Financial Crime World

Nauru Falls Short on Anti-Money Laundering and Counter-Terrorism Financing Efforts

A recent assessment has revealed significant weaknesses in Nauru’s anti-money laundering (AML) and counter-terrorism financing (CFT) regime. Despite setting up a financial intelligence unit (FIU) in 2004, the country has failed to make sufficient progress in implementing effective AML/CFT measures.

Weaknesses in AML/CFT Regime

  • Lack of Designation: Nauru has failed to designate any domestic terrorists or issue notices to report suspicious transactions.
  • Ineffective Supervision: The FIU has not conducted thorough supervision of financial institutions due to lack of staff resources and limited experience.
  • No Prudential Regulator: The country lacks a prudential regulator or supervisor, making it difficult to ensure compliance with AML/CFT requirements.

Limited Effectiveness of AML Law

  • Customer Due Diligence: Nauru’s AML law requires financial institutions to conduct customer due diligence (CDD) and report suspicious transactions. However, the country lacks a prudential regulator or supervisor to ensure compliance.
  • Suspicious Transaction Reports: The only financial institution operating in Nauru is a wholly government-owned company, which has not filed any suspicious transaction reports (STRs) to date.

Challenges Facing FIU

  • Limited Capacity: The 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.
  • Monitoring and Enforcement: The country’s monitoring, supervision, and enforcement of compliance with AML/CFT requirements is also the responsibility of the FIU.

Recommendations

To strengthen Nauru’s AML/CFT regime, the following measures should be taken:

  • Strengthen FIU: Increase staff resources and experience to improve the effectiveness of the financial intelligence unit (FIU).
  • Implement Prudential Regulator: Establish a prudential regulator or supervisor to ensure compliance with AML/CFT requirements.
  • Improve Monitoring and Enforcement: Enhance the capacity of the FIU to conduct thorough supervision of financial institutions and improve monitoring, supervision, and enforcement of compliance with AML/CFT requirements.
  • Enhance Reporting: Improve the effectiveness of reporting suspicious transactions by financial institutions.

Key Findings

  • Nauru has failed to designate any domestic terrorists or issue notices to report suspicious transactions.
  • The FIU has not conducted thorough supervision of financial institutions due to lack of staff resources and limited experience.
  • The country lacks a prudential regulator or supervisor, making it difficult to ensure compliance with AML/CFT requirements.
  • The only financial institution operating in Nauru is a wholly government-owned company, which has not filed any suspicious transaction reports (STRs) to date.
  • The FIU has issued guidelines for reporting and examples of “red flags” to identify suspicious transactions, but these have not been widely circulated or implemented effectively.