ISD Suspension

EXTERNAL FINANCING FOR PRIVATE BANKS DURING THE INTERNAL ARMED CONFLICT IN ECUADOR. IS THE SUSPENSION OF THE EXEMPTION TO THE CURRENCY OUTFLOW TAX AN ADEQUATE MEASURE TO FINANCE THE INTERNAL ARMED CONFLICT IN VIEW OF THE ECONOMIC SITUATION OF ECUADOR?

Abstract

It is well know that Ecuador requires capital injection to combat crime and reestablish peace, however the taken measures in 2024 are considered to be a ban-aid or stop gap solution. The government has to seek for financing taking into account long-term economic effects from a micro and macro view; and legal consequences of foreseeable measures that do not have a previous economic analysis. Tax collection must follow an ordered method, by clearly identifying the risks for the economy, and a long-term solution. Ecuador has different productive sectors composed by financial institutions and big and medium enterprises, who can contribute with the government to combat the crisis. Therefore, a way to finance the government that considers external financing as an actual and urgent need has to be developed. Reestablishing order and incentivizing external funding to grow are not contradictory statements, but essential needs that Ecuador’s market urgently require.

Key words

Currency outflow tax, security, economy, crisis financing, external funds, banks.

    1. INTRODUCTION

New measures to finance the internal armed conflict that Ecuador is affronting nowadays have been implemented. Most of them affect banks and the financial system directly, by imposing the controlled entities a series of dispositions that require them to pay tributes and, specially, stop benefiting from the ISD exemption suspension. After the Bank Holiday event in the financial crisis of 1999, and with the Constitution of 2008, banks were prohibited to perform different commercial activities from the financial, and it was established that they would not be supported by the State if they had an economic crisis.

Nevertheless, almost twenty years after, this line of though has evolved to reflect that not just the State would not be there for banks if they had a crisis, but that financial institutions need to save the state in any crisis, as the present security phenomenon in analysis. In this sense, the present investigation studies the ISD, its exemption and the latter’s suspension to determine if the measure imposed by the government was adequate to finance the crisis. Its legal and economic consequences will also be reflected, and if needed a proposal will be addressed. The purpose of the investigation relies in providing a better solution to finance the crisis, focused in Ecuador’s economic growth. Furthermore, the study seeks to make visible how the public perspective towards banks has evolved since the Bank Holiday until nowadays, seen them not just as the cause of the financial crisis of 2000, but as institutions that owe the country a salvation.

    2. BACKGROUND

The suspension of the exemption to the Currency Outflow Tax or Overseas Remittance Tax (ISD by its acronym in Spanish) takes place as a response to the internal armed conflict occurring in Ecuador, almost seven months after President Daniel Noboa’s election. The social phenomenon has been present in the country from long ago; nevertheless, it became visible since Lenin Moreno’s government[2]. It has increased until nowadays reflecting an internal crisis, which has been mentioned and addressed by every single candidate in 2023’s elections[3]. Indeed, part of Noboa’s main proposals was to combat the security crisis.

Ecuadorian security crisis is a complex social phenomenon caused and prompted by poverty, scarce resources, limited opportunities and informal employment. In addition to this factors, inefficient health services and corruption in public institutions have deployed the trust of every citizen in the State[4], who believe that they would not be able to receive medicine or reach justice if needed. The increase of drug trafficking and violence has summed Ecuadorian’s population in terror and fear[5]. In this sense, any government elected in 2023 would have need to take measures to combat and put an end to the crisis. The mentioned measure sought to finance the internal armed conflict in Ecuador to reinstore the public order, reduce the violence and delinquency and prompt our economy. However, the suspension has been harshly criticized by different economic and social groups expressing that it is not a proper solution, or that it will raise the crisis instead of ending it.

Before analyzing the measure, it is important to understand the context and the motives that led to it; and the nature of the ISD and its exemption.  Ecuador has experienced a wave of violence since the end of the government of Rafael Correa, reflecting its economic situation as alarming after former Presidents Lenin Moreno and Guillermo Lasso clarified the data of the public debt[6]. Nowadays, the finance minister expressed that public salaries will not be paid or will be delayed if measures are not taken into account[7], and Daniel Noboa has started his government with a series of laws and regulations oriented to finance the crisis. In this sense, and as a complex phenomenon, Ecuadorian economic and security crisis needs to be analyzed in depth in a separate work[8]; nevertheless, an approach for the understanding of this study must be made.

   a. Economic and Security Crisis

Ecuador’s crisis came long ago before Daniel Noboa’s election and it is the result of a non-stop occurrence of two main factors: corruption and drug trafficking. The latter was not as visible as it is nowadays, however it has been present in the country for years. Both factors are intimately related, and they became to rule Ecuador in the second decade of 2000. Nowadays, former president Rafael Correa is under investigation for 34 different felonies, most of them related with graft, corruption and influence peddling; in addition to the prison sentence for the “Sobornos” Case and the pending trial for the kidnap of a prestigious politician[9]. His successor, former president Lenin Moreno, is also under investigation for corruption related felonies, such as the Sinohydro case with premium prices[10] and the generalized patchwork of bribery in the health system[11]. Later on, Guillermo Lasso, Lenin Moreno’s successor, was involved in a series of corruption cases along with his ministers and close family members, such as the negotiation of public positions, bribery among the adjudication of public contracts and ending with the investigation of a criminal organization linked to drug trafficking inside public institutions[12]. Such scandals led him to order the Cross Death between his government and the National Assembly, before his political trial that sought his destitution[13].

 After the ending of former president Lasso’s period, the call for elections took place, and the alleged most favorite candidate was assassinated after speaking against corruption and drug trafficking[14]. Daniel Noboa was elected president afterwards, due to his “security as a priority” speech, similar to Nayib Bukele’s, and because of the turn that the catastrophe caused. Without even a month as President, the Police Department and the Attorney General conducted the biggest operation called “Metástasis” against narco undertaken by different public institutions that unveiled a whole network between drug trafficking and public institutions, leading to the imprisonment of the Judiciary Council’s President, recognized prosecutors and judiciary members[15]. The operation “Metástasis” revealed how the justice system operated in favor of delinquency, as for the drug trafficker Leandro Norero, and that the prisons were not ruled by the government, but by criminals instead. Therefore, Daniel Noboa declared two states of emergency within just three days in between, been the first for grave internal disturbance[16], and the latter for internal armed conflict[17].

