Nauru is not on the FATF List of Countries that have been identified as having strategic AML deficiencies
Compliance with FATF Recommendations
The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Nauru was undertaken by the Financial Action Task Force (FATF) in 2012. According to that Evaluation, Nauru was deemed Compliant for 4 and Largely Compliant for 11 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for 3 of the 6 Core Recommendations.
Key Findings from latest Mutual Evaluation Report (2012):
Nauru faces low risks of money laundering (ML) and terrorism financing (TF).
Up until 2004 Nauru’s government pursued various policies which made it attractive for international ML. There is evidence of very significant levels of ML through Nauru prior to improved anti-money laundering (AML) controls and the abolition of Nauru’s offshore banking sector in 2004.
Since the late 1990s and up until now Nauru has experienced an economic crunch, which precipitated the collapse of the Bank of Nauru. Between the period 2004 and 2008 there was no formal financial institution providing financial services in Nauru. A branch of Western Union has operated from a hardware store and offered remittance in Nauru since 2008.
At the time of the onsite visit, Nauru had no operational bank and there was no financial institution offering financial services beyond the one Western Union branch. The economy is entirely cash based and reliant on formal and informal remittance.
With the abolition of the offshore banking sector in 2004, there is only a relatively small offshore company registry operating in Nauru. At present only 59 corporations are registered under Nauru law, with a number of those pending for being struck off the registry. Fewer than five corporations per year have been registered over the past five years. Eleven trustee company licenses are in operation. In the past 10 years no new trust company licenses have been issued, although. 15 unit trusts have been formed under the 11 existing licenses.
The offshore companies and trusts represent a residual risk that Nauruan legal persons or arrangements could be used for laundering the proceeds of foreign offences, although the very low rate of company and trust formation in the sector may indicate that the risks are relatively low.
Nauru is a low crime jurisdiction. The very narrow economic base, the absence of financial institutions, and the very strict land tenure and associated restrictions on foreign investment, sees very few opportunities to introduce proceeds of crime into the formal Nauru economy.
Nauru has some experience in forfeiting assets directly linked to fraud against the government. The authorities have good information on the volume and techniques of laundering the proceeds of crime in Nauru, with the exception of possible misuse of corporate vehicles. Proceeds of crime from the few detected domestic profit-driven crime cases were used for personal consumption and granting of favours to family, including investment in low value motor cycles.
Nauru has criminalized money laundering (ML) and terrorism financing (TF), but has not yet utilised the offences. Some domestic predicate offences are missing. A wide range of terrorism financing acts are criminalised. There is no criminalisation of funding terrorist organisations or individual terrorists, other than those prescribed by the Nauru government. At the time of the onsite visit and the period immediately thereafter, no organisation or individual had been prescribed1. Nauru has limited provisions in statute to implement United Nations Security Council Resolution (UNSCR) 1267 and successor resolutions, however it does not provide provisions to freeze property without delay and had not been brought into force at the time of the onsite visit. Nauru has a provision for a domestic designation of terrorist entities as required under UNSCR 1373, but there are no provisions to freeze related property without delay.
Law enforcement and prosecution authorities have powers to prosecute ML and TF.
Nauru set up its Financial Intelligence Unit (FIU) in 2004 as an administrative FIU with AML/CFT supervisory responsibilities. Nauru has taken steps to make the FIU operational. The resource constraints on the FIU are being addressed with the appointment of a new FIU Supervisor in October 2011, although procedures and systems are not yet in place to make the FIU effective.
Despite the almost complete absence of a financial sector, Nauru statute requires the full range of financial institutions to adopt AML/CFT preventive measures under the Anti-Money Laundering Act 2008 (AMLA). The preventive measures cover many elements of the international standards, with the exception of detailed requirement for beneficial ownership information in the course of customer due diligence (CDD) and some other key obligations. Very limited guidance has been given or supervision undertaken to ensure effective implementation of preventative measures.
The two active DNFBP in Nauru are wholly government owned. The Nauru Agency Corporation (NAC) provides all company services for Nauru Corporations. The Nauru Trustee Corporation (NTC) licenses trust companies. AML/CFT provisions are not yet fully implemented by the two trust and company service providers.
There is no regulatory framework for non-profit organisations (NPO). Measures to protect NPOs from abuse need to be established.
Statutory provisions for mutual legal assistance (MLA) are broadly comprehensive, although their complexity may impede implementation. The gaps in coverage of domestic predicate offence may undermine effective MLA. Nauru has never received or made an MLA request. The Extradition Act 1973 includes ML and TF as a basis for extradition. Nauru can only extradite to countries designated in the law, however, no countries are designated. Nauru would need to expedite a process of designating a country before an extradition request could be met.
FIU to FIU international cooperation is supported in statute, although legal provisions appear to block the FIU from cooperating with foreign counterparts on supervisory issues. Close restrictions on the FIU disseminating information relating to tax offences may also impede FIU to FIU information sharing. There are some practical impediments to police to police cooperation due to capacity constraints and non-participation in Interpol at present.
The results achieved by the AML/CFT regime in Nauru are broadly commensurate with the risks and threats facing Nauru, although more needs to be done in relation to implementing AML/CFT controls in the offshore sector. Guidance and supervision of the alternative remittance providers needs to be undertaken.
The following steps are recommended as priorities, given the situation facing Nauru:
The limited resources available for AML/CFT in Nauru should be better supported by strategies of prioritised implementation.
