Financial Regulatory Bodies in NAURU Face Scrutiny Amid Money Laundering Concerns
US Treasury’s FinCEN Issues Advisory to Enhance Scrutiny for Financial Institutions
A recent advisory issued by the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has raised concerns about financial institutions operating in the United States and their dealings with transactions involving the Republic of Nauru. The advisory urges enhanced scrutiny when dealing with transactions originating from or routed through Nauru, or involving entities organized or domiciled in Nauru.
Nauru’s Offshore Financial Center Ambitions
Nauru, a small South Pacific island nation with a population of approximately 10,600, has been seeking to establish itself as an offshore financial center since the past two decades. The country has granted over 400 licenses to so-called offshore banks, many of which are represented by agents registered by the Nauru Agency Corporation (NAC).
Systemic Problems in Nauru’s Counter-Money Laundering Regime
FinCEN’s advisory highlights serious systemic problems in Nauru’s counter-money laundering regime, including:
- Money laundering is not a criminal offense in Nauru.
- Offshore banks licensed by Nauru are not required to obtain identification information from their customers or maintain customer records.
- Nauruan financial institutions are under no obligation to report suspicious transactions.
These weaknesses have led the Financial Action Task Force on Money Laundering (FATF) to identify Nauru as a non-cooperative country in the fight against money laundering.
Nauru’s Response and Cooperation
Despite acknowledging the deficiencies, Nauru has shown an awareness of the issue and has cooperated with other countries in certain criminal investigations involving its institutions. The country is also considering legislative changes and seeking technical assistance to address some of the shortcomings.
US Financial Institutions’ Guidance
FinCEN advises banks and other financial institutions operating in the United States to give enhanced scrutiny to any transactions originating from or routed through Nauru, or involving entities organized or domiciled in Nauru. This does not mean that US financial institutions should curtail legitimate business with Nauru; rather, they are urged to carefully examine available facts relating to such transactions and report suspicious activities as required by the Bank Secrecy Act.
Technical Assistance from the US Treasury Department
The US Treasury Department has indicated its willingness to provide technical assistance to Nauruan officials as they work to address the deficiencies in their counter-money laundering systems.
Conclusion
FinCEN’s advisory serves as a timely reminder of the importance of due diligence and transparency in international financial transactions, particularly when dealing with countries that may pose higher risks of money laundering and terrorist financing. The advisory emphasizes the need for enhanced scrutiny and careful examination of transactions involving Nauru to mitigate these risks.