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Solomon Islands Fails to Implement Effective Anti-Money Laundering and Counter-Terrorist Financing Measures

A recent report has revealed that Solomon Islands lacks a legal framework for implementing anti-money laundering (AML) and counter-terrorism financing (CFT) measures, putting the country’s financial system at risk.

Shortcomings in AML/CFT Implementation

The report, conducted by an international organization, found that many financial institutions and designated non-financial businesses and professions (DNFBPs) in Solomon Islands have limited understanding of AML/CFT risks and obligations. This is particularly concerning given the high-risk nature of the non-profit sector in the country.

  • The National Provident Organization (NPO) sector is considered high-risk for money laundering and terrorist financing, but there is no strategic or operational monitoring of activities in this sector.
  • Financial institutions’ awareness of the risks presented by NPOs is also negligible.

Regulatory Shortcomings

The report highlighted several shortcomings in Solomon Islands’ regulation of DNFBPs, including:

  • A lack of risk-based measures and inadequate supervision.
  • The country’s financial intelligence unit (SIFIU) has only recently begun disseminating UN notices related to AML/CFT, but there is no legal framework or policies in place to deal with politically exposed persons (PEPs) and senior foreign officials (SFOs).

Deficiencies in Customer Due Diligence

The report also found that many financial institutions and DNFBPs are not implementing adequate customer due diligence measures, including:

  • The identification of beneficial owners.
  • Reporting of suspicious transactions or activities is limited and does not commensurate with the risk profile of the institutions.

Weak Supervision

Supervision of financial institutions in Solomon Islands is also weak, with:

  • A lack of market entry controls.
  • Inadequate fit and proper and enhanced due diligence measures on persons and body corporates.
  • The country’s prudential supervisor, the Central Bank of Solomon Islands (CBSI), conducts joint FI on-site inspections with SIFIU, but these inspections are not risk-based or informed by any risk assessment.

Recommendations

To address these shortcomings, the report recommends:

  1. Establish a legal framework and policies to deal with PEPs and SFOs.
  2. Strengthen regulation of DNFBPs, including the NPO sector.
  3. Implement risk-based measures for AML/CFT supervision.
  4. Enhance customer due diligence measures, including identification of beneficial owners.
  5. Improve reporting of suspicious transactions or activities.
  6. Strengthen market entry controls and enhance due diligence measures on persons and body corporates.
  7. Conduct risk-based inspections of financial institutions.

Conclusion

Solomon Islands’ lack of effective AML/CFT measures puts the country’s financial system at risk of being exploited by money launderers and terrorist financiers. The report highlights several areas for improvement, including the need for a legal framework and policies to deal with PEPs and SFOs. It is essential that the Solomon Islands government takes immediate action to address these shortcomings and implement more effective AML/CFT measures to protect its financial system.