Warning Issued to Financial Institutions: Be Vigilant on Transactions Involving Marshall Islands
The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) has issued an advisory to banks and other financial institutions operating in the United States, cautioning them to give enhanced scrutiny to all financial transactions originating from or routed through the Marshall Islands.
Background: The Marshall Islands’ Offshore Financial Sector
The Marshall Islands is a group of atolls and reefs in the North Pacific Ocean with a population of approximately 65,000. The islands have been developing an offshore financial sector, which includes around 3,000 “non-resident companies.” However, the counter-money laundering regime in the Marshall Islands has serious systemic problems.
Deficiencies in the Marshall Islands’ Counter-Money Laundering Regime
According to FinCEN, money laundering is not a criminal offense in the Marshall Islands, and there are no requirements for financial institutions to:
- Identify customers
- Maintain customer identification records
- Keep transaction records
Additionally, the islands have strong bank secrecy laws that can only be lifted by an order of a Marshall Islands court.
Consequences: Non-Cooperative Status and Draft Legislation
The Financial Action Task Force on Money Laundering (FATF) has identified the Marshall Islands as non-cooperative in the fight against money laundering. Despite this, the Marshall Islands has indicated awareness of the issue and is drafting counter-money laundering legislation that would:
- Criminalize money laundering
- Create a counter-money laundering authority
- Establish a financial intelligence unit
Recommendations for Financial Institutions
FinCEN warns that the current systems in the Marshall Islands create significant opportunities for the laundering and protection of the proceeds of crime. Therefore, banks and other financial institutions operating in the United States are advised to:
- Give enhanced scrutiny to any transaction originating from or routed through the Marshall Islands
- Carefully examine available facts relating to such transactions to determine if they require reporting under suspicious transaction reporting rules
- Consider such transactions with relation to their reporting obligations under other applicable law
Conclusion
The issuance of this advisory and the need for enhanced scrutiny do not mean that U.S. financial institutions should curtail legitimate business with the Marshall Islands. The Treasury Department will consider any report relating to a transaction described in this advisory to constitute a report of a suspicious transaction relevant to a possible violation of law or regulation, for purposes of the prohibitions against disclosure and protection from liability for reporting of suspicious transactions.
United States officials stand ready to provide appropriate technical assistance to Marshall Islands officials as they work to remedy the deficiencies in their counter-money laundering systems.