Financial Crime World

Financial Crime Reporting Procedures in Nauru Raise Concerns for US Institutions

The United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued an advisory warning financial institutions operating in the country to exercise enhanced scrutiny on transactions involving the Republic of Nauru, a small South Pacific island nation with a population of approximately 10,600.

Offshore Banking and Money Laundering Concerns

Nauru has sought to establish itself as an offshore financial center, granting 400 licenses to so-called offshore banks. However, FinCEN’s advisory highlights serious systemic problems in Nauru’s counter-money laundering regime, including:

  • Money laundering is not a criminal offense in the country.
  • Offshore banks licensed by Nauru are not required to obtain identification information from their customers or maintain customer identification and transaction records.
  • Financial institutions in Nauru are under no obligation to report suspicious transactions.

FATF’s Non-Cooperative Status

The Financial Action Task Force on Money Laundering (FATF) has identified Nauru as non-cooperative in the fight against money laundering due to these deficiencies. Despite this, Nauru has indicated an awareness of the problem and is considering legislative changes to remedy some of the deficiencies.

FinCEN’s Advisory

FinCEN advises financial institutions operating in the US to carefully examine transactions involving Nauruan offshore entities and accounts to determine if they require reporting under the Bank Secrecy Act. The advisory emphasizes that this does not mean that US financial institutions should curtail legitimate business with Nauru.

Reporting Requirements

The Treasury Department will consider any report relating to a transaction described in this Advisory to constitute a report of a suspicious transaction relevant to a possible violation of law or regulation, for purposes of the prohibitions against disclosure and the protection from liability for reporting of suspicious transactions contained in 31 U.S.C. 5318(g)(2) and (g)(3).

Technical Assistance

US officials stand ready to provide technical assistance to Nauruan officials as they work to remedy the deficiencies in their counter-money laundering systems.

In summary, financial institutions operating in the US are advised to exercise enhanced scrutiny on transactions involving Nauru until the country’s counter-money laundering regime is improved.