Financial Crime World

Nauru’s Financial Sector Under Scrutiny: 59 Operating Corporations, But Risks Remain

The financial sector in Nauru has come under increased scrutiny due to concerns over its ability to combat money laundering and terrorist financing. Despite having a significant number of operating corporations, including trusts and companies, the country faces several risks that need to be addressed.

Licenses and Formation of Trusts

According to a recent report, only 11 existing licenses have been used to form unit trusts in Nauru. The low rate of formation may indicate that the risks are relatively low, but it also highlights the need for improvement in this sector.

  • Only 11 out of 59 operating corporations’ licenses have been used to form unit trusts.
  • The low rate of formation may suggest a relatively low risk level, but more needs to be done to improve controls.

Currency Transactions and Anti-Money Laundering (AML) Regime

Nauru has assured that no financial institutions engage in currency transactions related to international narcotics trafficking. However, the country’s AML regime is still an area of concern.

  • Nauru has not issued any new trust company licenses in the past decade.
  • The country needs to focus on providing controls for the offshore sector, particularly through the Nauru Agency Corporation and Nauru Trustee Corporation.

Recommendations

The report recommends that Nauru:

  • Attract a banking institution to provide a wider range of financial services, subject to AML/CTF controls.
  • Supervise alternative remittance providers to ensure compliance with international standards.
  • Amend its AML legislation to include more predicate offenses and reduce restrictive conditions related to tax matters.

International Cooperation

Nauru’s failure to ratify several UN conventions raises concerns about its commitment to combating financial crimes. The country needs to prioritize the ratification of these conventions and become a party to the UN Convention against Transnational Organized Crime.

  • Nauru has not ratified the UN Convention against Corruption, the 1988 UN Drug Convention, or the UN Convention against Transnational Organized Crime.
  • The country’s lack of criminalization beyond drug-related money laundering and inadequate arrangements for asset sharing are also concerns.

Conclusion

While Nauru’s financial sector faces some weaknesses, the country is working towards strengthening its AML/CTF regime and improving its cooperation with international partners. However, more needs to be done to address the remaining risks and ensure that Nauru is not considered a haven for illicit activities.

  • Nauru is a member of the Asia/Pacific Group on Money Laundering (APG), a Financial Action Task Force-style regional body.
  • The country needs to prioritize the ratification of UN Conventions and become a party to the UN Convention against Transnational Organized Crime.