Enhanced Scrutiny Advised for Financial Transactions Involving Nauru
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US Treasury Warns Banks to Be Vigilant with Nauruan Transactions
The US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued an advisory urging banks and other financial institutions operating in the United States to scrutinize transactions involving the Republic of Nauru.
Background on Nauru
Nauru, a small South Pacific island nation with a population of approximately 10,600, has been seeking to establish itself as an offshore financial center for over two decades. However, its legal and regulatory systems are plagued by serious deficiencies that create opportunities for money laundering and the protection of illicit proceeds.
Deficiencies in Nauru’s Counter-Money Laundering Regime
FinCEN has identified several systemic problems with the counter-money laundering regime in Nauru:
- Money laundering is not a criminal offense in Nauru
- Offshore banks licensed by Nauru do not require customer identification information or maintain transaction records
- Nauruan financial institutions are under no obligation to report suspicious transactions
FATF and Nauru’s Compliance Status
The Financial Action Task Force on Money Laundering (FATF) has identified Nauru as a non-cooperative country in the fight against money laundering. Despite this, Nauru has cooperated with officials from other countries in certain criminal investigations and is considering legislative changes to remedy some of the deficiencies in its counter-money laundering systems.
FinCEN’s Advisory
FinCEN advises banks and other financial institutions operating in the United States to give enhanced scrutiny to any transaction originating from or routed through Nauru, or involving entities organized or domiciled, or persons maintaining accounts, in Nauru. Financial institutions subject to suspicious transaction reporting rules should carefully examine the available facts relating to such transactions to determine if they require reporting.
Implications for US Financial Institutions
The issuance of this advisory does not mean that US financial institutions should curtail legitimate business with Nauru. 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, for purposes of the prohibitions against disclosure and the protection from liability for reporting of suspicious transactions contained in 31 U.S.C. 5318(g)(2) and (g)(3).
Technical Assistance
US officials stand ready to provide appropriate technical assistance to Nauruan officials as they work to remedy the deficiencies in Nauru’s counter-money laundering systems that are the subject of this advisory.