Solomon Islands Lacking in Anti-Money Laundering and Counter-Terrorist Financing Measures

The Solomon Islands has been found to be lacking in its anti-money laundering (AML) and counter-terrorist financing (CFT) measures, according to a recent report by the Asia-Pacific Group on Money Laundering (APG).

Shortcomings in AML/CFT Framework

• The absence of a legal framework for reporting entities
• Inadequate supervision of financial institutions
• Limited understanding of AML/CFT requirements among local banks, credit unions, and designated non-financial businesses and professions (DNFBPs)

The report highlights that while international banks and remittance service providers have implemented strong automated screening software to monitor customers and transactions, local banks, credit unions, and DNFBPs had limited understanding of AML/CFT requirements despite not undertaking international fund transfers.

High-Risk Non-Profit Sector

• The non-profit sector is considered high-risk for money laundering and terrorist financing
• No strategic or operational monitoring of activities in place
• Financial institutions’ awareness of the risks presented by non-profits is negligible

The Development Services Exchange (DSE), a voluntary national NGO umbrella body, has attempted to mitigate some of these shortcomings through sharing relevant information, developing a code of conduct, and providing training and education materials. However, risk-based measures have not been applied.

Lack of Legal Framework for Proliferation Financing and Sanctions

• No legal framework or policies in place to deal with proliferation financing (PF) and sanctions imposed by the United Nations (UN)
• International financial institutions are undertaking automated screening to identify assets and funds of designated persons and entities, but smaller financial institutions and DNFBPs have not put any measures in place to give effect to AML/CFT requirements for PF

Customer Due Diligence and Verification Tools

• Section 12B(a)-(c) of the Money Laundering Prevention Act 2010 appears to exclude all reporting entities from being required to apply customer due diligence (CDD)
• The absence of verification tools undermines the effectiveness of CDD measures
• Implementation of mitigating measures is almost absent in other financial institutions, including insurance companies, microfinance institutions, and credit unions

Recommendations for Improvement

The APG has called on the Solomon Islands government to address these shortcomings by:

• Establishing a legal framework for reporting entities
• Strengthening supervision of financial institutions
• Implementing risk-based measures to mitigate money laundering and terrorist financing risks