Financial Crime World

Tonga’s Economy Heavily Dependent on Donor Aid and Remittances

A recent assessment by a leading international organization has revealed that Tonga’s economy is heavily dependent on donor aid and remittances from its diaspora community. With a population of just over 100,000 people, the Pacific island nation relies heavily on foreign assistance to fund its government operations and development projects.

Risk Assessment Lags Behind

According to the assessment, Tonga’s risk assessment capabilities are also lagging behind. The country’s first Money Laundering (ML) and Terrorist Financing (TF) National Risk Assessment (NRA), conducted in 2019, was criticized for being outdated and lacking critical information on regional stakeholder and partner organizations.

Understanding of ML/TF Risks Limited

  • Competent government authorities, law enforcement agencies, and private sector entities have a limited understanding of ML/TF risks.
  • The National AML/CFT Policy 2018-2022, adopted subsequent to the NRA in 2019, repeats the ML risk categories but does not indicate the risk of TF.

Priorities Not Aligned

The assessment also revealed that priority areas were not included in the policy, such as:

  • Increasing the allocation of resources to the Tonga Revenue and Customs Authority (TRA) to enable comprehensive risk-based supervision.
  • The TRA is responsible for supervising AML/CFT compliance by financial institutions and other designated non-financial businesses and professions.

Recommendations

To improve Tonga’s AML/CFT framework, the assessment has made several recommendations:

  • Conducting regular updates of the NRA to ensure that it remains relevant and effective.
  • Improving understanding of ML/TF risks through training and capacity building for competent authorities, LEAs, and private sector entities.
  • Enhancing national coordination on AML/CFT issues.
  • Increasing resources allocated to the TRA for comprehensive risk-based supervision.

Conclusion

Tonga’s economy faces significant challenges, including its heavy dependence on donor aid and remittances. Improving the country’s understanding of ML/TF risks and enhancing its AML/CFT framework are crucial steps towards addressing these challenges. The implementation of the recommendations outlined in this assessment is essential to ensuring that Tonga’s financial system remains robust and resilient.