Nauru should ensure that the Nauru Agency Corporation and Nauru Trustee Corporation prioritise implementation of AML/CFT controls for the offshore sector and that AML/CFT supervision of these entities is the priority.
Nauru should adopt a national AML/CFT strategy commensurate with the resources available to the government.
Nauru should continue to strive to attract a banking institution to ensure that a wider range of financial services are available to Nauruans and that these fall under national AML/CFT controls.
Nauru should continue with reforms to pass a comprehensive Criminal Code to cover all predicate offences, including comprehensive corruption offences.
US Department of State Money Laundering assessment (INCSR)
Nauru was deemed a “Monitored” Jurisdiction of Concern by the US Department of State 2014 International Narcotics Control Strategy Report (INCSR).
Key Findings from the report are as follows: -
Nauru is a small central Pacific island nation with a population of approximately 9,400. A member of the British Commonwealth, Nauru is an independent republic but uses Australian currency. Currently, the only financial institution offering financial services is one wire transfer service based in a hardware store. The economy is entirely cash-based and reliant on formal and informal remittances. Nauru is a low crime jurisdiction. The very narrow economic base, the lack of financial institutions, and very strict land tenure and associated restrictions on foreign investment discourage the introduction of criminal proceeds into the formal Nauru economy.
Nauru has a relatively small offshore company registry with 59 operating corporations. In the past ten years no new trust company licenses have been issued, although 15 unit trusts have been formed under the 11 existing licenses. The offshore companies and trusts represent a concern, although the very low rate of company and trust formation in the sector may indicate the risks are relatively low.
For additional information focusing on terrorist financing, please refer to the Department of State’s Country Reports on Terrorism, which can be found at: http://www.state.gov/j/ct/rls/crt/
DO FINANCIAL INSTITUTIONS ENGAGE IN CURRENCY TRANSACTIONS RELATED TO INTERNATIONAL NARCOTICS TRAFFICKING THAT INCLUDE SIGNIFICANT AMOUNTS OF US CURRENCY; CURRENCY DERIVED FROM ILLEGAL SALES IN THE U.S.; OR ILLEGAL DRUG SALES THAT OTHERWISE SIGNIFICANTLY AFFECT THE U.S.: NO
CRIMINALIZATION OF MONEY LAUNDERING:
“All serious crimes” approach or “list” approach to predicate crimes: List approach
Are legal persons covered: criminally: YES civilly: YES
KNOW-YOUR-CUSTOMER (KYC) RULES:
Enhanced due diligence procedures for PEPs: Foreign: YES Domestic: NO
KYC covered entities: Banks and money remitters; securities and investment businesses; insurance firms; dealers in art and precious metals and stones; trust or company service providers; real estate agents and brokers; casinos and lotteries; legal practitioners and accountants; payroll services using cash; and alternative remittance services
Number of STRs received and time frame: Not available
Number of CTRs received and time frame: Not available
STR covered entities: Banks and money remitters; securities and investment businesses; insurance firms; dealers in art and precious metals and stones; trust or company service providers; real estate agents and brokers; casinos and lotteries; legal practitioners and accountants; payroll services using cash; and alternative remittance systems
MONEY LAUNDERING CRIMINAL PROSECUTIONS/CONVICTIONS:
Prosecutions: Not available
Convictions: Not available
RECORDS EXCHANGE MECHANISM:
With U.S.: MLAT: NO Other mechanism: NO
With other governments/jurisdictions: NO
Nauru is a member of the Asia/Pacific Group on Money Laundering (APG), a FATF-style regional body. Its most recent mutual evaluation report can be found at: http://www.apgml.org/mutual-evaluations/page.aspx?p=b61008e6-465a-48c6-8927-69a6daaa0184
ENFORCEMENT AND IMPLEMENTATION ISSUES AND COMMENTS:
The Government of Nauru’s AML/CFT regime is broadly commensurate with the risks and threats facing the country. There is a need for additional controls in the offshore sector. The government should ensure the Nauru Agency Corporation, a state-owned incorporation agent, and Nauru Trustee Corporation, which registers trusts, focus their AML/CFT efforts on providing controls for the offshore sector. Nauru should try to attract a banking institution to ensure a wider range of financial services are available to Nauruans, and that entity should be subject to AML/CFT controls. The Government of Nauru should supervise alternative remittance providers. AML legislation should be amended to include a greater number of predicate offenses and reduce restrictive conditions in relation to tax matters.
In 2012, the Government of Nauru became a party to the 1988 UN Drug Convention, the UN Convention against Corruption, and the UN Convention against Transnational Organized Crime.
Current Weaknesses in Government Legislation (2013 INCRS Comparative Tables):
According to the US State Department, Nauru does not conform with regard to the following government legislation: -
Criminalised Beyond Drugs - The jurisdiction has extended anti-money laundering statutes and regulations to include nondrug-related money laundering.
Arrangements for Asset Sharing - By law, regulation or bilateral agreement, the jurisdiction permits sharing of seized assets with third party jurisdictions that assisted in the conduct of the underlying investigation.
Cooperates with International Law Enforcement - By law or regulation, banks are permitted/required to cooperate with authorized investigations involving or initiated by third party jurisdictions, including sharing of records or other financial data.
States Party to UN 1988 Convention - States parties to the 1988 United Nations Convention against Illicit Traffic in Narcotic Drugs and Psychotropic Substances, or a territorial entity to which the application of the Convention has been extended by a party to the Convention.
EU White list of Equivalent Jurisdictions
Nauru is not currently on the EU White list of Equivalent Jurisdictions