????? Checks: 10%

·?????? Bank accounts: 7%

·?????? Savings accounts: 6%

·?????? Client accounts: 4%

·?????? Virtual assets: 3%

·?????? Remittances: 3%

·?????? Loans: 3%

·?????? Collector and high-end cars: 2%

·?????? Buying and selling currencies: 2%

·?????? Deposits: 2%

·?????? Other: 18%

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The sectors most vulnerable to money laundering were the following:

·?????? Banks: 28%

·?????? Financial institutions: 10%

·?????? Notarios (Notaries): 8%

·?????? Exchange Houses: 4%

·?????? Vehicle dealerships: 4%

·?????? Real estate agents: 3%

·?????? Cooperatives: 3%

·?????? Others: 39%

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Trends, technologies and public policies

Trends in money laundering, technologies to combat it, and most effective public policies are constantly evolving issues, so authorities must constantly evaluate them, reviewing their processes and updating preventive and corrective measures in a continuous Deming cycle. Below, I present an overview.

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Latest trends in money laundering

Criminal organizations are constantly adapting to control measures, which has given rise to new trends in money laundering:

• Crypto-assets: The rise of cryptocurrencies has given criminals a new tool to hide the illicit origin of their funds. Its decentralized and pseudonymous nature makes it difficult to trace transactions.
• Front companies: Creating shell companies or using legitimate companies to disguise illegal activities is another common practice.
• New payment methods: The use of mobile payment apps and other emerging payment methods has made it easier to move funds more discreetly.
• Environmental crimes: The laundering of assets derived from environmental crimes, such as illegal logging and wildlife trafficking, has become a growing concern.

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Technologies to combat money laundering

Technology plays an increasingly important role in the fight against money laundering:

• Artificial intelligence (AI): AI makes it possible to analyze large volumes of financial data to identify suspicious patterns and detect unusual transactions.
• Graphical analysis of links and networks (link analysis): These technologies make it possible to visualize the connections between people, companies and transactions, which facilitates the identification of criminal structures.
• Entity extraction: Connectors with social networks, databases and the Deep & Dark Web, as well as software for identifying and extracting entities, their links and their properties (ELP’s) from text documents, allow you to automate the incorporation of large volumes of data relevant to the analysis and investigation of fraud and crimes, automatically integrating with graphical link analysis engines.
• Process robotics: Automating repetitive tasks frees analysts to focus on more complex and strategic tasks, integrating existing workflows and processes with new intelligence & investigation models.

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More effective public policies

To effectively combat money laundering, public policies must be comprehensive and coordinated:

• Strengthening national cooperation: It is essential that all public institutions directly or indirectly involved in the prevention, detection, and prosecution of organized crime act in coordination in accordance with a shared and updated policy and plans beyond electoral cycles. To this end, it is essential that these bodies share a compatible and integrable technological arsenal.
• Improve international cooperation: Cooperation between countries is essential to trace money across borders and dismantle transnational criminal networks.
• Increased transparency in the financial sector: Financial institutions should be rigorously required to implement customer due diligence measures and to report suspicious transactions.
• Tougher penalties: Criminal and administrative penalties should be more severe to deter criminals and recover illicit assets.
• Education and training: It is essential to train professionals in the financial sector, law enforcement and the general public sector on money laundering techniques and measures to combat it.

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In summary, the fight against money laundering is a complex challenge that requires a multidisciplinary approach and the use of the latest technologies. By combining efforts at the national and international levels, a significant impact can be made in weakening criminal organizations and protecting the legal economy.

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Types of money laundering in Uruguay

Money laundering in Uruguay, as in other countries, presents a diversity of schemes and modalities, which vary in complexity and can be quickly adapted to the control measures implemented. The? 2017 National Strategy for the Fight against Money Laundering, the Financing of Terrorism and the Proliferation of Weapons of Mass Destruction ?included in its diagnosis the following four as the main types of money laundering in Uruguay:

·?????? Those related to drug and psychotropic trafficking.

