NAURU’S REGULATORY REQUIREMENTS FOR FINANCIAL INSTITUTIONS RAISE CONCERNS AMONG US BANKS

Warning Issued by the United States Department of the Treasury

The United States Department of the Treasury has issued an advisory warning financial institutions in the US to exercise heightened scrutiny when dealing with transactions involving Nauru, a small South Pacific island nation. The advisory highlights significant deficiencies in Nauru’s counter-money laundering regime, which have led to it being identified as non-cooperative by the Financial Action Task Force on Money Laundering (FATF).

Systemic Problems Identified in Nauruan Offshore Banks

According to the advisory, Nauru has issued 400 licenses to offshore banks, which are licensed by the Nauru Agency Corporation (NAC). However, there is a lack of oversight and regulation in these institutions, with some serious systemic problems identified. These include:

• Money laundering not being a criminal offense in Nauru
• Offshore banks not required to obtain identification information from customers
• Lack of customer identification or transaction records
• No obligation to report suspicious transactions

Attractive Destination for Criminals

The advisory notes that Nauru’s strong bank secrecy laws and lack of supervisory mechanisms make it an attractive destination for criminals looking to launder money. US financial institutions are advised to carefully examine any transactions involving Nauruan entities or accounts, particularly those over $5,000, to determine if they require reporting under the Bank Secrecy Act.

Enhanced Scrutiny Recommended

The Treasury Department emphasizes that this advisory does not mean that US financial institutions should curtail legitimate business with Nauru. However, it is essential for them to exercise enhanced scrutiny and report any suspicious transactions accordingly.

Technical Assistance Offered by the United States

US officials are willing to provide technical assistance to Nauruan authorities as they work to strengthen their anti-money laundering measures.

Conclusion

Nauru’s regulatory requirements for financial institutions have raised concerns among US banks, highlighting significant deficiencies in its counter-money laundering regime. US financial institutions are advised to exercise heightened scrutiny when dealing with transactions involving Nauru, particularly those over $5,000. The Treasury Department emphasizes that this advisory does not mean that US financial institutions should curtail legitimate business with Nauru, but rather exercise enhanced scrutiny and report any suspicious transactions accordingly.