Financial Crime Definition in Marshall Islands Raises Concerns for US Banks
The United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued an advisory warning US banks and financial institutions to be vigilant when dealing with transactions involving the Republic of the Marshall Islands. The advisory highlights serious systemic problems with the Marshall Islands’ counter-money laundering regime, making it a haven for financial criminals.
The Problem with the Marshall Islands
The Marshall Islands, a group of atolls and reefs in the North Pacific Ocean, has been developing an offshore financial sector, which includes approximately 3,000 “non-resident companies.” However, the country’s legal and regulatory systems lack adequate measures to prevent money laundering and terrorist financing. The absence of:
- Customer identification records
- Transaction records
- Suspicious transaction reporting requirements
creates a high risk for fraudulent activities.
Challenges in Investigating Financial Crimes
The Marshall Islands does not criminalize money laundering, and its bank secrecy laws are strict, making it difficult to investigate financial crimes. Additionally, offshore entities in the Marshall Islands do not have to disclose:
- The names of officers, directors, and shareholders
- Beneficial owners
allowing criminals to conceal their identities.
International Concerns
The Financial Action Task Force on Money Laundering (FATF), a 29-member international group that works to combat money laundering, has identified the Marshall Islands as non-cooperative in the fight against money laundering. The country is currently drafting counter-money laundering legislation, but its legal and regulatory systems remain deficient.
US Bank Advisory
US banks and financial institutions are advised to give enhanced scrutiny to all transactions originating from or routed through the Marshall Islands, including those involving entities organized or domiciled, or persons maintaining accounts, in the Marshall Islands. They should carefully examine available facts relating to any such transaction to determine if it requires reporting under US suspicious transaction reporting rules.
Conclusion
The FinCEN advisory is a product of the Financial Crimes Enforcement Network and aims to inform financial institutions about the risks associated with transactions involving the Marshall Islands. The issuance of this advisory does not mean that US banks should curtail legitimate business with the Marshall Islands, but rather that they should take necessary precautions to prevent financial crimes.
Technical Assistance
The US Department of the Treasury stands ready to provide technical assistance to Marshall Islands officials as they work to remedy the deficiencies in their counter-money laundering systems.