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FinCEN Advisory
Banks and other financial institutions operating in the United States
are advised to give enhanced scrutiny to all financial transactions originating
in or routed to or through the Republic of Nauru, or involving entities
organized or domiciled, or persons maintaining accounts, in Nauru. The
need for such enhanced scrutiny is discussed in the remainder of this
Advisory.
Nauru is a small South Pacific island nation with a population of
approximately 10,600. For the past two decades, Nauru has sought to
establish itself as an offshore financial center. It has granted 400 licenses to
so-called offshore banks.
Offshore banks are licensed by the Nauru Agency Corporation
(.NAC.), which also is available, along with its affiliated companies, to act
as a nominee shareholder or director of one or more of the banks it licenses.
Persons seeking to establish offshore banks in Nauru are often represented
by agents registered by the country.
The counter-money laundering regime embodied in the legal,
supervisory, and regulatory systems of Nauru suffers from serious systemic
problems.
These deficiencies, among others, have caused Nauru to be identified
by the Financial Action Task Force on Money Laundering (the .FATF.) as
non-cooperative .in the fight against money laundering.. The FATF, created
at the 1989 G-7 Economic Summit, is a 29 member international group that
works to combat money laundering.
Nauru has indicated an awareness of the impact of the deficiencies in
its counter-money laundering systems noted above. It has cooperated with
officials from other countries in certain criminal investigations involving
Nauruan institutions, and it has recently suspended the licenses of a large
number of institutions pending a review of their ownership. More important
for the long term, it is considering legislative changes that could remedy at
least some of the deficiencies described above, and it is seeking relevant
technical assistance in order to do so.
Nonetheless, the legal, supervisory, and regulatory systems of Nauru
at present create significant opportunities and tools for the laundering and
protection of the proceeds of crime, and allow criminals who make use of
those systems to increase significantly their chances to evade effective
investigation or punishment. Nauru.s commitment to bank secrecy and the
absence of any supervisory or enforcement mechanisms aimed at preventing
and detecting money laundering increase the possibility that transactions
involving Nauruan offshore entities and accounts will be used for illegal
purposes.
Thus, banks and other financial institutions operating in the United
States should give enhanced scrutiny to any transaction originating in or
routed to or through Nauru, or involving entities organized or domiciled, or
persons maintaining accounts, in Nauru. A financial institution subject to
the suspicious transaction reporting rules contained in 31 C.F.R. 103.18
(formerly 31 C.F.R. 103.21) (effective April 1, 1996), and in corresponding
rules of the federal financial institution supervisory agencies, should
carefully examine the available facts relating to any such transaction to
determine if such transaction (of $5,000 or more, U.S. dollar equivalent)
requires reporting in accordance with those rules. Institutions subject to the
Bank Secrecy Act but not yet subject to specific suspicious transaction reporting rules should consider such a transaction with relation to their
reporting obligations under other applicable law.
It should be emphasized that the issuance of this Advisory and the
need for enhanced scrutiny does not mean that U.S. financial institutions
should curtail legitimate business with Nauru.
To dispel any doubt about application of the .safe harbor. to
transactions within the ambit of this Advisory, 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
the protection from liability for reporting of suspicious transactions
contained in 31 U.S.C. 5318(g)(2) and (g)(3).
United States officials stand ready to provide appropriate technical
assistance to Nauruan officials as they work to remedy the deficiencies in
Nauru.s counter-money laundering systems that are the subject of this
Advisory.
James F. Sloan
Director
FinCEN Advisory is a product of the Financial Crimes Enforcement Network, Department of the Treasury, Post Office Box 39, Vienna, Virginia 22183. For more information about FinCEN’s programs, visit the FinCEN web site at http://www.fincen.gov. General questions or comments regarding FinCEN publications should be addressed to the Office of Communications, FinCEN, (703) 905-3773. Information may also be faxed to (703) 905-3885.