·?????? The spurious use of corporate structures and other corporate benefits

·?????? The integration of international capital of potentially criminal origin in the financial and real estate sector and, to a lesser extent, in the agricultural sector

·?????? On a smaller scale than the previous one, but in any case with a worrying character, the crime of smuggling.

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Without prejudice to the consideration of the 2017 Detailed Action Plan and its updates, some of the most common typologies identified in Uruguay are described below:

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Traditional Typologies

• Placement: Introduction of illicit money into the formal financial system. This may include: Cash deposits in small amounts at different financial institutions. The recently approved increase in the LUC (Law of Urgent Consideration) of the legal value admitted for cash deposits/payments makes it difficult to combat money laundering. Acquisition of movable or immovable property. Investment in companies or businesses.
• Stratification: Separation of illicit money from its origin through a series of complex transactions. This may involve: Transfers between multiple bank accounts. Foreign exchange operations. Investments in financial instruments.
• Integration: Return of laundered money to the legal economic circuit, making it appear to come from lawful activities. This may include: Creation of front companies. Use of Third-Party Accounts. Investment in the stock market.

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Emerging Typologies

• Crypto-assets: Use of cryptocurrencies to hide the origin of illicit funds, due to their decentralized and pseudonymous nature.
• Casinos and gambling: Converting cash into casino chips and then eventually redeeming them for lower-value chips thus making tracking more difficult.
• Funds transfer companies: Use of these companies to send small remittances of money to different destinations, making it difficult to identify large sums.
• E-commerce: Creating fake online stores to sell products and services, using cryptocurrencies or stolen credit cards for payment.
• Real estate: Acquisition of properties through offshore companies or front men to hide the identity of the true owner.

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Factors Influencing the Evolution of Typologies

• Technological innovation: The constant evolution of financial and digital technology offers new opportunities for criminals.
• Globalization: The interconnectedness of financial markets facilitates the mobility of illicit capital across borders.
• Adaptation to control measures: Criminals are true technology specialists and constantly adapt to new regulations and controls, developing increasingly sophisticated schemes.

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Legal and Regulatory Framework in Uruguay

Uruguay has a strong legal and regulatory framework designed to prevent and combat money laundering and terrorist financing. This framework has evolved in recent years, adapting to international standards and new threats.

The main law that regulates this matter is Law No. 19,574, which updates and consolidates previous legislation. This law establishes:

• Definition of crimes: The crimes of money laundering and financing of terrorism, as well as the preceding criminal activities, are typified.
• Obligated entities: The entities obliged to comply with the prevention measures are identified, such as banks, exchange houses, casinos and notaries, among others.
• Prevention measures: The measures to be adopted by the obliged entities are established, such as the identification of customers, the retention of records, the performance of risk assessments and the presentation of suspicious transaction reports (STRs).
• Financial Information and Analysis Unit (UIAF): The UIAF is strengthened, giving it greater powers to receive, analyze and disseminate information on suspicious transactions.
• International cooperation: Cooperation with other countries in the fight against money laundering is promoted.

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The Uruguayan legal framework, together with the actions of the competent bodies, provides a series of tools to combat money laundering:

• Risk assessment: Obligated entities must carry out risk assessments to identify and mitigate money laundering and terrorist financing threats.
• Customer identification and verification: It is required to obtain and verify the identity of customers, as well as information about the nature and purpose of business relationships.
• Record keeping: Regulated entities must keep detailed records of transactions and information obtained about their customers for a certain period.
• Suspicious transaction reports: Obligated entities must inform the UIAF of any transaction that seems unusual to them or that may be related to money laundering or terrorist financing.
• Internal control: Obligated entities must implement adequate internal control systems to prevent and detect money laundering.
• Training: Training of personnel involved in the prevention of money laundering is required.
• Inter-institutional cooperation: There is close collaboration between SENACLAFT, UIAF and other state agencies to combat money laundering.
• International cooperation: Uruguay actively participates in international forums and maintains cooperation agreements with other countries to combat transnational organized crime.

