Banking Secrecy vs Transparency: A Growing Concern in Marshall Islands

The United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued a warning to banks and financial institutions operating in the US, urging them to exercise enhanced scrutiny on transactions involving the Marshall Islands. The advisory highlights serious systemic problems with the Marshall Islands’ counter-money laundering regime, which has been identified by the Financial Action Task Force (FATF) as non-cooperative in the fight against money laundering.

Marshall Islands: A Haven for Money Laundering

The Marshall Islands, a group of atolls and reefs in the North Pacific Ocean, has been developing an offshore financial sector, comprising approximately 3,000 “non-resident companies”. However, its legal, supervisory, and regulatory systems lack adequate measures to prevent and detect money laundering. Money laundering is not a criminal offense in the Marshall Islands, and financial institutions are not required to identify their customers or maintain customer identification records.

• The country’s bank secrecy laws make it difficult for authorities to access information about transactions.
• Offshore entities are not required to disclose the names of officers, directors, and shareholders or beneficial owners.
• These deficiencies have created significant opportunities for money laundering and the protection of criminal proceeds.

FATF’s Concerns

The FATF has identified the Marshall Islands as non-cooperative in the fight against money laundering due to these systemic problems. Despite the country being aware of the issues, it is currently drafting counter-money laundering legislation. However, its commitment to bank secrecy and lack of supervisory or enforcement mechanisms aimed at preventing and detecting money laundering remain major concerns.

FinCEN’s Advisory

In light of this, FinCEN advises banks and financial institutions operating in the US to give enhanced scrutiny to all transactions originating from or routed through the Marshall Islands, or involving entities organized or domiciled, or persons maintaining accounts, in the Marshall Islands. Financial institutions subject to suspicious transaction reporting rules should carefully examine available facts relating to such transactions to determine if they require reporting.

Balancing Secrecy and Transparency

The issuance of this advisory does not mean that US financial institutions should curtail legitimate business with the Marshall Islands. Instead, it emphasizes the need for enhanced due diligence and transparency in transactions involving the region.

• US officials are willing to provide technical assistance to Marshall Islands officials as they work to address the deficiencies in their counter-money laundering systems.
• The issue highlights the ongoing challenge of balancing banking secrecy with transparency and the importance of effective anti-money laundering measures in preventing financial crimes.