Financial Crime World

Nauru’s Financial System Lacks Comprehensive Anti-Money Laundering Measures

Weaknesses in Nauru’s Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Regime

A recent onsite visit by the Mutual Evaluation team has revealed significant weaknesses in Nauru’s AML/CFT regime. Despite having a number of laws and regulations in place, the country’s financial system lacks comprehensive AML/CFT measures, leaving it vulnerable to money laundering and terrorist financing.

Customs Act Issues

  • The Customs Act, currently being implemented, does not provide 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 several detections of undeclared cash in recent years.

Limited Financial Institutions and Regulation

  • There are no financial institutions operating in Nauru, except for one remitter, Western Union.
  • The country does not have a prudential regulator or supervisor.
  • Banking legislation is limited in its coverage of core principles.

Anti-Money Laundering Act (AMLA) 2008

  • Sets out AML/CFT obligations, but these have not been fully implemented.
  • Unenforceable guidelines were issued under the earlier AMLA 2004 on suspicious transaction reporting and customer due diligence, and these need to be updated to reflect current obligations.

Gaps in Regulation

  • Enhanced due diligence requirements for foreign politically exposed persons are established, but there are gaps in the coverage of beneficial ownership requirements and enhanced customer due diligence for high-risk customers.
  • There are no obligations relating to non-face-to-face business or cross-border correspondent banking relationships.

Financial Intelligence Unit (FIU)

  • Has the authority to conduct off-site and on-site inspections and review policies, books, and records, but its procedures and capacity to conduct supervision are not yet well developed.
  • Lacks staff resources and limited experience means that thorough supervision of financial institutions has not begun.

Guidance and Implementation

  • The country’s AML/CFT regime is hampered by a lack of guidance on certain aspects, such as what constitutes originator information in remittance transactions.
  • There is no guidance on how to apply the obligations related to business relationships and transactions with counterparts from or in countries that do not adequately apply the FATF Recommendations.

Areas for Improvement

  • More comprehensive guidelines are needed.
  • Increased staff resources are required.
  • Improved supervision of financial institutions is necessary.

Conclusion

Nauru’s failure to implement a comprehensive AML/CFT regime leaves it vulnerable to money laundering and terrorist financing, and undermines the integrity of the global financial system.