Vanuatu’s Financial Sector Fails to Meet International Anti-Money Laundering and Counter-Terrorist Financing Standards

Weaknesses in Vanuatu’s Financial Sector Exposed

A recent report has highlighted significant weaknesses in Vanuatu’s financial sector when it comes to anti-money laundering (AML) and counter-terrorist financing (CFT) measures. The country’s banks, financial institutions, and designated non-financial business or profession (DNFBP) sectors have failed to display a sufficient understanding of risk-based procedures.

Commercial Banks an Exception

According to the report, commercial banks are an exception, with AML/CFT compliance procedures in place. However, other reporting entities have not yet updated their procedures to reflect the 2014 AML/CFT requirements. The Reserve Bank of Vanuatu (RBV) has issued comprehensive guidance for banks, but no similar guidance has been provided for other reporting entities.

Lack of Effective Outreach and Supervision

The report also highlights a lack of effective outreach and supervision by the Vanuatu Financial Intelligence Unit (VFIU) to the DNFBP sector. This is due in part to a lack of supervisory resources and direction. As a result, suspicious transaction reporting appears inadequate, with only commercial banks and money or value transfer services (MVTS) making adequate reports.

Legislative Powers and Risk Assessment

The report also criticizes the RBV and VFIU for lacking sufficient legislative powers to supervise financial institutions. Additionally, there is no formal process in place to regularly identify and assess ML/TF risks. This lack of supervision has led to a real risk that criminals can misuse legal persons and arrangements for money laundering in Vanuatu.

Limited International Cooperation

The report notes that international cooperation is limited, with Vanuatu’s ability to provide informal assistance in relation to international companies prohibited by the International Companies Act (ICA). As a result, Vanuatu has been unable to provide timely mutual legal assistance (MLA) for most incoming requests.

High-Risk Financial Sector

Vanuatu’s financial sector is considered to be at high risk, with predicate offenses such as foreign tax crimes, illicit cross-border currency transactions, and drug offenses contributing to the country’s money laundering threats. The report estimates that between USD 16.6m and USD 41.7m in criminal proceeds are laundered through Vanuatu each year.

Political Instability

The report also highlights political instability as a major challenge for establishing and maintaining an effective AML/CFT system in Vanuatu. Frequent government leadership changes have led to a lack of high-level commitment to the issue, and inadequate financial and human resources have hindered efforts to develop technical expertise and capacity building in law enforcement and regulatory authorities.

Conclusion

Overall, the report concludes that Vanuatu’s financial sector remains vulnerable to money laundering and terrorist financing due to its failure to meet international standards.