Nauru Banking Regulations Raise Red Flags for Financial Crimes

US Treasury Department Warns of Suspicious Transactions Involving Nauru

The US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued a new advisory to warn banks and financial institutions of potential money laundering risks associated with transactions involving Nauru, a small Pacific island nation.

Why the Concern?

Nauru has been actively seeking to establish itself as an offshore financial center, issuing over 400 licenses to so-called offshore banks. However, its counter-money laundering regime is plagued by systemic problems, including:

• Lack of effective supervision: Nauruan authorities lack the necessary resources and expertise to effectively monitor financial institutions and detect suspicious activity.
• Failure to require identification information: Financial institutions in Nauru do not collect sufficient customer information or maintain transaction records, making it difficult to identify and track transactions.
• No criminal offense for money laundering: Money laundering is not a crime in Nauru, which has been identified as non-cooperative by the Financial Action Task Force on Money Laundering (FATF).
• Strong bank secrecy laws: Nauru’s bank secrecy laws make it challenging for authorities to investigate and prosecute suspicious transactions.

What Does This Mean for US Banks?

FinCEN is advising banks and financial institutions operating in the US to exercise enhanced scrutiny when dealing with transactions involving Nauru, including:

• Examining available facts to determine if a transaction requires reporting under suspicious transaction rules.
• Investigating the source of funds and the purpose of the transaction.

What Support Does Nauru Need?

The Treasury Department is willing to provide technical assistance to Nauruan officials as they work to address these deficiencies and improve their counter-money laundering systems.