NAURU’S FINANCIAL SYSTEMS POSE MONEY LAUNDERING RISKS
A recent advisory from the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has highlighted concerns about the financial system of Nauru, a small South Pacific island nation. In this article, we will explore the issues that have led to these concerns and what they mean for financial institutions in the United States.
Nauru’s Efforts to Establish an Offshore Financial Center
Nauru has been seeking to establish itself as an offshore financial center for decades, with over 400 licenses granted to so-called offshore banks. However, its efforts have not been without controversy. The country’s legal, supervisory, and regulatory systems have serious systemic problems that create opportunities for money laundering.
Key Concerns
- Lack of Criminal Penalties: Money laundering is not a criminal offense in Nauru.
- Insufficient Customer Due Diligence: Offshore banks are not required to obtain identification information from customers or maintain customer records.
- Inadequate Reporting Requirements: Financial institutions are under no obligation to report suspicious transactions.
FinCEN’s Advisory
The advisory notes that Nauru has been identified as non-cooperative in the fight against money laundering by the Financial Action Task Force on Money Laundering. However, the country has indicated an awareness of its deficiencies and is taking steps to address them, including legislative changes and seeking technical assistance.
Implications for US Financial Institutions
Despite these efforts, FinCEN’s advisory emphasizes that Nauru’s financial systems at present create significant opportunities for money launderers to evade effective investigation or punishment. As a result, US financial institutions are advised to give enhanced scrutiny to any transaction originating in or routed through Nauru, or involving entities organized or domiciled in the country.
Reporting Requirements
Institutions subject to the suspicious transaction reporting rules contained in 31 C.F.R. 103.18 should carefully examine the available facts relating to such transactions to determine if they require reporting. Institutions not yet subject to specific suspicious transaction reporting rules should consider such transactions with relation to their reporting obligations under other applicable law.
Support from the Treasury Department
The Treasury Department has stated that it 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, for purposes of the prohibitions against disclosure and protection from liability for reporting contained in 31 U.S.C. 5318(g)(2) and (g)(3).
US Support for Nauru
US officials stand ready to provide technical assistance to Nauruan officials as they work to remedy the deficiencies in their counter-money laundering systems.
By being aware of these concerns and taking necessary precautions, financial institutions can help prevent money laundering and support efforts to combat this global threat.