Financial Crime World

Comprehensive Assessment of Tonga’s Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) Measures

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The Asia-Pacific Group on Money Laundering (APG) conducted a comprehensive review of Tonga’s AML/CFT measures. The assessment highlights significant shortcomings in the country’s efforts to combat money laundering and terrorist financing.

Key Findings

Lack of Penalties and Sanctions

  • The Tongan Money Laundering and Prevention Crimes Act (MLPC Act) lacks provisions for penalties or sanctions for non-compliance with regulations.
  • This oversight creates an environment where individuals and institutions can operate with impunity, undermining the effectiveness of AML/CFT efforts.

Limited Application of Regulations

  • The AML/CFT regulations apply only to financial institutions as defined in the MLPCA, excluding other reporting entities such as insurance companies and Designated Non-Financial Businesses and Professions (DNFBPs).
  • This narrow scope leaves significant gaps in coverage, allowing potential money launderers and terrorist financiers to operate undetected.

Effectiveness

  • Tonga has low levels of effectiveness across most areas except one (IO.2) of the Immediate Outcomes.
  • A significant factor contributing to this lack of effectiveness is the absence of policy and operational priorities, inadequate training, expertise, and resources allocated to AML/CFT issues.

Risk Assessment and Co-ordination

  • Tonga has minor shortcomings with the Recommendations on AML/CFT policies and co-ordination.
  • Moderate shortcomings exist in assessing risk and applying a risk-based approach, highlighting the need for fundamental improvements in understanding ML/TF risks, policy, and co-ordination.

National Risk Assessment (NRA)

  • The NRA adopted by Tonga in October 2019 was outdated by the time it was endorsed.
  • Limited statistics were available for the risk assessment, and very limited consultation with the private sector in preparing the NRA further compromised its effectiveness.

Understanding of ML/TF Risks

  • Competent government authorities, LEAs, and the private sector display a lack of understanding of ML risks within their sectors, particularly regarding TF risks.
  • This knowledge gap undermines efforts to develop effective AML/CFT policies and strategies.

National AML/CFT Policy

  • The National AML/CFT Policy 2018-2022 was endorsed by Cabinet during the on-site visit but did not include priority areas such as increasing the allocation of resources to the TRA (the AML/CFT supervisor) for comprehensive risk-based supervision.
  • This oversight highlights the need for a more comprehensive and inclusive approach to AML/CFT policy development.

Conclusion

The APG assessment highlights significant shortcomings in Tonga’s AML/CFT measures, particularly in terms of understanding and addressing ML/TF risks, implementing regulations effectively, and ensuring adequate resources are allocated for effective supervision. To address these issues, Tonga must prioritize the following:

  • Develop a comprehensive and inclusive National AML/CFT Policy that addresses priority areas such as resource allocation.
  • Improve understanding of ML/TF risks within government authorities, LEAs, and the private sector.
  • Enhance risk assessment and co-ordination capabilities to apply a risk-based approach effectively.
  • Strengthen regulations and enforcement mechanisms to prevent non-compliance with AML/CFT requirements.

By addressing these shortcomings and implementing effective AML/CFT measures, Tonga can enhance its efforts to combat money laundering and terrorist financing, ensuring a safer and more secure financial system for all.