Financial Crime Hits Marshall Islands Businesses Hard

The Marshall Islands, a group of atolls and reefs in the North Pacific Ocean with a population of approximately 65,000, has been identified as a hub for financial crime due to its lax counter-money laundering laws. According to a recent advisory issued by the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), the Marshall Islands’ lack of effective regulation and supervision has created significant opportunities for criminals to launder money and evade detection.

Key Issues with the Marshall Islands’ Counter-Money Laundering Regime

• The absence of any law that criminalizes money laundering
• A lack of customer identification requirements for financial institutions
• No requirement for financial institutions to maintain transaction records or report suspicious transactions
• Strong bank secrecy laws that can only be lifted by a court order

Consequences of the Deficiencies

These deficiencies have led the Financial Action Task Force on Money Laundering (FATF) to identify the Marshall Islands as non-cooperative in the fight against money laundering.

Enhanced Scrutiny Required for US Financial Institutions

The advisory warns US financial institutions operating in the Marshall Islands or dealing with entities organized or domiciled there to exercise enhanced scrutiny over all transactions originating from or routed through the islands. This includes examining the available facts relating to any such transaction to determine if it requires reporting under suspicious transaction rules.

Conclusion

While the issuance of this advisory does not mean that US financial institutions should curtail legitimate business with the Marshall Islands, it highlights the need for increased vigilance and cooperation between governments to combat financial crime.