Financial Crime World

Anti-Money Laundering and Counter-Terrorist Financing Measures in Solomon Islands: A Review

Introduction

In 2019, the Asia-Pacific Group (APG) conducted an assessment of anti-money laundering and counter-terrorist financing measures in Solomon Islands. This review summarizes the key findings of the assessment, highlighting significant deficiencies in the country’s framework.

Limited Understanding of Travel Rule for Financial Transactions (TFS)

  • Issue: Local banks, credit unions, and Designated Non-Financial Business or Professions (DNFBPs) have limited knowledge of TFS, despite not undertaking international fund transfers.
  • Impact: This limitation hampers the effectiveness of anti-money laundering efforts.

High-Risk NPO Sector

  • Issue: The non-profit organization (NPO) sector is considered high-risk for money laundering/terrorist financing and lacks regulation.
  • Impact: Lack of regulation and monitoring enables potential ML/TF risks to go undetected.

Regulation of NPOs

  • Challenge: While the Development Services Exchange (DSE), a voluntary national NGO umbrella body, seeks to strengthen NPO coordination through information sharing and training, risk-based measures have not been applied.
  • Impact: This lack of regulation increases the risk of ML/TF activities in the NPO sector.
  • Issue: Solomon Islands has no legal framework or policies in place to deal with Proceeds of Crime (PF).
  • Impact: This absence hampers efforts to investigate and prosecute financial crimes.

CDD Obligations

  • Challenge: The Anti-Money Laundering and Counter-Terrorist Financing Act 2010 sets out Customer Due Diligence (CDD) obligations, but Section 12B appears to exempt all reporting entities from applying CDD.
  • Impact: This exemption undermines the effectiveness of anti-money laundering efforts.

Variable Understanding of Money Laundering/Terrorist Financing Risks

  • Issue: The understanding of ML/TF risks is variable across the financial sector, with foreign banks having some understanding due to their parent company’s policies, while other institutions have very limited knowledge.
  • Impact: This variation in understanding increases the risk of ML/TF activities going undetected.

Implementation of Mitigating Measures

  • Challenge: Banks, money changers, and money remittance service providers are applying some mitigating measures commensurate with their institutional risks to a large extent, but the absence of verification tools undermines the effectiveness of CDD measures.
  • Impact: This limitation hampers efforts to prevent ML/TF activities.

Identification of Beneficial Owners

  • Issue: Identification of beneficial owners appears absent across most reporting entities except banks, and DNFBPs lack a clear understanding of requirements to identify and verify beneficial ownership information.
  • Impact: This absence increases the risk of ML/TF activities going undetected.

Reporting of Suspicious Transactions or Activities

  • Challenge: Reporting of suspicious transactions or activities is limited mainly to banks and money service businesses and does not align with their risk profile.
  • Impact: This limitation hampers efforts to detect and investigate financial crimes.

Supervision Frameworks

  • Issue: Licensing frameworks for Financial Institutions (FIs) are in place through various legislations, but DNFBPs are subject to licensing under sectoral legislation.
  • Impact: Weak market entry controls in the FI and DNFBP sectors increase the risk of ML/TF activities.

Risk-Based Supervision

  • Challenge: SIFIU’s approach to supervision is not risk-based nor informed by any risk assessment.
  • Impact: This lack of risk-based supervision hampers efforts to detect and prevent financial crimes.

Conclusion

This review highlights significant deficiencies in Solomon Islands’ anti-money laundering and counter-terrorist financing framework, including limited understanding of TFS, lack of regulation in the NPO sector, inadequate licensing frameworks for DNFBPs, variable understanding of ML/TF risks, and insufficient implementation of mitigating measures. Addressing these issues is crucial to preventing financial crimes and ensuring the stability of the Solomon Islands’ financial system.