Financial Crime World

Tonga’s Efforts to Combat Money Laundering and Terrorist Financing Fall Short

A recent assessment by the Asia-Pacific Group on Money Laundering (APG) has highlighted significant shortcomings in Tonga’s efforts to combat money laundering and terrorist financing. Despite enacting several key pieces of legislation, including the Counter Terrorism and Transnational Organised Crime Act 2013, Tonga’s compliance with anti-money laundering (AML) and counter-terrorism financing (CFT) measures remains weak.

Compliance Issues

The assessment found that many of the deficiencies identified in a previous Mutual Evaluation Report (MER) in 2010 remain. Compliance is limited to the national level across most of the Financial Action Task Force (FATF) 40 Recommendations, with significant gaps remaining in:

  • Preventive measures
  • Transparency
  • Beneficial ownership requirements

Lack of Sanctions and Penalties

A major issue affecting Tonga’s ability to enforce AML/CFT regulations is the lack of sanctions and penalties for non-compliance. The Mutual Law Prevention Act (MLPCA) does not contain provisions that provide penalties or sanctions for non-compliance with regulations issued under the Act.

Exclusions from Regulations

The MLPC Regulations apply only to financial institutions defined in the MLPCA, excluding other reporting entities such as:

  • Insurance companies
  • Designated non-financial businesses and professions (DNFBPs)

Effectiveness of Measures

The assessment also highlighted concerns about the effectiveness of Tonga’s AML/CFT measures. While some measures are in place, overall effectiveness is low across all but one of the Immediate Outcomes. The absence of policy and operational priorities, inadequate training, expertise, and resources allocated to AML/CFT issues are significant factors affecting effectiveness.

Risk Assessment

Tonga was found to have:

  • Minor shortcomings with the FATF recommendations on AML/CFT policies and coordination
  • Moderate shortcoming in assessing risks and applying a risk-based approach, with fundamental improvements needed in understanding ML/TF risks, policy, and coordination

The National Risk Assessment (NRA) issued in 2019 was also criticized for being:

  • Out-of-date
  • Lacking consultation with regional stakeholders and the private sector
  • Not assessing TF risks separately from ML risks, despite the high risk of predicate crimes such as transnational drug trafficking and trade-based crime.

Understanding of Risks

The competent government authorities, including law enforcement agencies (LEAs), have a mixed understanding of ML risks, with a focus primarily on predicate crimes. The private sector also displayed a lack of understanding of risks across predicate crimes and within their own sectors.

Response from the Government

In response to these findings, the Tongan government has established the Cabinet Committee on Serious Financial Crimes (CCSFC) as a coordinating body for AML/CFT measures and PF policy. However, more needs to be done to address the significant gaps identified in Tonga’s AML/CFT regime.

Conclusion

Tonga’s efforts to combat money laundering and terrorist financing fall short due to compliance issues, lack of sanctions and penalties, exclusions from regulations, and ineffective measures. The government must take concrete steps to address these shortcomings and improve its AML/CFT regime.