Title: Dominica’s Offshore Financial Sector Under Scrutiny: FinCEN Warns US Institutions of Money Laundering Risks
FinCEN Advisory on Dealing with Dominica and Its Offshore Entities
Financial Crimes Enforcement Network (FinCEN), an agency of the US Department of the Treasury, has issued a new advisory to US financial institutions. The advisory urges these institutions to exercise heightened due diligence when dealing with transactions involving Dominica or its offshore entities due to the identified money laundering risks.
Expansion of Dominica’s Offshore Financial Services Sector
Dominica, a Caribbean island with approximately 65,000 residents and a primarily agricultural economy, has quickly expanded its offshore financial services sector. Now it hosts six offshore banks and nearly 5,800 International Business Companies (IBCs).
Concerns Regarding Dominica’s Counter-Money Laundering Regime
Despite this growth, concerns have been raised about the country’s weak counter-money laundering regime. The Financial Action Task Force on Money Laundering (FATF), an international organization dedicated to combating money laundering, identified Dominica as non-cooperative in the fight against money laundering.
FATF Deficiencies Identified
The FATF noted several deficiencies in Dominica’s international anti-money laundering efforts:
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Limited Money Laundering Laws
- Money laundering is only a crime under Dominican law when linked to narcotics-related offenses.
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Lack of Effective Supervision
- Dominican offshore banks receive no effective supervision.
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Anonymous Accounts
- Offshore banks can issue anonymous accounts with no restrictions.
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Lack of Suspicious Transaction Reporting
- Offshore banks are not required to report suspicious transactions to the authorities.
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Bearer Shares
- Dominica’s IBCs can issue bearer shares, allowing owners to remain anonymous.
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Strict Secrecy Laws
- Transactional information is heavily protected by Dominican secrecy laws, limiting access even to Dominican authorities.
Significant Risks and Evasion Opportunities
According to FinCEN’s advisory, “The legal, supervisory, and regulatory systems of Dominica at present create significant opportunities and tools for the laundering and protection of the proceeds of crime.” Criminals using these systems could effectively evade investigation and punishment.
US Financial Institutions’ Response
US financial institutions are advised to apply additional scrutiny to transactions linked to Dominica or its offshore entities to combat potential money laundering risks. Institutions subject to suspicious transaction reporting rules under the Bank Secrecy Act must carefully examine these transactions and report accordingly.
No Restrictions on Legitimate Business Relationships
It is important to note that this heightened scrutiny does not imply restrictions on legitimate business relationships with Dominica. Institutions with questions or comments regarding this time-sensitive matter should contact the Office of Communications, FinCEN at (703) 905-3885 or fax their inquiries to (703) 905-3885.
US Officials’ Commitment to Support Dominican Government
US officials remain committed to supporting the Dominican government in addressing the deficiencies highlighted in FinCEN’s advisory.