As explained, the economic and security crisis occurred due to a perpetuated system of corruption inside public entities permeated by drug trafficking and organized crime. Both factors were magnified through friendly drug laws[18], less control by the Police Department and impunity by the justice system. Both contributed to unemployment, over-indebtedness and health system’s collapse, making attractive for unfortunate people to join a gang and perpetuate the cycle. Therefore, in addition to the emergency declarations and police interventions, Daniel Noboa presented urgent economic projects of law to finance the internal armed conflict and recover the country’s economy. Due to his popularity, most of them were approved such as the Economic Efficiency and Labor Generation Organic Law (EELGOL), Saving and Monetization of Economic Resources for the Financing against Corruption Organic Law, Equality Organic Law for Men and Woman Salaries and more. However, the Energetic Competitiveness Organic Law (ECOL) was the one that established the suspension of the ISD exemption; and, the Internal Armed Conflict Financing Organic Law (IACFOL), creating a contribution for the banks based on their earnings, and increasing the Value Added Tax (IVA by its Spanish acronym). Even so, the measures taken by Daniel Noboa to finance the internal armed conflict seem conductive; strategic sectors for the economy claim to be harmed, raising alerts for the future. Those implications will be analyzed from a legal and economic perspective; still, it is vital to understand the actual need of external funding and the ISD nature in the Ecuadorian legislation before getting into subject.

    b. External Funding Need

Ecuador is a country whose main matrix of production is dependent on oil. Considering that its extraction has caused the country many social disturbs related to Chevron[19], or nowadays Yasuní[20]; and taking into account the volatility of oil’s price: the country requires foreign investment to change it or adopt a new line of production. Furthermore, it is also known that petroleum reserves are limited; its extraction is not sustainable, even when following international standards; and global warming is a worldwide concern. By the other hand, Ecuador needs to improve its infrastructure by building roads that connect the whole country, airports and ports; generate employment; improve its Payment Balance by raising its exports, receiving cash inflow, reducing importations and making competitive its products. There are more reasons for Ecuador to urgently require external funding like reducing poverty, controlling the security crisis and reestablishing the trust in financial ang governmental institutions.

In this sense, it is vital that local banks receive as much credit and external funding as they can. The financial system is the main canal to address cash and deliver credit nationally, and if they do not have the necessary funds, they would rise interest rates contracting the economy, and therefore, delivering less credit. Nowadays, Ecuador is taking measures to relief debtors since its economy has been contracted due to lack of external funding and foreign investment[21]. The consequences of the abovementioned measures are starting to take place. Therefore, it is imperative to understand the ISD and its exemption nature.

    c. Currency Outflow Tax (ISD) and its exemption

The Reformatory Law for Tax Equity (RLTE) in Ecuador created the ISD in 2007, a tax over any monetary transaction done from Ecuador to any other party outside the country, with or without the intervention of any financial institution[22]. Its operative event is the transfer or carry of currency outside Ecuador in cash or by check, transfer, withdrawals, or payments of any nature, except any compensation realized with or without the intermediation of any financial institution[23]. The Regulation for the Application of the Overseas Remittance Tax states that the term currency, for the effects of the tax, mean any means of payment or obligation extinction, encryption in a currency, that is internationally accepted[24].  Among all the passive subjects of the tax, the Regulation identifies private national societies[25], which include Banks that need to be constituted as a Sociedad Anónima, according to the Organic Monetary and Financial Code[26].

The ISD was created to control the outflow of cash that risks the stability of the balance of payments, since there are more imports that exports; and that threatens the dollar system, which depends basically on the dollars that our economy has[27]. Beyond, the ISD seeks to lower the outflow of resources that goes from local economic activities to parties who are out of the country; increment liquidity; promote national savings, production and employment discouraging international outflow of currency[28]. However, it is not clear if the ISD accomplishes its objective and prevent the outflow of cash. Veas and Jiménez[29] affirm that the outflow of cash has been reduced between 2009 and 2017, reflecting the behavior of taxpayers having increased the taxable base. In their study, Veas and Jiménez reflect that in 2012 the tax revenue collection percentage reach the 128%, meaning an increment of more than a triple than its previous year having in consideration that the interest rate of the ISD increased from 2% to 5%.

By the other side, Gómez Maldonado[30] and Quinde Rivas[31] point out that the ISD has not reached its objective, since its impact in the Balance of Payments has been irrisory. Instead, it just represents an “excellent collection that contributes to the General State Budget”[32]. In the same way, Veas and Jiménez identify in the conclusion of their study that, after their year-based study and their econometrical model, when the ISD collection decreases, direct external investment also decreases. They also specify that even though their method indicates that just the 1.7% of the variations in direct external investment are caused by the variations in the ISD’s interest rate, the correlation still exist between the tax and direct external investment. In the contrary, not just the tax affects external direct investment, but its interest rate increase in a lower manner[33]. Both authors conclude that if there is a major tax restriction that hinders cash outflow, it will also exist a minor dynamism in external inversions. In the same sense, they recognize that private external direct investment was the best ally for the Ecuadorian economy, even though Rafael Correa’s government prioritized public investment on his politics.[34].

Every tax in Ecuador has four basic elements: taxable event, taxable base, taxpayer and taxing authority, and RLTE establishes them for the ISD, as appointed below.

Taxable Event[35]	Outflow of currency by transfer or carry on by any means of payment, except for compensations realized with or without the intervention of financial institutions. When the taxable event occurs with the intervention of the latter, it will be automatically debited from the intervening account.
Taxable Base[36]	The amount of money that is been transferred.
Taxpayer[37]	Natural and Juridic Persons
Taxing Authority[38]	Ecuadorian State through the Internal Rent Service
Tax Rate[39]	5%

Nevertheless, the RLTE and the Regulation for the Application of the Overseas Remittance Tax established an exemption of the ISD for payments of external financing[40]. For this exemption to apply, the external financing must be granted by an international financial institution or a non-financial specialized institution recognized and qualified by the Superintendency of Banks of Ecuador[41]; the credit must be registered in the Central Bank by the beneficiary; the beneficiary must present proof that the resources of the credit have come to the country successfully; the granted funds must be destined to productive activities; the granted credit must have a maturity date of 180 days or more[42]; among other requirements[43].

As of the considerations of the RLTE, the State seeks to reach a better distribution of the resources, lower inequality and achieve a better social justice with the ISD. At the same time, the State seeks the same purposes with the mentioned exemption, when establishing it just for the financing of productive activities. Montes Espinoza clearly states that the exemptions to pay the ISD are intrinsically connected and related to industrial and agricultural activities such as services or other, “looking to achieve a progress s in less or non-developed zones”[44]. This measure has been coherent since the ISD’s main purpose is to discourage the cash outflow from the country and its exemption promotes the inflow of credits for productive activities, as stated before. The exemption is a clear benefit for financial national institutions, nevertheless the benefit for the Ecuadorian economy is even greater. Banks will provide more credits for productive activities, leading small or medium enterprises (SMEs) to perform their activities with the resources that they need. At the same time, different social groups also benefit from the exemption, since most of the international fundings condition their funds with blue (ocean), green (climate and forests) and purple (vulnerable groups) covenants, establishing sanctionable practices, prohibited practices and more terms and conditions beyond the ones that national regulations already require. By the other hand, banks will grant more credit and therefore receive more repayments increasing their earnings.