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Despite the progress made, money laundering remains a challenge for Uruguay. Among the main challenges are:

• Constant evolution of money laundering modalities: Criminals are constantly adapting to new regulations, which requires continuous updating of prevention measures.
• Complexity of the structures used: Money laundering networks are often transnational and complex, making them difficult to detect.
• Limited resources: The resources available to combat money laundering may be insufficient compared to the magnitude of the problem.

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Uruguay has a solid legal framework and effective tools to combat money laundering. However, it is essential to maintain constant vigilance and adapt to the new challenges posed by this crime. Technological updating, human resources training, international cooperation and collaboration between the different actors involved are key to achieving sustained success in this fight.

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Challenges for our authorities

In the last 20 years I have had the opportunity to advise numerous public agencies and private companies? in Brazil regarding their processes of prevention, detection and prosecution of fraud and crimes of all kinds, with special emphasis on organized crime. I worked for ABIN (Brazilian Intelligence Agency), Federal Police, numerous State Secretaries of Security and Civil and Military Police, for MPF (Federal Public Prosecutor's Office) and numerous ?state Attorney General's Offices ?, for SRF (Federal Revenue Secretariat), a body that combines in Brazil the functions of DGI and DNA of Uruguay) and several State Secretariats of Finance and for various agencies of the Judiciary. Also for the main banks operating in Brazil and for numerous insurance companies, as well as for its business chamber FENASEG (National Federation of Insurers). I was honored with membership in the World Council for a Safer Planet (IBM) and the i2 Group Global Advisory Council (Harris) and I was recently nominated to join the ?WCA (World Compliance Association) Compliance Officer Certification Technical Committee.

The experience accumulated in these institutions and enterprises of the sister Federative Republic of Brazil allows me today to contribute the modest "grain of sand" of some suggestions addressed to the political authorities of Uruguay, both those of the future Government and those of the future Opposition.

My fundamental recommendation is to target the base of support for drug trafficking and organized crime in general, cutting off the financial resources essential for their survival by combating money laundering through financial intelligence. This, however, presents a number of significant challenges that I detail below:?

• Massive volume of data:

• Complexity: The volume of financial transactions locally, regionally and globally is enormous and growing. Analyzing and processing this amount of data efficiently is a considerable challenge.
• Diversity of formats: Financial data is presented in a variety of formats and systems, making it difficult to integrate and analyze.

• Anonymity and confidentiality:

• Offshore entities: Criminals use offshore jurisdictions to conceal the identity of the ultimate beneficiaries of transactions.
• Crypto-assets: Cryptocurrencies offer a high degree of anonymity, making it difficult to trace funds.
• Shell companies: The creation of shell companies allows criminals to hide the true nature of their activities.

• Constant evolution of criminal tactics:

• Innovation: Criminals adapt quickly to new technologies and regulations, forcing authorities to be constantly updated.
• Complexity of criminal networks: Criminal networks are becoming more sophisticated and use multiple layers of intermediaries and "cutting-edge" technology to hide their activities.

• International cooperation:

• Different legal frameworks: Each country has its own legal and regulatory framework, which makes international cooperation difficult.
• Language and cultural barriers: Cultural and linguistic differences can hinder communication and collaboration between authorities in different countries.

• Limited Resources:

• Personnel: The lack of trained and specialized personnel is a common challenge in many countries.
• Technology: Investment in technology and data analysis tools is expensive and requires constant updates.

• Privacy:

• Balance: A balance needs to be struck between the need to protect citizens' privacy and the need to combat organized crime.

