Micronesia

Sanctions

No

FATF AML Deficient List

No

Higher Risk

Non - Compliance with FATF 40 + 9 Recommendations
Not on EU White list equivalent jurisdictions

Medium Risk

Weakness in Government Legislation to combat Money Laundering
Corruption Index (Transparency International & W.G.I.)
World Governance Indicators (Average Score)
Failed States Index (Political Issues)(Average Score)

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ANTI-MONEY LAUNDERING

 

FATF Status

Micronesia is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

 

Compliance with FATF Recommendations

Micronesia has not yet undertaken a Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards.

 

US Department of State Money Laundering assessment (INCSR)

Micronesia was deemed a ‘Monitored’ Jurisdiction by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR). Key Findings from the report are as follows: -

 

The Federated States of Micronesia (FSM) has a small population of 100,000 people spread over a million square miles of the western Pacific Ocean. The FSM was part of the U.S. Trust Territory of the Pacific after World War II, and is now associated with the United States by the Amended Compact of Free Association. The FSM uses the dollar as its only currency and has only two commercial banks operating in the country, the domestically-owned Bank of FSM and branches of the Bank of Guam. While the FSM’s lack of visibility and ease of moving dollars to and from the United States could potentially make it a back door for nefarious movements of currency, the small scale of its economy and regulatory oversight of the banks by U.S. regulators make the FSM historically a low risk for money laundering, terrorist financing, or smuggling.

 

Public corruption does exist in the area of public contracting and employment of unqualified companies or persons, but there are no accurate estimates of the proceeds derived from cronyism.

 

SANCTIONS

There are no international sanctions currently in force against this country.

 

BRIBERY & CORRUPTION

 

Rating                                                                           (100-Good / 0-Bad)

Transparency International Corruption Index                           N/A

World Governance Indicator – Control of Corruption              78

 

ECONOMY

Economic activity consists largely of subsistence farming and fishing, and government, which employs two-thirds of the adult working population and receives funding largely - 58% in 2013 – from Compact of Free Association assistance provided by the US. The islands have few commercially valuable mineral deposits. The potential for tourism is limited by isolation, lack of adequate facilities, and limited internal air and water transportation.

 

Under the terms of the original Compact, the US provided $1.3 billion in grants and aid from 1986 to 2001. The US and the Federated States of Micronesia (FSM) negotiated a second (amended) Compact agreement in 2002-03 that took effect in 2004. The amended Compact runs for a 20-year period to 2023; during which the US will provide roughly $2.1 billion to the FSM. The amended Compact also develops a Trust Fund for the FSM that will provide a comparable income stream beyond 2024 when Compact grants end.

 

The country's medium-term economic outlook appears fragile because of dependence on US assistance and lacklustre performance of its small and stagnant private sector.

 

Agriculture - products:

taro, yams, coconuts, bananas, cassava (manioc, tapioca), sakau (kava), Kosraen citrus, betel nuts, black pepper, fish, pigs, chickens

 

Industries:

tourism, construction; specialized aquaculture, craft items (shell and wood)

 

Exports - commodities:

fish, sakau (kava), betel nuts, black pepper

 

Imports - commodities:

food, beverages, clothing, computers, household electronics, appliances, manufactured goods, automobiles, machinery and equipment, furniture, tools.

 

Investment Climate  -  US State Department

The Federated States of Micronesia (FSM) is a lower middle income island nation of 102,000 people on 607 islands with a total land area of 271 square miles and an exclusive economic zone (EEZ) of over one million square miles (2.6 million km2) in a remote area of the Western Pacific Ocean. The nation is composed of formerly unrelated cultures and languages organized into four states and a weaker national government.

 

The FSM is part of the former U.S.-administered Trust Territory of the Pacific Islands that gained independence in 1986 and continues to use the U.S. dollar as its currency. Since independence it has operated under a Compact of Free Association (Compact) with the United States, receiving more than $100 million per year in development funding administered mainly by the Department of the Interior (DOI). The World Bank estimates Gross Domestic Income (GDI 2015) to be $3,438 per person, showing no growth over the previous 10 years.

 

The FSM currently has no major exports or domestic industry. Its primary sources of income are the sale of fishing rights (approximately USD47.5 million in 2014) and taxes on offshore corporate registrations for captive insurance (USD46 million in 2014). It is largely a subsistence economy except in larger towns where the economy is centered on government employment and a small commercial sector. The cash economy is primarily fueled by government salaries paid by Compact funds (66 percent of employed adults work in the public sector), and to a much lesser degree by family remittances. Compact funding will change 2023 from the current grants to proceeds from a trust fund developed over 20 years, which is currently estimated to lower government resources by 20-30 percent.

 

The FSM GDP for 2014 was USD318.1 million, a 3.4 percent decline from 2013 at constant prices. The economy recorded a trade deficit of USD150 million in goods and services for the same year. The FSM government currently has low debt, but the lack of development of revenue to supplement Compact funding, the lowest tax-to-GDP ratio in the Pacific, and looming Compact reductions in 2023, mean that international development banks classify the country as a grant-only client, concerned with the country’s ability to repay loans.

Foreign investment is almost nonexistent due to prohibitions on foreign ownership of land and businesses, difficulties in registering business (four states plus national), poor enforcement of contracts, poor protection of minority (foreign) investors, weak courts, and weak settlement of insolvency. Domestic capital formation is very low because the commercial banks are classified as foreign entities, and not allowed to provide mortgages or business financing. The cost of doing business is high due to the region’s remoteness and dependence on imported materials and services.

 

Transportation and shipping are difficult, limited, and expensive due to the country’s isolated location off of major trade routes. Pohnpei and Chuuk are serviced three times a week in each direction by the Island Hopper service of United Airlines linking Hawaii and Guam. Kosrae and Yap have only two flights per week. Matson and Showa provide a weekly cargo ship based in Guam and Korea.

 

Most political power of the nation is delegated to the four states by the constitution, including regulation of foreign investment and restrictions on leases. This means that investors may have to deal with five different sets of regulations and licenses. U.S. citizens are able to live and work in the FSM indefinitely without visas.

 

There are no political parties. National legislators (senators) are directly elected, and the president and vice-president are selected by the senators from among the four at-large senators. At the state level, all offices are directly elected by the people.

Country Links
FSM Development Bank: FSMDB
Other Useful Links
FATF
US State Department
Transparency International
World Bank
CIA World Factbook

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