With the described background, it is important to understand the ISD exemption suspension, its legality and its impact in our economy.

3. THE ISD EXEMPTION SUSPENSION

The ECOL, on its third transitory disposition, suspended the established ISD exemption in numerals 3 and 8 of article 159 of the RLTE just for banks with private equity for the period of one year. Even though that the mentioned disposition specifies that its future regulation will establish the scope of this limitation, banks expressed their disagreement[45] and started taking measures for its compliance. To understand the suspension, it is imperative to study article 159 and its numeral 3 (numeral 8 will not be explained since it falls out of the scope of the study).

The following exemptions are established:

(…)

3. Also, payments made abroad for capital and interest amortization of loans granted by international financial institutions, and non-financial specialized entities qualified by the correspondent controlling entities of Ecuador. The exemption applies for credits granted with a maturity date of 180 days or more by credit, deposit, purchase and sell of portfolio, purchase and sell of titles in the value market, or any other financial or legal instrument that allow the entry of currency or remittances to finance operations in Ecuador, destined to finance housing or microcredit, investment in capital representative rights or productive investment carried out in Ecuador. In these cases, the interest rate of the operations must be lower than the referential rate established by the competent authority. In case that the interest rate of the financing goes above the established limit, the exemption shall not apply for interest payment in the percentage that exceeds the limit. Therefore, the capital shall remain exonerated regardless the parties agreed interest rate. This exemption shall also apply to transfers done to foreign financial institutions, in order to comply with their conditions, exclusively for credit access, as long as the payments are not destined to third parties o jurisdictions that do not intervene in the operation. This exemption shall not apply for financial operations granted, directly or indirectly, by related parties by direction, administration control or capital, who at the same time are residents or have their operations in offshore jurisdictions or with a lower imposition, except when the beneficiary is a financial institution. The credit’s inscription in the Central Bank shall be mandatory but shall not constitute a limit for the exoneration when operations do not need it due to their nature. The competent authority may determine by resolution the segments, maturity dates, conditions, and additional requirements for this exemption (…)[46].

The abovementioned disposition establishes a benefit for payments of capital and interests related to international loan operations and specifies conditions that seek to reactivate the Ecuadorian economy and that are explained below. The study divides the conditions for the exemption into 2: characteristics of the lender and characteristics of the insturment.

    a. Characteristics of the lender

The exemption applies for payments of capital and interest of loan operations granted by two types of institutions: international financial institutions and non-financial specialized entities. The first ones are institutions which have been authorized to perform financial intermediation as their main economic activity the, for ex. Inter-American Bank of Development BID, Development Bank of Latin America and the Caribbean CAF and U.S. International Development Finance Corporation DFC. Furthermore, the exemption also applies for credits granted by non-financial specialized entities, which need to be qualified by the Superintendency of Banks following the legal process established for it[47]. If the entity who is granting the credit is non-financial and is not qualified by the Superintendency, the exemption cannot be applied.

    b. Characteristics of the instrument

For the exemption to apply, the financial instrument must have at least a maturity date of 180 days and the 50% of the capital must not be prepaid by the borrower between the first 90 days of the maturity date[48]; securing that the received funds stay in the country and that they are not used as immediate operations such as repos or swaps. Also, the loan must be exclusively destined to finance housing or microcredit, investment in capital representative rights or productive investment in Ecuador, securing that the funds are oriented to prompt Ecuador’s economy. Furthermore, for the exemption to apply, the interest rate agreed between the parties shall be under the one determined by the national competent authority. Consequently, if there is an exceeding amount, the ISD must be paid using it as the taxable base.

Banks have operated with the abovementioned exemption for years, bringing external funds and granting credits to specific sectors, prompting the economy to a sustainable growth. In 2022, Banco Pichincha received a credit line of 45 million dollars from the Latin-American Development Bank (CAF), funds conditioned for productive activities, looking to benefit MSMEs (micro, small and medium enterprises), sustainable business and exports[49]. Produbanco has granted more than 43 million for blue productive projects destined to preserve hydric resources with funds provided from international lenders, who covenant them for those projects[50]. Produbanco also received credits from the Deutch Development Bank (FMO) and more participants by two financing credit lines: a syndicated senior loan for 72 million dollars and a subordinated syndicated loan of 20 million, destined for the development of SMEs (small and medium enterprises), SMEs administered by women and green projects[51]. The Development Financial Corporation (DFC) and Citi Bank granted a credit line of $ 100 million to Banco de Guayaquil, conditioning its funds for SMEs and SMEs administered by women[52].  The mentioned examples reflect the role of the banks as a prompt for the Ecuadorian economy, especially with vulnerable groups and SMEs.

Nevertheless, the ECOL established the suspension of the ISD exemption for a year:

Third.- For the period of a year, starting from the publication of this law, the exemption established in numerals 2 and 8 from article 159 of the RLTE shall not be extensive for banks with private capital exclusively. The Regulation of this law will establish the scope of the limitation.

And its Regulation (RECOL) established:

Fourteen.- For the application of the Third Transitory Disposition of the ECOL, the suspension will start from February 01, 2024. Financial institutions of private capital must be understood as the ones with a private capital of at least a 10% or more of its composition. Nevertheless, payments to international financial entities who have signed a convey with the Republic of Ecuador that recognize tax immunities for those operations are exempt of this suspension.

This measure that tends to finance the Ecuadorian internal conflict paralyzes the benefit that allowed banks to bring money from foreign lenders, signifying a great impact for our economy. In this sense, the consequences of the one-year suspension must be analyzed to determine if the measure is adequate to prompt our economy and also finance the internal conflict.  Furthermore, the exemption made for payments for international financial entities who have signed a convey with Ecuador that recognizes tax immunities would apply just for some punctual lenders; not representing the bast majority.

4. ECONOMIC AND LEGAL CONSEQUENCES

    a) Economic consequences

To analyze the consequences of the ISD exemption suspension, this section is classified in micro and macro impacts, since it this the most practical way of reflecting the Ecuadorian reality. Both impacts will demonstrate how Banks are not the only ones that will finance the crisis, but every single person who is part of the financial system.

    i. Microeconomic impacts

The ISD exemption suspension will impact private banks and their clients in different ways. In banks, liquidity will be reduced, their revenues will decrease, and their costs of production will increase. It will become more expensive to provide credit for each client and therefore the requirements for access will be stricter. A constant increase in interest rates is probable to occur, transmitting the costs of financing to clients. Banks will be less capable of granting credits since a big source of their financing is limited.

