Title: FinCEN Warns US Banks: Enhanced Scrutiny Needed for Transactions Involving Dominica and its Financial Institutions
Background
The Financial Crimes Enforcement Network (FinCEN) of the United States Department of the Treasury has issued a new advisory, Advisory Issue 16, urging American banks and financial institutions to exercise increased vigilance in handling transactions linked to the Commonwealth of Dominica 1.
Dominica: Offshore Financial Hub
The Caribbean island nation of Dominica, with approximately 65,000 residents, is situated between the Caribbean Sea and the North Atlantic Ocean. Its economy is heavily reliant on agricultural exports. However, in recent years, it has become a hub for offshore financial services 2, with six offshore banks and about 5,800 International Business Companies (IBCs) operating in the country 2.
Money Laundering Concerns
Despite these developments, Dominica faces significant challenges. The country’s legal, supervisory, and regulatory systems for preventing and detecting money laundering suffer from serious systemic problems. According to FinCEN’s advisory, these issues include:
- Money laundering is only considered a crime in Dominica if it’s related to narcotics-related offenses.
- Offshore banks operate without effective supervision.
- Anonymous accounts can be issued by offshore banks.
- Dominica’s IBCs issue bearer shares.
- Transitional information of transactions involving IBCs is protected by strict secrecy laws 3.
FATF’s Concerns
These issues have led the Financial Action Task Force on Money Laundering (FATF), an international group established to combat money laundering, to label Dominica as non-cooperative in the fight against money laundering 3.
Current Situation
There have been some positive developments, such as cooperation with other countries in sharing narcotics-trafficking case information and the recent implementation of a Mutual Legal Assistance Treaty between the United States and Dominica 1. However, Dominica’s financial sector still poses significant risks for money laundering and the protection of proceeds of crime 1.
US Instructions for Financial Institutions
Based on these concerns, US financial institutions are advised to exercise enhanced scrutiny when dealing with transactions originating from or going through Dominica, or involving entities and persons linked to the country 1. Any such transaction requiring reporting under the respective rules of the US federal financial regulatory agencies should be thoroughly examined 1. Failure to comply with reporting requirements could result in penalties 1.
Applicability of the “Safe Harbor” Provision
Reports pertaining to transactions described in the advisory will be considered reports of suspicious transactions under relevant laws and regulations, providing protection from disclosure and civil liability 1.
Access to Technical Assistance and Further Information
US officials stand ready to offer technical assistance as Dominican authorities work to address the concerns outlined in the advisory 1. FinCEN can be contacted at P.O. Box 39, Vienna, VA 22183, (703) 905-3773, or through their website, http://www.fincen.gov, for more information on their programs 1. Inquiries regarding the contents of this advisory should be addressed to the Office of Communications, FinCEN 1. Fax communications may be sent to (703) 905-3885 1.