By Stanley Foodman
Extradition Reform and Its Global Compliance Impact
In May 2025, Costa Rica amended Article 32 of its constitution to allow the extradition of Costa Rican nationals in cases of international drug trafficking and terrorism. For decades, nationals were constitutionally shielded from extradition. Non-citizens were already subject to extradition through treaty-based processes.
Although the scope of the amendment is limited, the reform marks a historic shift in Costa Rica’s legal framework. It also coincides with increased FATF monitoring across LATAM and with jurisdictions preparing to implement CRS amendments beginning in 2026, with first exchanges expected in 2027.
For institutions, this is not an isolated change. It reflects how constitutional frameworks in LATAM are evolving to support greater international cooperation in financial crime enforcement.
What Changed in Costa Rica and Why It Matters
The amendment allows Costa Rica to extradite its own citizens when prosecuted or sentenced for international drug trafficking or terrorism, provided treaty and due-process requirements are met.
For financial institutions, the importance lies less in the specific crimes covered and more in what the reform represents:
- A willingness to revise constitutional protections to support cross-border enforcement.
- A signal to institutions that vulnerabilities in AML, FATCA, and CRS frameworks may attract broader scrutiny.
- An indication of regional alignment with FATF priorities on transparency and enforcement.
Implications for Financial Institutions in LATAM
- Even with a narrow scope, the reform illustrates how legal change can expand enforcement reach. Banks, custodians, trust companies, and family offices should anticipate:
- Stronger cross-border cooperation. Increased willingness to assist foreign authorities in criminal investigations.
- Greater reputational exposure. High-profile extraditions linked to financial crime can damage trust if compliance failures are revealed.
- Pressure to align with global frameworks. As jurisdictions tighten laws, AML, FATCA, and CRS programs will be reviewed through both regulatory and enforcement lenses.
Limits of the Reform and Remaining Risks
The reform is significant but not absolute.
- It applies only to Costa Rican nationals and only for drug trafficking and terrorism.
- Other financial crimes such as tax evasion or money laundering remain outside the amendment’s scope.
- Extradition still depends on treaties, judicial process, and political will.
- Strong intelligence and reliable institutional records remain essential for effective enforcement.
Compliance Areas to Reassess
The reform is a signal for institutions to review AML, FATCA, and CRS frameworks with a focus on defensibility under cross-border scrutiny.
Common vulnerabilities include:
- Beneficial ownership data. Inconsistent or incomplete records across AML, FATCA, and CRS systems.
- PEP monitoring. Weak escalation procedures for politically exposed persons.
- Fragmented reporting workflows. Siloed processes leading to inconsistencies between frameworks.
- Incident response. Lack of preparation for urgent treaty-driven requests from foreign authorities.
How the Reform Aligns with FATCA and CRS
While the constitutional change is limited to certain crimes, its broader signal reinforces the need for alignment:
- FATCA. U.S. authorities continue to pursue offshore tax evasion. Legal reforms that ease cooperation indirectly support these efforts.
- CRS. Automatic information exchange combined with stronger enforcement environments increases consequences for non-disclosure.
- CRS 2.0 (2026). With more detailed data and broader coverage, reporting gaps will be more visible and harder to defend once enforcement cooperation expands.
Risk Management Checklist for Compliance Teams
Institutions should consider the following steps:
- Reconcile beneficial ownership records across AML, FATCA, and CRS systems.
- Refresh KYC for high-risk clients, including PEPs with cross-border ties.
- Integrate reporting workflows to identify inconsistencies early.
- Strengthen protocols for responding to foreign legal or regulatory requests.
- Train staff to recognize the implications of cross-border enforcement and treaty cooperation.
- Test records and data for consistency to ensure audit readiness.
Strategic Takeaway: LATAM in a New Enforcement Era
Costa Rica’s reform shows that even constitutional protections can be revised to enable greater cross-border enforcement. For compliance teams, the lesson is not the narrow scope of the amendment, but the willingness of jurisdictions to adapt their laws in line with global expectations.
Institutions that use this moment to integrate AML, FATCA, and CRS controls will be better positioned to manage enforcement pressure, protect client relationships, and preserve operational integrity as regional cooperation intensifies.
How Foodman Can Help
Foodman CPAs & Advisors assists financial institutions with AML program assessments, FATCA and CRS remediation, and training tailored to LATAM risk. To schedule a compliance review or team training, contact info@foodmanpa.com.
