Financial Crime World

FinCEN Warns US Banks: Money Laundering Risks in the Republic of the Marshall Islands

The Financial Crimes Enforcement Network (FinCEN), a part of the United States Department of the Treasury, has issued a new advisory to U.S. banks and financial institutions, urging them to exercise heightened vigilance regarding financial transactions linked to the Republic of the Marshall Islands (RMI) or involving entities based there.

Background

With a population of approximately 65,000, the Marshall Islands, a cluster of atolls and reefs in the North Pacific, has been developing an offshore financial sector. Key facts:

  • Approx. population: 65,000
  • Cluster of atolls and reefs in the North Pacific
  • Developing an offshore financial sector

This sector hosts about 3,000 “non-resident companies,” which are administered by The Trust Company of the Marshall Islands and its US-based parent company. However, the counter-money laundering regime within the RMI’s legal, supervisory, and regulatory systems faces significant issues.

Concerns and Shortcomings

  • Lack of criminalization: No money laundering criminalization in the RMI
  • Lack of transaction record keeping: No regulations mandating financial institutions to maintain customer or transaction records
  • Absence of suspicious transaction reporting: No requirement to report suspicious transactions
  • Strong bank secrecy laws

These deficiencies have led to the RMI being identified as “non-cooperative” by the Financial Action Task Force on Money Laundering (FATF), an international group dedicated to fighting money laundering.

Government Initiatives

The RMI government has expressed intentions to address these issues. Current draft legislation aims to:

  1. Criminalize money laundering
  2. Establish a counter-money laundering authority
  3. Create a financial intelligence unit

The RMI has also cooperated with judicial inquiries in the past and plans to continue doing so.

Potential Opportunities for Money Laundering

Despite the government’s efforts, the legal loopholes within the RMI’s jurisdiction create potential opportunities for money laundering. The Marshall Islands’ adherence to bank secrecy laws and the absence of supervision or enforcement mechanisms against money laundering enhance these risks.

Financial Institutions’ Response

Financial institutions operating in the United States are advised to give increased scrutiny to transactions originating from or passing through the RMI or dealing with entities or individuals based there. Institutions subject to Bank Secrecy Act’s suspicious transaction reporting rules should assess such transactions carefully, while others should consider them in relation to other reporting obligations.

Contact Information

For inquiries concerning the advisory’s content, contact the Office of Communications at FinCEN or fax (703) 905-3885. The advisory is available at http://www.fincen.gov.

Important Remarks

Heightened scrutiny under this advisory does not imply a mandate for banks to curtail legitimate business with the Marshall Islands. The U.S. government stands ready to provide technical assistance to the Marshall Islands as they work to rectify these deficiencies.

Contact

Financial Crimes Enforcement Network, U.S. Department of the Treasury P.O. Box 39, Vienna VA 22183 (703) 905-3773 http://www.fincen.gov

Press Inquiries: Office of Communications, FinCEN (703) 905-3773 fax: (703) 905-3885