Financial Crime World

Dominica’s Offshore Financial System: A Haven for Money Laundering and Financial Crimes? ⚠️ FinCEN Issues Alert for US Banks

Introduction

Dominica, the “Nature Island” in the Caribbean known for its lush greenery and serene views, has raised concerns within the financial sector and regulatory bodies due to its weak regulatory framework against money laundering and other financial crimes. The United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued a warning to US banks regarding transactions involving the Commonwealth of Dominica.

FinCEN’s Warning: Enhanced Scrutiny Required

In FinCEN Advisory Issue 16, dated July 2000, the department urged US banks to exercise “enhanced scrutiny” on all financial transactions originating from or routed through Dominica. With around 5,800 International Business Companies (IBCs) and six offshore banks, Dominica has expanded its offshore financial sector rapidly in recent years.

Challenges in Dominica’s Counter-Money Laundering Regime

  • Criminalizing Money Laundering: Money laundering is only considered a crime when linked to narcotics-related offenses in Dominica.
  • Lack of Supervision: The domestic banking sector and offshore banks operate with minimal supervision.
  • Anonymous Accounts and Lack of Reporting: Anonymous accounts and the absence of suspicious transaction reporting are features of the offshore banking sector.
  • Bearer Shares and Strict Secrecy Laws: Dominica’s IBC’s can issue bearer shares and maintain transactional information under strict secrecy laws, making it difficult to verify their activities.

Consequences: Dominica on FATF’s Non-Cooperative Countries’ List

These deficiencies have resulted in Dominica being added to the Financial Action Task Force on Money Laundering’s list of non-cooperative countries, increasing opportunities for criminals to evade investigations or punishment.

Positive Developments and US Support

Despite some positive developments, such as sharing information obtained by Dominica’s Attorney General in narcotics-trafficking cases, inadequate oversight, supervision, and enforcement mechanisms against money laundering remain.

Implications for US Financial Institutions

  • Transaction Analysis: Institutions must carefully examine transaction details to determine if reporting is required under Bank Secrecy Act rules.
  • **Other Laws:**Non-compliance with specific suspicious transaction reporting rules should still consider potential reporting obligations under other relevant laws.

Conclusion

US financial institutions should not completely avoid dealings with Dominica but must perform due diligence and rigorous compliance checks to promptly identify and report any potential financial crime risks. US officials are ready to assist Dominica in addressing the deficiencies highlighted in the advisory.