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To overcome these challenges, it is necessary to:

• Invest in technology: Implement advanced tools for graphical link analysis, identification and extraction of entities, links and properties (ELP) and artificial intelligence (AI + ML) systems to efficiently process large volumes of information.
• Standardization: Standardize, integrate and communicate the tools used by the various public agencies and offer private obligated entities the incentive to exchange with national authorities the same format of link analysis diagrams, as is the case in Brazil between FENASEG and the main insurance companies that use the same format of link analysis diagrams (ANB).
• Strengthen international cooperation: Establish stronger cooperation mechanisms between countries, such as bilateral and multilateral agreements, and share information more efficiently.
• Train staff: Invest in training financial analysts and investigators so they can identify and analyze the latest trends in money laundering.
• Regulate the financial sector: Strictly control regulations for the financial sector, especially with regard to the identification of beneficial owners and transparency of transactions.
• Collaborate with the private sector: Work closely with the private sector to obtain information about suspicious activities, eventually using the same or technological tools that can communicate with each other.

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In conclusion, financial intelligence is a powerful tool in the fight against drug trafficking, but its effective application requires significant investment in technology, human resources, and national and international cooperation.

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Conclusions

Law No. 19,513 of 2017 created the Commission for the Fight against Drug Trafficking and Cross-Border Organized Crime. By the time the next President-Elect takes office, as of 01/03/2025, there are plans to create the Comprehensive System for the Fight against Organized Crime and Drug Trafficking,? made up of SENACLAFT (National Secretariat for the Fight against Money Laundering and Financing of Terrorism), the UIAF (Financial Information and Analysis Unit) of the Central Bank of Uruguay,? the JUTEP (Board of Transparency and Public Ethics), the Auditor General of the Nation, the DGI (Directorate General of Taxation), the DNA (National Directorate of Customs), the BPS (Social Security Bank), the MINTER (Ministry of the Interior), the FGR (Attorney General's Office) and, in the future, the MJDDHH (Ministry of Justice and Human Rights). We are talking about ten public institutions, to which will be added the obligated entities that will also include some first-level public financial institutions.

The implementation of the Unified Border Security Coordination Center is also planned, with the mission of improving the coordination of cargo information and customs information with emphasis on the waterway of the La Plata basin and its logistical structure for the transport of goods, and of a Special Task Force with highly dedicated criminal investigation teams to accurately identify the structures of organized crime and dismantle them in the territory.

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2025 may be the first year in which Uruguayan society as a whole, represented by the majority of its political parties, decisively addresses the preparation of state policies and strategic plans to combat drug trafficking and organized crime. State policies are those that not only represent the "Government Party" but the majority of the Political System, including the Government and the Opposition; that they are thus recognized by the population as a whole, that is, not as a merit of a Political Party but of all Political Parties, and that they plan for a long-range horizon, maintaining, although with the due adjustments derived from the evolution of circumstances, the guiding principles of these policies and strategic plans beyond the periods of Government.

Uruguay has highly trained professionals in the ten public institutions mentioned above, but it is essential to update them with the new technologies that are constantly evolving, providing them with technical and functional training to anticipate criminals who also exhaustively use "cutting-edge" technology and permanently innovate by creating new, increasingly sophisticated threats.

Obviously, a National Policy to Combat Drug Trafficking and Organized Crime will be discussed with the participation of the most relevant actors in Uruguayan society, and it will contemplate the adaptation of existing structures and processes and the creation of others responding to emerging threats. I succinctly contribute my recommendations to that discussion.

·?????? Integrate into the planning process the consideration of the casuistry of equivalent organizations in other Latin American countries.

·?????? Evaluate the set of the most advanced technological tools, platforms and solutions available, with special emphasis on the most adopted in Latin America and the world.

·?????? Attach the greatest importance to the training of agents, officials, analysts, and investigators from the ten institutions mentioned above that will intervene in the fight against organized crime in its different dimensions.

·?????? Concern with standardizing the arsenal to combat organized crime and define agile and effective communication formats between institutions, at the national and international levels.

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José C. Nordmann

SME in Digital Transformation

Member of AUC (Uruguayan Association of Compliance)

Associate Member of WCA (World Compliance Association)

Member of CUGO (Uruguayan Circle for the Better Governance of Organizations)

Member of the World Council for a Safer Planet

Member of ACFE (Association of Certified Fraud Examiners)

Member of the i2 Group Global Advisory Board