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Nicaragua Fails to Meet International Standards on Customer Due Diligence

A recent assessment has found that Nicaragua is still failing to meet international standards on customer due diligence (CDD), a crucial measure in preventing money laundering and terrorist financing.

Shortcomings in Nicaraguan Financial System

According to Article 25 of Law 977, financial institutions (FIs) are required to keep up-to-date records on originators and beneficiaries of electronic transfers for at least five years after the transfer is made. However, Nicaragua has yet to establish provisions for remittances under criteria 16.3 and 16.4.

Furthermore, Nicaraguan FIs are not adequately implementing CDD measures in high-risk situations, including transactions involving:

• Natural persons or legal entities that do not have a clear business purpose
• Beneficial owners without proper identification

Additionally, there is no direct obligation for FIs to identify the beneficial owner of a customer and take reasonable steps to verify their identity using relevant information or data obtained through sources that allow FIs to be convinced of the identity of the beneficial owner.

Lack of Compliance with International Standards

The assessment also found that Nicaragua’s Law 977 does not provide specific provisions for compliance with:

• Criterion 10.6, which requires FIs to obtain information on the purpose and intended nature of the business relationship
• Criterion 10.11, which requires trust service providers to keep records of information on the settlor, trustee, beneficial owners, and other natural persons who exercise control over the trust

Recommendations for Improvement

To address these deficiencies and prevent money laundering and terrorist financing, we recommend that Nicaragua:

1. Establish specific provisions for compliance with criterion 10.6, which requires FIs to obtain information on the purpose and intended nature of the business relationship.
2. Implement effective CDD measures in high-risk situations, including transactions involving natural persons or legal entities that do not have a clear business purpose.
3. Provide specific provisions for compliance with criterion 10.11, which requires trust service providers to keep records of information on the settlor, trustee, beneficial owners, and other natural persons who exercise control over the trust.

By implementing these recommendations, Nicaragua can strengthen its efforts to prevent money laundering and terrorist financing, and ensure a safer and more stable financial system for all stakeholders.