Financial Institutions Warned on Money Laundering Risks in Nauru

The United States Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued an advisory to banks and financial institutions operating in the United States, warning them of money laundering risks associated with transactions involving the Pacific island nation of Nauru.

Background on Nauru’s Money Laundering Risks

Nauru, a small island nation with a population of approximately 10,600, has sought to establish itself as an offshore financial center in recent decades. However, its legal, supervisory, and regulatory systems are plagued by serious systemic problems that create opportunities for money laundering.

Key Concerns

• Lack of customer identification: Offshore banks licensed by the Nauru Agency Corporation (NAC) are not required to obtain identification information from their customers.
• Inadequate supervision: The NAC’s ability to properly supervise the offshore sector is a concern, with no obligation to report suspicious transactions.
• Strong bank secrecy laws: Nauru has been identified by the Financial Action Task Force on Money Laundering (FATF) as non-cooperative in the fight against money laundering.

Steps Taken by Nauru

Despite these deficiencies, FinCEN notes that Nauru is aware of the impact of its counter-money laundering systems and is taking steps to address them. The country has cooperated with officials from other countries in certain criminal investigations and has suspended the licenses of a large number of institutions pending a review of their ownership.

Recommendations for Financial Institutions

FinCEN advises banks and financial institutions operating in the United States to exercise enhanced scrutiny when dealing with transactions originating in or routed through Nauru. Financial institutions subject to suspicious transaction reporting rules should carefully examine such transactions to determine if they require reporting in accordance with those rules.

The advisory emphasizes that the issuance of this advisory does not mean that US financial institutions should curtail legitimate business with Nauru, but rather highlights the need for enhanced due diligence when dealing with transactions involving the country.