Financial Crime World

Nauru’s Financial Sector Lacks Comprehensive Anti-Money Laundering and Combating the Financing of Terrorism Measures

Recent Evaluation Reveals Gaps in AML/CFT Implementation

A recent evaluation has highlighted that Nauru’s financial sector is lacking comprehensive anti-money laundering (AML) and combating the financing of terrorism (CFT) measures, despite efforts to implement some provisions.

Key Findings

  • The Customs Act is being implemented, but more comprehensive provisions in the Proceeds of Crime Act (POCA) to give effect to the Sanctions Regime Implementation eXtraordinary Gazette (SRIX) have not been implemented.
  • Neither piece of legislation provides for automatic sharing of cash export declarations with the Financial Intelligence Unit (FIU), although the FIU can access them on request.
  • Nauru Customs has made a number of detections of undeclared cash, highlighting the need for stronger AML/CFT measures to prevent financial crimes.

Limited Financial Sector

  • There is no bank or other financial institution offering financial services in or from Nauru, with the exception of one remitter, Western Union.
  • The country has not approved the establishment of shell banks since 2004 and has taken regulatory action to wind up the operation of the legacy offshore banking and insurance sector.

Gaps in AML/CFT Regime

  • The Anti-Money Laundering Act (AMLA) 2008 sets out preventive obligations for financial institutions, but these provisions have not been fully implemented.
  • Weaknesses include:
    • Beneficial ownership requirements
    • Enhanced customer due diligence for high-risk customers

Remittance Sector and Risk-Based Approach

  • There are no guidelines issued specific to the remittance sector, which is the only financial sector currently operating in Nauru.
  • The country does not adopt a risk-based approach in the application of preventive measures to any sector.

Enhanced Due Diligence Requirements

  • The AMLA establishes enhanced due diligence requirements for foreign politically exposed persons (PEPs), but there are gaps in coverage, including an obligation to check on beneficial owners being PEPs.

Conclusion

The evaluation concludes that while Nauru has made some progress in implementing AML/CFT measures, there is still much work to be done to ensure the effective implementation of the regime. The country needs to:

  • Strengthen its regulatory framework
  • Enhance its supervisory capacity
  • Improve public awareness of the importance of preventing financial crimes