Warning Issued by FinCEN: Exercise Vigilance on Transactions Involving Marshall Islands
Financial institutions operating in the United States have been issued a warning by the Financial Crimes Enforcement Network (FinCEN) to exercise enhanced scrutiny on transactions originating from or routed through the Republic of the Marshall Islands.
Background
The Marshall Islands has been developing an offshore financial sector, comprising approximately 3,000 “non-resident companies.” However, the island nation’s counter-money laundering regime suffers from serious systemic problems that create significant opportunities for money laundering and the protection of criminal proceeds.
Deficiencies in Counter-Money Laundering Systems
FinCEN has identified the following deficiencies in the Marshall Islands’ counter-money laundering systems:
- Lack of Criminal Offense: Money laundering is not a criminal offense in the Marshall Islands.
- Inadequate Customer Identification and Records: The island nation does not require financial institutions to identify their customers or maintain customer identification records or transaction records.
- No Suspicious Transaction Reporting: Financial institutions are not required to report suspicious transactions.
- Strong Bank Secrecy Laws: The Marshall Islands maintains strong bank secrecy laws that can only be lifted by an order of a Marshall Islands court.
Consequences
As a result, FinCEN has identified the Marshall Islands as non-cooperative in the fight against money laundering. However, the island nation is currently drafting counter-money laundering legislation that would criminalize money laundering and create both a counter-money laundering authority and a financial intelligence unit.
Warning to Financial Institutions
Despite this progress, FinCEN warns that the Marshall Islands’ commitment to bank secrecy and the absence of supervisory or enforcement mechanisms aimed at preventing and detecting money laundering increases the possibility that transactions involving Marshall Islands offshore entities and accounts will be used for illegal purposes.
Financial institutions operating in the United States are advised to exercise enhanced scrutiny on any transaction originating from or routed through the Marshall Islands, or involving entities organized or domiciled, or persons maintaining accounts, in the Marshall Islands. Institutions subject to suspicious transaction reporting rules should carefully examine the available facts relating to such transactions to determine if they require reporting.
Conclusion
The Financial Crimes Enforcement Network is seeking to work with the Marshall Islands government to remedy the deficiencies in their counter-money laundering systems.