By the other side, clients and firms will face the impact since it will be harder to receive a credit, or it would be more expensive than before. Many would not fit the new requirements established by private institutions and investors manners of finding funds will be restricted. Furthermore, if clients, investors or firms receive credits, their interest rate for repayment will be higher than usual.

As the RECOL established, the suspension of the exemption started on February 1, 2024. Therefore, in the table below the data of the active reference interest rates before and after the mentioned date is exposed to see Ecuadorian banks’ behavior against the measure.

Credit Segment	Annual % 2023		Annual % 2024
	Nov	Dec	Jan	Feb	Mar	Apr	May	Jun	Jul
Corporate	9,80	9,94	10,14	10,34	10,53	10,87	11,12	11,40	11,63
Business	10,62	10,85	11,03	11,19	11,38	11,76	11,96	12,36	12,83
SME’s	10,99	11,00	11,09	11,27	11,32	11,53	11,63	11,87	12,08
Consumer	16,24	16,27	16,23	16,32	16,26	16,27	16,23	16,27	16,28
Educational	8,74	8,78	8,84	8,82	8,79	8,76	8,82	8,85	8,90
Social Educational	5,49	5,49	5,49	5,49	5,49	5,49	5,49	5,49	5,49
Public Interest Housing	4,96	4,97	4,99	4,98	4,99	4,98	4,98	4,98	4,98
Social Interest Housing	4,98	4,97	4,98	4,98	4,98	4,99	4,98	4,98	4,98
Real State	9,90	9,91	9,94	9,94	10,05	10,05	10,32	10,47	10,77
Retail Microcredit	20,29	20,21	20,00	20,24	20,42	20,93	21,11	21,16	21,36
Simple Accumulation Microloan	20,43	20,43	20,51	20,71	20,50	21,78	21,92	21,93	21,84
Extended Accumulation Microloan	19,71	19,97	20,09	20,18	20,08	19,74	19,49	19,15	19,15
Public Investment	7,70	8,56	8,11	8,60	8,15	7,98	8,39	7,81	8,23

[53]

The historic analysis reflects that in every credit segment, except in the social educational, social interest housing and the extended accumulation microloan, the interest active rates have increased. Although, a deep analysis must be conducted with a higher volume of data to identify if the main cause of the increase was the suspension of the ISD exemption. Nevertheless, the abovementioned consequences are projections that may not necessarily happen this year or next one since economic actors may take different actions to mitigate its effects. But what is true is that even though banks will assume part of the costs, most of them will transmit them to clients; making them finance the internal conflict.

    ii. Macroeconomic impacts

By the other side, the ISD exemption suspension will also contribute to macroeconomic impacts for Ecuador provoking less investment, less credit allocation, less liquidity in the financial sector, less credit access for people, less access for external credit, less capacity to comply with obligations and the increase of credit cost. All the mentioned consequences can be summarized in the reduction of the multiplier effect of money. The multiplier effect of money is the process by which the credit granted by commercial banks generates more money than there existed before in a fictional way. It consists of the repeatedly quantity of loans granted from banks thanks to money circulation in the economy from previous granted loans, which money came from initial deposits[54].

The mentioned suspension affects the multiplier effect of money directly because banks will stop or reduce the amount of external funding that they were receiving. Banks are highly discouraged to request new fundings since they will be paying a higher amount of money for them than they used to, due to a regulation and not because of the market’s behavior. If banks reduce their funds, they will be allocating less credit, and all the mentioned consequences above would take place. Furthermore, with the reduction of money in circulation, Ecuador’s economic growth would be paralyzed or reduced generating an adequate scenario for a recession. Actually, recent investigations and governmental authorities have affirmed that Ecuador has entered in recession in the first trimester of 2024, and that it has perdured until nowadays[55]. It must be said that Ecuador’s recession is not the main effect of the analyzed suspension, nevertheless it is a factor that evidently complicates the crisis.

By the other hand, the reduction of the multiplier effect of money and the abovementioned recession carries less production and therefore inevitable unemployment. If there is less production, the State will also receive less money from taxes and contributions, not withstanding that the spirit of the measure was to finance the crisis.

    b) Legal consequences

Even though the taken measure produce the abovementioned economic impacts, the way it was implemented in Ecuador generated also uncertainty. Unfair competition, unconstitutional arguments, future probable compensations and uncoherent legal precedents are the main issues that arise. Its legal consequences are analyzed to evidence that even though the measure is detrimental for the economy as stated before, its adoption will also provoke even more problems that could be avoided if adequately addressed.

The ISD exemption suspension as established by the ECOL indicated that it “shall not be extensive for banks with private capital exclusively”[56] causing a revolution in the financial sector, since aggrupation’s did not find it understandable to exclude banks with public or mixed capital. In this line, the RECOL defined financial institutions of private capital as “the ones with a private capital of at least a 10% or more of its composition”[57], establishing a clearer limit than the ECOL. ASOBANCA (Ecuadorian Bank’s Association) file unconstitutionality claims against the abovementioned dispositions from ECOL and RECOL principally alleging that:

1. The National Assembly did not have the power to introduce a modification related to taxes, since it is an exclusive initiative of the President who did not presented it.
2. There is no clear and direct connection between the ISD payment from private banks with the main objective of the Law: the promotion of economic solutions and energy generation to overcome the energetic crisis; representing a clear violation to the unity of matter principle.
3. The different treatment for banks with public or private capital is not only discriminatory but it constitutes an obstacle for obtaining resources that would benefit Ecuador’s economy[58].

The action was admitted, and its decision is pending and will take long, as ASOBANCA states on its claim and due to its relevance in the actual context. Nevertheless, the disposition was not suspended, and the requested precautionary measures were denied due to the lack of accreditation of imminence and severity, as the Court stated[59]. The arguments of the Constitutional Court are not well founded in order to deny precautionary measures, since the norm reflects clear discrimination between banks and their effects were taking place since February. However, banks had to take measures to comply with the disposition, starting from prepaying international credits to cancelling negotiations of future external fundings since it resulted more profitable than paying the ISD.

By the other hand, if the Constitutional Court declares the unconstitutionality of the dispositions of the ECOL and the RECOL, it must be accompanied by an order of restitution for every single private bank who has actually paid the ISD. Furthermore, restitution would not be the only remedy but damages, since financial institutions cancelled, prepaid or stop negotiations with multilaterals due to the disposition, affecting their liquidity, balances and legitimate expectation of returns. In the contrary, if the Constitutional Court do not declare the unconstitutionality of the disposition a new legal precedent will be established: private banks will have the implicit duty to save the economy when it struggles. Even though the latter is the least probably to occur, it must be acknowledged that due to the crisis of “The Bank Holiday” or “Feriado Bancario” of 1999 in which Banks froze funds and Ecuador change its currency from sucres to dollars, the 2008’s Constitution clearly established that “the regulation and control of the private financial sector shall not imply a guaranty or responsibility of the State on their solvency”[60]. Meaning that if private financial institutions struggle, the State will not rescue them, even if it is able to. Therefore, the position of the Constitutional Court in this issue will be determining for the banking activity and its perception among Ecuadorians.

