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FATF Mutual Evaluation of Nauru’s Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) Regime

The Financial Action Task Force (FATF) has conducted a mutual evaluation of Nauru’s AML/CFT regime, highlighting key areas of strength and weakness.

Preventive Measures: Key Findings

Cash Export Declaration

  • Neither legislation provides for automatic sharing of cash export declarations with the Financial Intelligence Unit (FIU), although the FIU can access them on request.
  • This lack of automation hinders effective monitoring of cash exports, potentially allowing illicit activities to go undetected.

Preventive Measures—Financial Institutions

  • There is no bank or other financial institution offering financial services in or from Nauru, except for one remitter, Western Union.
  • Nauru has not approved the establishment of shell banks since 2004 and wound up the operation of legacy offshore banking and insurance sectors through regulatory action.
  • AML/CFT preventive obligations are set out in the AMLA 2008, but unenforceable guidelines were issued under earlier legislation on suspicious transaction reporting (STR) and customer due diligence (CDD).

Customer Due Diligence (CDD)

  • The CDD requirements cover key building blocks of preventive measures, but there are gaps in beneficial ownership requirements and enhanced CDD for high-risk customers.
  • This deficiency may allow malicious actors to hide behind complex structures, evading detection.

Financial Institution Secrecy

Financial institution secrecy is not an impediment to the effective implementation of the AML/CFT regime. However, this highlights the need for robust record-keeping requirements and transparent operations.

Record-Keeping Requirements

  • The AMLA includes generally satisfactory record-keeping requirements, allowing for the reconstruction of individual transactions.
  • This demonstrates a commitment to transparency and accountability within the financial sector.

Remitters

Remitters are required to maintain full originator information for both domestic and cross-border wire transfers regardless of the amount, but guidance is needed on what should be included as originator information.

Paying Attention to Unusual Transactions

There are generally comprehensive obligations in relation to paying attention to unusual transactions. This shows a proactive approach to detecting potential AML/CFT risks.

Reporting Suspicious Transactions (STRs)

  • AMLA creates obligations to report STRs for money laundering (ML) and terrorist financing (TF) to the FIU, but no STRs have been filed to date due to a narrow range of predicate offences and restrictive conditions in relation to tax matters.
  • This suggests a need for broader reporting requirements and more comprehensive guidance on STRs.

Internal Controls

AML A defines generally satisfactory requirements for financial institutions on internal controls, although more is needed in relation to audit. Strong internal controls are essential for preventing AML/CFT risks.

Fit and Proper Testing

Nauru has some requirements for ‘fit and proper’ testing at market entry (banking and corporations) to ensure criminals cannot control financial institutions, but other sectors are not covered.

These points highlight areas of strength and weakness in Nauru’s AML/CFT regime, particularly with regards to preventive measures. Addressing these gaps will be crucial in maintaining a robust AML/CFT framework and preventing illicit activities within the country.