Financial Crime Investigation Techniques in Nauru Under Scrutiny

The United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued a warning to banks and financial institutions operating in the US to exercise enhanced scrutiny over transactions involving the Pacific island nation of Nauru. This advisory highlights significant concerns regarding Nauru’s counter-money laundering regime, which has been identified as non- cooperative by the Financial Action Task Force on Money Laundering (FATF).

Background

Nauru, a small island nation with a population of around 10,600, has sought to establish itself as an offshore financial center over the past two decades. Despite granting licenses to 400 so-called offshore banks, Nauru’s legal, supervisory, and regulatory systems are plagued by serious systemic problems.

Legal Framework

Money laundering is not a criminal offense in Nauru, and offshore banks licensed by the country are not required to obtain identification information from customers or maintain transaction records. Furthermore, Nauruan financial institutions are under no obligation to report suspicious transactions.

FATF Assessment

The FATF has identified Nauru as non-cooperative in the fight against money laundering, citing deficiencies in its legal framework, lack of effective supervision and enforcement mechanisms, and strong bank secrecy laws.

Consequences

While Nauru is aware of these issues and has cooperated with international investigations and suspended several institution licenses, FinCEN warns that the current system creates significant opportunities for money laundering and criminal activity. US financial institutions are advised to give enhanced scrutiny to transactions originating in or routed through Nauru, involving entities organized or domiciled in Nauru, or persons maintaining accounts in Nauru.

Reporting Obligations

Institutions subject to suspicious transaction reporting rules should carefully examine available facts relating to such transactions to determine if they require reporting. Those not yet subject to specific reporting rules should consider such transactions with relation to their reporting obligations under other applicable law.

Conclusion

The advisory does not mean that US financial institutions should curtail legitimate business with Nauru, and the Treasury Department will consider any report relating to a transaction described in this Advisory to constitute a report of a suspicious transaction relevant to a possible violation of law or regulation.