Finally, as the disposition has not been suspended, unfair competition has taken place. Private banks and banks with a private capital of at least a 10% or more of its composition do not benefit of the exemption, meanwhile public banks and banks with less than 10% of private capital do. The reason for the distinction has not been yet clarified, nevertheless the definition of the RECOL has calmed down the critics, since it reduced the discriminatory spectrum of the disposition. The Constitutional Court decision will also clarify if this distinction must be made, and if therefore just private banks are the only ones who would contribute to finance the crisis.

5. OTHER MEASURES

Beyond the ISD exemption suspension, other measures have been taken in order to finance the conflict.  The Organic Law to Confront the Internal Armed Conflict (OLCIAC) established a temporary contribution for bank’s and cooperative’s earnings for the fiscal period of 2023[61], becoming the second challenged disposition by ASOBANCA. Banks and cooperatives paid in May of 2024 the challenged contribution since it has not yet been solved by the Constitutional Court. The percentage of the contribution (which goes from 5% to 25%) is determined by the total of the earnings that financial institution had at the end of 2023 (classified between USD 5 million to USD 100 million or more)[62]. On its unconstitutional claim, ASOBANCA and the Chamber of Commerce of Guayaquil stated that the contribution is unlawful since the only one with the power to purpose tax initiatives is the President, and it was prompted by the National Assembly[63]. The claim has been admitted by the Constitutional Court, but no precautionary measures that could stop the dispositions’ effects were dictated, since severity and imminence of its effects were not justified, as the Court established[64]. Other arguments against the disposition that are stated in the claim are that principles of non-retroactivity of taxes and legal certainty were violated, since not banks neither cooperatives could reasonably foresee in 2023 the consequences that they were going to confront in February 2024; and also because the earning that are been affected are the ones generated before the establishment of the tribute. It is also validly claimed that the contribution has the same taxable event and taxable base than the income tax (impuesto a la renta), which already exists for every single person who has earnings, with the difference that this contribution applies just for banks and cooperatives, making it discriminatory.

The same happened to the Value Added Tax (IVA for its Spanish acronym). Daniel Noboa increased its interest rate from 12% to 13% by Executive Decree 198[65], nevertheless in the unconstitutional claims the plaintiffs also challenged the measure indicating that the IVA shall be increased by law and not just by a decree[66].  In this sense, the OLCIAC ratified what the decree established, but actions are still in process in the Constitutional Court[67]. It is well known that the IVA’s increase hit the whole population instead of the wealthiest of its members; since people with scarce resources will not be able to buy determined things, meanwhile wealthy people will acquire those good anyway. Also, when the prices of goods and services increase due to the IVA’s increase, inflation tends also to increase, reducing the acquisitive power of consumers. Nevertheless, the IVA’s increase effect must be developed and studied in a complete separated investigation.

In addition, the OLCIAC states two different contributions, one for banks and cooperatives and another for medium and big enterprises, also distinguishing and discriminating, since there exist enterprises, whose earnings go above bank’s earnings[68].

6. ALTERNATIVES AND SOLUTIONS

As exposed, the ISD exemption suspension has contributed for the country’s recession among other factors instead of becoming the best way to finance the internal armed conflict. The IVA’s increase has had the same effect, but harming people with limited resources; and the earnings contribution had an unjust floor reflecting a duplicated tribute – the income tax. In this sense, Ecuador’s economy has been hit with strong measures to finance the internal armed conflict with severe legal and economic consequences. Nevertheless, some dispositions could have been imposed differently, or distinct measures could have been taken with a different focus, and with a minor impact in the general economy.

First of all, all the abovementioned measures must have had a legal economic analysis before their implementation. Most of the unconstitutional claims are well founded and it is shocking that the Constitutional Court has not conceived precautionary measures. In this sense, when a resolution is taken, it is high probable that indemnifications are ordered; specially for individuals who have been harmed. Their indemnification will be paid by the State and the government, debilitating its funds until they can repeat the measures against individuals, having a counter-effect in the finance of the crisis.

As explained before, the ISD is a tribute that not necessarily has fulfilled its main objective: preventing the outflow of cash; making no sense to increase it. Nevertheless, its exemption for productive credits has motivated financial institutions to adequate their processes and inject external funding directing it to the productive sector, especially among SME’s. Therefore, it is clear that its suspension is not an adequate and sustainable measure to finance the conflict without damaging the economy. Increasing it for the taxpayers who are not excepted can be tolerated to finance the crisis, even though it is known that the tax does not accomplish its objective; but not for the ones that used to be excepted.

In this sense, if the State requires to combat and finance the internal armed conflict, two measures are purposed, instead of the taken ones:

    a) Mandatory capitalization and reinvestment of profits destinating them to anti-money laundering and combat the financing of terrorism.

Instead of creating a new temporary contribution for earnings just for banks and cooperatives, the most sustainable solution is to require the mandatory capitalization and reinvestment of profits for each entity, requiring them to use a particular % of it on anti-money laundering and combat the financing of terrorism.

Banks, cooperatives and other financial institutions are required to comply with anti-money laundering and combat the financing of terrorism laws and to report to the Financial Analysis Unit (UAFE) operations that exceed the umbral or that are suspicious or unusual[69]. They monitor transactions and have special controls, since money laundering happens when transactions vulnerate the financial system. Therefore, if it is needed to finance the internal armed conflict and combat it, the best way to do it is to require the mandatory capitalization and reinvestment of profits to the institutions of the financial system. This reinvestment shall be controlled by each controlling entity, been the Superintendency of Banks, and the Superintendency of Popular and Solidarity Economy for cooperatives and other financial institutions; and been supported by the Central Bank. Each Superintendency shall regulate, control and provide guidance in how to increase and strengthen controls against money laundering and the prevention of finance of terrorism with the support of other controlling organisms such as the Central Bank, the Financial Regulation Board and the Monetary Regulation Board. Each institution will need to be evaluated in a particular distinct basis, since their controls differ from each other. Therefore, the disposition of reinvestment must be general as the percentage, but its implementation and control shall be focused on each institution.

The Superintendence of Banks con require banks to capitalize a percentage of their earnings in other to prevent future liquidity problems and to comply with Bassel Principles. Nevertheless, this requirement of capitalization has not been directed to anti-money laundering and combat the finance of terrorism. In this sense, the proposed measure has to be mandated by a law, making an exception of the actual faculty of the Superintendency to require capitalization, and establishing a high percentage of it, for this exceptional occasion. This measure is sustainable with the country’s economy, employers, employees, banks and cooperatives; and contributes to combat the crisis, instead of just financing it.

