Financial Crime World

Nauru AML-TFS Act 2023: Virtual Asset Service Providers (VASPs)

Red Flag Indicators

Virtual Asset Service Providers (VASPs) in Nauru are required to identify and report suspicious activities. The following red flag indicators should be used to generate a Suspicious Activity Report (SAR):

  • Transactions with known fraud, extortion, or ransomware schemes: Transactions that involve known fraudulent activities, such as phishing scams or online theft.
  • VA transactions originating from or destined to online gambling services: Transactions related to online gaming or betting activities.
  • Use of multiple credit/debit cards linked to a VA wallet for large withdrawals: Multiple card transactions that are used to withdraw large amounts of funds from a virtual asset wallet.
  • High-value deposits into an account or VA address without transparent source of funds: Large deposits made without clear information about the origin and ownership of the funds.
  • Lack of transparency on the origin and owners of funds, including shell companies or ICOs: Unclear information about the source of funds, particularly when related to shell companies or Initial Coin Offerings (ICOs).
  • Customer’s funds sourced from third-party mixing services or wallet tumblers: Funds obtained through third-party mixing services or anonymous wallets.
  • Bulk of customer’s wealth derived from investments in VAs, ICOs, or fraudulent ICOs: Customers whose wealth is primarily composed of virtual assets, ICOs, or other high-risk investments.
  • Customer’s source of wealth disproportionately drawn from other VASPs lacking AML/CFT controls: Wealth generated from transactions with other Virtual Asset Service Providers that lack adequate Anti-Money Laundering and Counter-Financing Terrorism (AML/CFT) measures.

Geographical Risks

VASPs in Nauru should be aware of geographical risks related to:

  • Customer’s funds originate from or sent to an exchange not registered in the jurisdiction where either the customer or exchange is located: Transactions that involve exchanges operating outside their jurisdiction.
  • Customer utilizes a VA exchange or foreign-located MVTS in a high-risk jurisdiction lacking adequate AML/CFT regulations: Customers who use Virtual Asset exchanges or Money Transfer Services (MTVS) based in jurisdictions with weak AML/CFT controls.
  • Customer sends funds to VASPs operating in jurisdictions with no regulation or inadequate AML/CFT controls: Transactions that involve Virtual Asset Service Providers operating in unregulated jurisdictions.

Reporting Suspicious Activities

VASPs are required to report suspicious activities using the red flag indicators listed above. The following steps must be taken:

  • Use the red flag indicators to generate a SAR under Section 59 of the AML-TFS Act 2023: VASPs must use these indicators to create a Suspicious Activity Report.
  • Provide SARs to the FIU Supervisor, as well as relevant supervisors: VASPs must submit the SAR to the Financial Intelligence Unit (FIU) Supervisor and other relevant authorities.

Sanctions

The AML-TFS Act 2023 provides for proportionate and dissuasive sanctions. The following sections apply to VASPs:

  • Section 48, 58, 67, 78, 79, and 80(5) of the Act: These sections outline the penalties and consequences for non-compliance.
  • Senior Management staff or team may also be prosecuted if they knowingly allowed the VASP to operate without complying with all legal requirements in Nauru: Managers who are aware of the non-compliance can also face prosecution.

Understanding the importance of compliance with the laws of Nauru is crucial for Virtual Asset Service Providers. Financial penalties can be severe, and operators must ensure that they follow all regulations and guidelines set forth by the AML-TFS Act 2023.