Nauru’s Efforts to Combat Money Laundering and Terrorist Financing Falls Short

A recent evaluation has revealed that Nauru, a small island nation in the Pacific, has made little progress in implementing measures to combat money laundering (ML) and terrorist financing (TF).

Limited Progress on Implementation

Despite having a financial intelligence unit (FIU) established in 2004, Nauru has not designated any domestic terrorists or issued a notice to inform informal remittance services of their obligations under the Anti-Money Laundering Act 2008.

Challenges with Financial Intelligence Unit

• The FIU lacks staff resources and experience, making it challenging for it to effectively supervise financial institutions.
• Its procedures and capacity to conduct supervision are still developing.
• The unit has the authority to conduct off-site and on-site inspections but struggles to exercise this authority effectively.

Limited AML/CT Regime

Nauru’s Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regime is limited in scope, requiring only reporting of suspicious transactions for ML and TF. The definition of what constitutes suspicion is satisfactory, but:

• The range of predicate offenses is narrow.
• Conditions related to tax matters are restrictive.
• There is no guidance on what should be included as originator information for wire transfers.

Monitoring and Supervision

Nauru’s monitoring and supervision of compliance with AML/CFT requirements are lacking. The FIU can impose sanctions on financial institutions, but:

• It is unclear if this extends to directors and senior management.
• There is little engagement with informal remittance services until recently.

DNFBPs and Customer Due Diligence

• Nauru’s designated non-financial businesses and professions (DNFBPs), including trust service providers and service providers, are subject to AML/CFT obligations.
• However, it is unclear if they are conducting customer due diligence to identify beneficial ownership or monitoring for unusual transactions.

Conclusion

Overall, Nauru’s efforts to combat ML and TF are inadequate. The country needs to take concrete steps to strengthen its AML/CFT regime, including:

• Designating domestic terrorists.
• Issuing guidance on originator information for wire transfers.
• Improving the FIU’s procedures and capacity to conduct supervision.
• Strengthening monitoring and supervision of compliance with AML/CFT requirements.
• Enhancing customer due diligence by DNFBPs.