In addition, this capitalization requirement must also be implemented with other medium and big enterprises and not just banks and cooperatives[70]. Their capitalization requirements must be differentiated since the volume of transactions and the nature of their activity is completely different, but the percentage of contribution must be the same. The difference on their contribution must rely in the controlling entity criteria in coordination with the Finance Ministry, orienting the funds to anti-money laundering and combat the financing of terrorism. It is understandable that maybe in non-financial institutions the funds will be more than enough to robust their anti-money laundering system, therefore its percentage of contribution must be distributed between their system strengthen and financing the government for the crisis.

    b) Increase of the income tax just for medium and big enterprises.

As explained before, many of the well sustained arguments that questioned the special contribution of earnings for banks and cooperatives stated its illegality, since it can be confused with the income tax as they have the same taxable base and the same taxable event. Therefore, the second proposed alternative is to increase the already existing income tax[71], but with a particular focus on big enterprises, banks and cooperatives. This way, all the economic sectors shall contribute to finance the conflict, and people will less resources as well as SME’s will be protected, making it a sustainable measure.

In order to determine which enterprises differ from big ones, the regulation must take the approach the REEGE (Regulation to the Law of Economic Efficiency and Employment Generation) which states: A micro enterprise is the productive unit which has between 1 and 9 workers and a total value of sales at the year equal or less than USD 300.000,00; a small enterprise is the productive unit which has between 10 and 49 workers and a total value of sales or income per year between USD 300.001,00 and 1.000.000,00; and a medium enterprises as the productive unit which has between 50 and 119 workers and a total value of sales or income between USD 1.000.001,00 and USD 5.000.000,00[72].  Those enterprises are the ones that must be excluded as well as natural individuals, but any enterprise that exceeds 119 workers or that their sales of income exceed USD 5.000.000,00; shall be subject to the increase.

7. CONCLUSION

The suspension of the currency outflow tax exemption is not an adequate measure to finance the internal armed conflict. The nature of the tax and its exemption have direct objectives that seek the growth of our internal economy, nevertheless the latter’s suspension does not only deteriorate SMEs development but constitute a short-term remedy than would not last. The suspension causes important micro and macro impacts in our economy that will repercuss in the future, and the way it has been implemented reflects negative legal consequences.

Been conscious that Ecuador’s crisis requires immediate action, two main solutions are proposed. Instead of suspending the ISD exemption and limiting our economic growth as a country, a mandatory capitalization and reinvestment of profits destinating them to anti-money laundering and combat the financing of terrorism. With this alternative, financial institutions will contribute to combat the security crisis by fortifying their canals of prevention against money laundering and the funding of terrorism. Instead of paying a tribute to the government, financial institutions will report to the controlling entity how they have reinvested their profits in anti-money laundering and will follow their recommendations, coordinating with the financial system as a whole to eradicate the funding of felonies and money laundering.

Furthermore, and in order to actually fund the government’s actions, a focalized increase of the income tax is proposed. An increase that affects just medium and big enterprises instead of impacting SMEs and people in general. This way, there will not exist a duplication of tributes between the contribution for earnings established by Noboa’s government and the actual income tax. In the same sense, big enterprises, including banks and cooperatives will contribute to finance the crisis, and legal and economic consequences would not happen at all.

There are some pendant cases in the Constitutional Court relating to all the measures that affected banks directly: the ISD exemption suspension, its increase and the earning’s contribution. The Court has the power to orient Ecuador’s perspective about banks and their supportive role in saving the economy; taking into account what happened in The Bank Holiday in 1999. Therefore, the present study does not rely just under the academic proposal but also reflects a reality that needs to be addressed by the Constitutional Court.

Reviewed by: Abg. Danilo Román Melo
Approved by: Dr. Álvaro Román Márquez

References and Bibliography:

[1] Independent researcher. Master in Finance, Stock and Insurance Law from Universidad Andina Simón Bolívar. Magna cum Laude Lawyer from Universidad San Francisco de Quito USFQ. Legal Coordinator at Banco de la Producción S.A. Produbanco – Promerica Financial Corporation; Editor and former Executive Director at USFQ Law Working Papers. ZIP 170520. Quito, Pichincha, Ecuador. E-mail: ddelgadodh@gmail.com. ORCID: https://orcid.org/0000-0001-5373-3185 Google scholar: https://scholar.google.com/citations?user=CTECWY4AAAAJ&hl=en.

[2] Ayuso, Anna. CIBOD Opinion – 788. “La Crisis de Ecuador, mucho más que seguridad”. January, 2024.  https://www.cidob.org/sites/default/files/2024-06/788_OPINION_ANNA%20AYUSO_CAST.pdf

[3] Yaku Pérez,  Daniel Noboa, Luisa González, Otto Sonnenholzner, Jan Topic, Xavier Hervas, Fernando Villavicencio + and Bolivar Armijos offered to combat the security crisis by debugging public systems of corruption, investing in technology and obtaining control over prisons.

See.  Noboa, Adriana. Primicias Digital Media. Updated in June 27, 2023. “Elecciones presidenciales 2023: ¿Qué ofrecen los ocho candidatos para combatir violencia e inseguridad?”. https://www.primicias.ec/noticias/elecciones-presidenciales-2023/seguridad-violencia-candidatos-plan-gobierno/

[4] El Comercio. “Corrupción y falta de medicinas, los males del Hospital Los Ceibos”. November 12, 2022. https://www.elcomercio.com/actualidad/ecuador/corrupcion-falta-medicinas-hospital-ceibos.html

[5] J. Blasco, Emili. “Ecuador se desliza hacia el agujero de la violencia y del narcotráfico”. April 14, 2023. Universidad de Navarra. https://www.unav.edu/web/global-affairs/ecuador-se-desliza-hacia-el-agujero-de-la-violencia-y-del-narcotrafico

[6] Diario La Hora. “Correa y Moreno maquillaron cifras para seguir endeudándose sin control”. November 4, 2021. https://www.lahora.com.ec/pais/deuda-publica-incremento-economia/

[7] Angulo, Sebastián. Diario El Expreso. “El ministro de Finanzas reconoce que sueldos de enero de 2024 se pagarán con atrasos”. January 29, 2024. https://www.expreso.ec/actualidad/economia/ministro-finanzas-reconoce-sueldos-enero-2024-pagaran-atrasos-187781.html

[8] See. Bermeo Sandoval, Isabela Raquel. “Declaratoria de Conflicto Armado Interno como Estrategia para Abordar el Crimen Organizado Transnacional en Ecuador”. USFQ Law Working Papers. September, 2024. https://researchpapers.usfq.edu.ec/index.php/usfqlawwp/preprint/view/179/553

