Title: Nauru’s Finances Under Scrutiny: FinCEN Warns U.S. Banks of Money Laundering Risks

FinCEN’s Warning to U.S. Banks (July 2000)

The Financial Crimes Enforcement Network (FinCEN) of the United States Department of the Treasury issued a stern warning, Advisory 21, urging American banks to exercise heightened due diligence when dealing with financial transactions linked to the Pacific island nation of Nauru.

Nauru: Offshore Financial Hub with Questionable Regulations

Small Pacific Island State: Nauru, with a population of approximately 10,600, has sought to position itself as an offshore financial hub since the early 1980s.
Offshore Banks: Around 400 offshore banks have been granted licenses, each regulated by the Nauru Agency Corporation (NAC) and its affiliated companies.
Licenses: Those seeking to establish offshore banks in Nauru are often represented by agents registered with the country.
Legislation Deficiencies: However, Nauru’s counter-money laundering regime faces serious concerns, making it a non-cooperative jurisdiction in the fight against money laundering, according to the Financial Action Task Force on Money Laundering (FATF).

Lack of Regulations in Nauru

Nauru’s deficiencies in legislation include:

Money Laundering Not Criminal: Money laundering is not considered a criminal offense in Nauru.
Offshore Banks Exemptions: Offshore banks are exempted from requiring customer identification or maintaining records.
Suspicious Transaction Reporting: There is no obligation for Nauruan financial institutions to report suspicious transactions.

FATF Classification and Nauruan Response

Despite these concerns, Nauru has shown signs of awareness and cooperation. They have:

Participated in Criminal Investigations: Nauru has participated in some criminal investigations involving its institutions.
Temporarily Suspended Bank Licenses: Several banks have had their licenses temporarily suspended.
Legislative Changes: Nauru is considering legislative changes.
Technical Assistance: Nauru is seeking relevant technical assistance to remedy these deficiencies.

Opportunities for Money Laundering in Nauru

The current legal, supervisory, and regulatory framework in Nauru presents significant opportunities for criminals to launder their proceeds of illicit activity and avoid effective investigation or punishment. Nauru’s commitment to bank secrecy and the absence of preventative measures add to the allure for potentially illicit transactions involving Nauruan offshore entities and accounts.

Advisory for U.S. Banks

In light of these concerns, U.S. banks and financial institutions are urged to:

Examine Transactions Carefully: Carefully examine the available facts relating to transactions originating from or passing through Nauru or involving entities organized or headquartered there.
Determine Reporting Requirements: Determine whether these transactions meet the reporting requirements under applicable laws, such as the Suspicious Activity Reports (SAR) rule.
No Discouragement of Legitimate Business: This advisory does not discourage legitimate business activities with Nauru but rather aims to ensure that financial institutions have the necessary information and guidelines to adhere to their reporting obligations.

Technical Assistance from the U.S. Treasury Department

The U.S. Treasury Department stands ready to provide technical assistance to Nauruan authorities as they address the deficiencies highlighted in this advisory. Contact FinCEN for further information.