COMPLIANCE WITH MONEY LAUNDERING LAWS IN THE MARSHALL ISLANDS: A MAJOR CONCERN FOR US FINANCIAL INSTITUTIONS

Warning Issued by FinCEN

The United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued an advisory warning banks and other financial institutions operating in the US to give enhanced scrutiny to all financial transactions originating from or routed through the Marshall Islands.

Background on the Marshall Islands

The Marshall Islands, a group of atolls and reefs in the Pacific Ocean with a population of approximately 65,000, has been developing an offshore financial sector which includes around 3,000 “non-resident companies”. However, the country’s counter-money laundering regime is plagued by systemic problems, including:

• Money laundering not being a criminal offense in the Marshall Islands
• Lack of customer identification and transaction records
• No requirement for financial institutions to report suspicious transactions
• Strong bank secrecy laws that can only be lifted with a court order

FATF’s Assessment

As a result, the Financial Action Task Force on Money Laundering (FATF) has identified the Marshall Islands as non-cooperative in the fight against money laundering. The country is currently drafting counter-money laundering legislation which would criminalize money laundering and create a financial intelligence unit.

US Financial Institutions’ Guidance

US financial institutions are advised to give enhanced scrutiny to any transaction originating in or routed through the Marshall Islands, or involving entities organized or domiciled in the Marshall Islands. Institutions subject to suspicious transaction reporting rules should carefully examine available facts relating to such transactions to determine if they require reporting under those rules.

Conclusion

The issuance of this advisory does not mean that US financial institutions should curtail legitimate business with the Marshall Islands. The Treasury Department will consider any report relating to a transaction described in this advisory to constitute a report of a suspicious transaction relevant to a possible violation of law or regulation, for purposes of the prohibitions against disclosure and protection from liability for reporting of suspicious transactions.

US officials stand ready to provide technical assistance to Marshall Islands officials as they work to remedy the deficiencies in their counter-money laundering systems.