[9] González, Mario Alexis. Primicias. September 9, 2020.  “De genocidio a traición a la patria, los 34 casos que le quedan a Correa”. https://www.primicias.ec/noticias/politica/genocidio-traicion-patria-casos-penales-correa/

[10] Ecuadorian Attorney General’s Office. “Caso Sinohydro”. https://www.fiscalia.gob.ec/caso-sinohydro/

[11] Primicias. “El Covid-19 desató una crisis de corrupción en las compras públicas”. May 21, 2021. https://www.primicias.ec/noticias/politica/evaluacion-corrupcion-lenin-moreno/

[12] González, Mario Alexis. “Los rastros de corrupción que deja el gobierno de Guillermo Lasso”.  Primicias. November 6, 2023. https://www.primicias.ec/noticias/politica/guillermo-lasso-corrupcion-casos/

[13] Executive Decree Nro. 741. Guillermo Lasso Mendoza. May 17, 2023.  https://www.comunicacion.gob.ec/wp-content/uploads/2023/05/Decreto_Ejecutivo_No._741_20230417063831.pdf

[14] BBC News Mundo. “Asesinan al candidato presidencial Fernando Villavicencio a pocos días de las elecciones en Ecuador”. August 10, 2023. https://www.bbc.com/mundo/articles/c6pn4785dy3o

[15] Ecuavisa. “Caso Metástasis: El expresidente del Consejo de la Judicatura, Wilman Terán, es trasladado a la cárcel La Roca”.  March 30, 2024. https://www.ecuavisa.com/noticias/seguridad/caso-metastasis-wilman-teran-carcel-la-roca-DK7084665

[16] Executive Decree Nro. 110. Daniel Noboa. January 8, 2024. https://minka.presidencia.gob.ec/portal/usuarios_externos.jsf

[17] Executive Decree Nro. 111. Daniel Noboa. January 9, 2024. https://minka.presidencia.gob.ec/portal/usuarios_externos.jsf

[18] Diario El Telégrafo. “Ecuador fija tabla para el porte y consume de drogas”.  June 17, 2013. https://www.eltelegrafo.com.ec/noticias/justicia/1/ecuador-fija-tabla-para-el-porte-y-consumo-de-drogas

[19] El Comercio. “El Gobierno de Ecuador propone acciones contra Rafael Correa y sus funcionarios por daños en caso Chevron”. September 18, 2018. https://www.elcomercio.com/actualidad/negocios/ecuador-chevron-rafaelcorrea-leninmoreno-juicio.html

[20]  Toro, Karen. “Ecuador veta la explotación petrolera en la reserva amazónica del Yasuní en un referéndum histórico”.  El País. 21 August, 2023.  https://elpais.com/clima-y-medio-ambiente/2023-08-21/ecuador-veta-la-explotacion-petrolera-en-la-reserva-amazonica-de-yasuni-en-un-referendum-historico.html

[21] The Financial Regulation Board (FRB) has emitted its Resolution amplifying the scope for reliefs and restructure of debts.  FRB, Resolution Nro. JPRF-F-2024-0120, August 30, 2024.

[22] Reformatory Law for Tax Equity. Art. 155. Official Register Suplement 424, December 29, 2007.

[23] Reformatory Law for Tax Equity. Art. 156. Official Register Suplement 424, December 29, 2007.

[24] Regulation for the Application of the Overseas Remittance Tax. Art. 1. Official Register Suplement 1058, May 14, 2008.

[25] Regulation for the Application of the Overseas Remittance Tax. Art. 8. Official Register Suplement 1058, May 14, 2008.

[26] Organic Monetary and Financial Code. Art. 389. Official Register Suplement 332. September 12, 2014.

[27] Ana María. “20 años de la dolarización en Ecuador: ¿por qué es tan popular la dolarización entre los ecuatorianos? (y cuál es su lado oscuro)”.  BBC News Mundo. https://www.bbc.com/mundo/noticias-america-latina-50916554

[28] Edy Fernando Altamirano Sandoval. “Análisis del impuesto a la salida de divisas como tributo regulador”. Universidad Andina Simón Bolívar. Quito, 2019. https://repositorio.uasb.edu.ec/bitstream/10644/7012/1/T3019-MT-Altamirano-Analisis.pdf

[29] Veas Navarro, Nathalie and Jiménez Piza, Okwell. “El impacto del impuesto a la salida de divisas em  la inversión extranejra directa (privada) en el Ecuador periodo 2008-2017”. Universidad de Guayaquil. 2019. Page 11. https://dialnet.unirioja.es/descarga/articulo/8930109.pdf

[30] Gómez Maldonado, Carlos Eduardo. “Impacto del Impuesto a la Salida de Divisas en la Blanaza de Pagos del Ecuador”. Pontificia Universidad Católica del Ecuador. August 2015.  Page 79.

[31] Quinde Rivas, Paúl Esteban “El impuesto a la salida de divisas y su impacto en el sistema financiero nacional”. Universidad Politécnica Saleciana. 2018, Cuenca. page 16.

[32] Quinde (2018), 16.

[33] Veras and Ockwell. 2019. page 10.

[34] Veras and Ockwell. 2019. Page 11 y 12.

[35] Reformatory Law for Tax Equity. Art. 156. Official Register Supplement 424, December 29, 2007.

[36] Reformatory Law for Tax Equity. Art. 160. Official Register Supplement 424, December 29, 2007.

[37] Reformatory Law for Tax Equity. Art. 158. Official Register Supplement 424, December 29, 2007.

[38] Reformatory Law for Tax Equity. Art. 157. Official Register Supplement 424, December 29, 2007.

[39] Reformatory Law for Tax Equity. Art. 162. Official Register Supplement 424, December 29, 2007.

[40] Regulation for ISD application. Art. 14. Official Register Supplement 1058, May 14, 2008.

[41] Superintendence of Banks. Resolution Nro. SB-2016-568.  May 31, 2016.

[42] Reformatory Law for Tax Equity. Art. 159. Official Register Supplement 424, December 29, 2007.

[43] The Law and its Regulation identify more requirements for the ISD exemption, such as that the debtor does not make any payment of the 50% or more of the credit’s capital in advance before the 180 days; or that the credit’s rate is below the permitted rate.

[44] Montes Espinoza, Clara Isabel. “Los impuestos para controlar la circulación de capitales a nivel internacional y el caso del ISD en Ecuador”. Ecuador, Universidad Andina Simón Bolívar. 2014.

[45] Orozco, Mónica. “Bancos rechazan eliminación de exoneración de ISD y analizan acción constitucional”. Primicias. January 11, 2024. https://www.primicias.ec/noticias/economia/banca-privada-eliminacion-exoneracion-isd-ley-energetica/

[46] Text translated by the author. Reformatory Law for Tax Equity.. Art. 159. Official Register Suplement 424, December 29, 2007.

[47] Codification of the Superintendence of Bank’s norms. Libro I.- Normas de control para entidades de los sectores financieros público y privado, Título XX.- Disposiciones Generales, Capítulo V Procedimiento de carácter general para la calificación de entidades no financieras especializadas que provean recursos a personas naturales y/o jurídicas locales o a organismos del gobierno.

Regulation for ISD application.. Official Register Supplement 336. May 14, 2008. Article 14

[48] Executive Decree Nro. 211. General Regulation

General Regulation of the Organic Law to Confront the Internal Armed Conflict (GROLCIAC).. Article 10.

[49] Evelyn Tapia, Primicias, “CAF aprobó línea de crédito para Banco Pichincha por USD 45 millones”. August 8, 2022. https://www.primicias.ec/noticias/economia/caf-prestamo-banco-pichincha-ecuador/

[50] Cámara de Comercio de Quito. “Produbanco ha colocado demás de $43 millones en financiamiento a proyectos azules”. November 27, 2023.  https://ccq.ec/produbanco-ha-colocado-mas-de-43-millones-en-financiamiento-a-proyectos-azules/

[51]  Produbanco. “Produbanco recibe crédito por $92 millones para pymes, pyme mujer y proyectos sostenibles”. January 14, 2022. https://www.produbanco.com.ec/Noticias/articulos/crédito-fmo/

[52] Guillermo Lizarzaburo.  Diario El Expreso, “$100 millones en crédito extenro para el Banco Guayaquil”. June 4, 2020. https://www.expreso.ec/actualidad/economia/100-millones-credito-externo-banco-guayaquil-12880.html

[53] Central Bank of Ecuador. Effective Interest Rates – Historic Data  contenido.bce.fin.ec/documentos/Estadisticas/SectorMonFin/TasasInteres/TasasHistorico.htm

[54] Gómez, M. “La base y los determinantes del multiplicados del dinero en Colombia (1923-1950)”. 2009.  https://repositorio.banrep.gov.co/server/api/core/bitstreams/f3e7efa0-4c37-4e2f-a42b-c1882f4a38a0/content

[55] Swissinfo.ch. “El Banco Central de Ecuador advierte que la economía ecuatoriana ha entrado en recesión”. July 22, 2024. https://www.swissinfo.ch/spa/el-banco-central-de-ecuador-advierte-que-la-econom%C3%ADa-ecuatoriana-ha-entrado-en-recesi%C3%B3n/84571440#:~:text=Quito%252C%252021%2520jul%2520(EFE),una%2520nueva%2520metodolog%C3%ADa%2520de%2520medici%C3%B3n.

[56] ECOL. Third Transitory Disposition. Official Register Second Supplement 475. January 11, 2024.

[57] RECOL. Fourteenth Transitory Disposition. Executive Decree No. 176. Daniel Noboa. Official Register Supplement No. 507. February 28, 2024.

[58] ASOBANCA. Unconstitutional Claim, February 29, 2024. Ecuadorian Constitutional Court.

[59] Constitutional Court of Ecuador. Caso 7-24-IN. Unconstitutional Claim. April 26, 2024. http://esacc.corteconstitucional.gob.ec/storage/api/v1/10_DWL_FL/e2NhcnBldGE6J2FkbWlzaW9uMjAyNCcsIHV1aWQ6Jzc4OTgyODNhLTIzYzUtNGYwMC05MDEzLWM3OGNiYTFlZGMyZi5wZGYnfQ==

[60] Ecuadorian Constitution. Official Register No. 449. October 20, 2008. Art. 308.

Furthermore, the Constitution in article 312 prohibited banks and telecommunication firms to perform different productive activities than the ones they naturally perform, due to the abuses that happened in the 1999 crisis.

[61] Organic Law to Confront the Internal Armed Conflict (OLCIAC). March 12, 2024. Official Registry Supplement 516. Articles 10 and 16.

[62] Primicias. “Corte Constitucional admite a trámite demanda contra nuevo impuesto a la banca”. May 15, 2024. https://www.primicias.ec/noticias/economia/corte-constitucional-tramite-impuesto-banca-ley-conflicto-armado/

[63] El Comercio. “La Corte Constitucional admitió demandas en contra del alza del IVA y otros impuestos”. May 16, 2024. https://www.elcomercio.com/actualidad/corte-constitucional-admitio-demandas-contra-alza-del-iva-y-otros-impuestos.html

[64] Constitutional Court. Case 27-24-IN. Judge Teresa Nuques Martínez. Unconstitutional Action. April 30, 2024.  http://esacc.corteconstitucional.gob.ec/storage/api/v1/10_DWL_FL/e2NhcnBldGE6J2FkbWlzaW9uMjAyNCcsIHV1aWQ6JzUxYTJhYmM4LTZhMzktNGZhMS1iYmU2LTIxNzk5YmNlOTQwMS5wZGYnfQ==

[65] Executive Decree 198. Daniel Noboa. March 15, 2024.

[66]  Constitutional Court.  Case 31-24-IN. Judge Karla Andrade Quevedo. June 5, 2024. http://esacc.corteconstitucional.gob.ec/storage/api/v1/10_DWL_FL/e2NhcnBldGE6J2FkbWlzaW9uMjAyNCcsIHV1aWQ6JzRhMjYzYzI2LWZlOGYtNDkxNS1iOGRhLTI1NmMzM2ViODkzNi5wZGYnfQ==

[67] OLCIAC. Second Reformatory disposition. 2024.

[68] ASOBANCA. “¿Es la banca la actividad más rentable de la economía?¿Es malo que los bancos o las empresas tengan alta rentabilidad?”. January 15, 2024. https://asobanca.org.ec/wp-content/uploads/2024/01/2024-01-15-BP-Utilidades-Bancos-Privados.pdf

[69] Regulation for Anti-money Laundering and the Financing of Crime Law. Executive Decree No.1331. Rafael Correa Delgado. March 20, 2020.

Compliance Officers have to submit specific types of reports that are detailed in the cited article.

[70] The Anti-money Laundering and the Financing of Crime Law (ALFCL) gives the faculty to UAFE to determine the subjects that must report; and UAFE has identify enterprises as them.

ALFCL. Official Register Supplement No. 802. July 21, 2016. Article 12.

[71] Internal Tax Regime Law (ITRL). Official Register Supplement No. 463. November 17, 2004. Art. 1

[72]  Regulation to the Law of Economic Efficiency and Employment Generation. Art. 200. Executive Decree Nro. 157. Official Register Supplement 496. February 9, 2024.