The anti‐money laundering regime in the Republic of Nauru
| Date | 01 January 2004 |
| Published date | 01 January 2004 |
| DOI | https://doi.org/10.1108/13685200410809797 |
| Pages | 75-83 |
| Author | Trifin J. Roule,Michael Salak |
| Subject Matter | Accounting & finance |
The Anti-Money Laundering Regime in the
Republic of Nauru
Tri®n J. Roule and Michael Salak
INTRODUCTION
In response to the Republic of Nauru's growing
international reputation as a major centre for the
laundering of illicit pro®ts, the Financial Action
Task Force (FATF) placed Nauru on a list of candi-
dates for sanctions in June 2000.
1
In an attempt to
quell the growing criticism from a number of inter-
national bodies, including the FATF, Financial Stabi-
lity Forum (FSF), and Organisation for Economic
Co-operation and Development (OECD), regarding
the lax anti-money laundering regime on the island,
the Nauruan Parliament passed the Anti-Money
Laundering Act of 2001, which criminalises money
laundering, establishes the Financial Institutions
Supervisory Authority (FISA), which would act as
a ®nancial intelligence unit (FIU), and introduces
know-your-customer obligations. The Anti-Money
Laundering Act of 2001 failed, however, to meet sev-
eral of the 40 Recommendations designed by the
FATF to facilitate the implementation of interna-
tional anti-money laundering norms by individual
jurisdictions. Most notably, the Nauruan legislation
does not mandate the oversight of more than 400
`shell banks', institutions with no physical presence
in the jurisdiction.
The failure to impose mandatory oversight
mechanisms on the oshore sector resulted in
immediate opprobrium from a wide range of inter-
national bodies. On 5th December, 2001, the FATF
announced that individual member states would
apply sanctions to Nauru. At the same time, the
OECD declared Nauru a jurisdiction that permits
unfair tax practices, and threatened independent sanc-
tions against Nauru. Within a few months of the
announcement by the FATF, more than 18 countries,
including Australia, Canada, France, the UK and the
USA, requested domestic ®nancial institutions to
give heightened scrutiny to transactions involving
Nauruan ®nancial institutions. Financial institutions
were also warned to turn away any business with
Nauru that was not demonstrably legitimate.
2
Eorts
by the international community to curtail the passage
of illicit funds through the Nauruan oshore zone
continued unabated for the next year. Most notably,
in late 2002, the European Community brought a
civil Racketeering In¯uenced and Corrupt Organiza-
tion (RICO) action in courts in the USA alleging
that Nauru-based Sinex Bank was used to launder
illicit funds linked to a major cigarette smuggling
operation in Iraq.
3
In an attempt to quell criticism
from the international community, the Nauruan
Parliament passed legislation in late March 2003 abol-
ishing the controversial oshore banking sector, but,
to date, most of the accounts have remained open.
Consequently, on 15th April, 2003, the US Depart-
ment of Treasury published proposed regulations to
impose `special measures' against Nauru under s. 311
of the USA Patriot Act. If passed, the regulations
would require US ®nancial institutions to terminate
correspondent accounts with Nauruan ®nancial insti-
tutions, including correspondent accounts main-
tained for Nauruan ®nancial institutions, as well as
correspondent accounts maintained for other foreign
banks that are used to provide banking services
indirectly to Nauruan ®nancial institutions.
4
THE EXISTING FINANCIAL SERVICES
REGIME
The Evidence (Con®dential Information)
Act of 1976
With this law, enacted shortly after Nauru gained
independence from Australia, the Nauruan Parlia-
ment established the jurisdiction as a safe haven by
stating that no person in Nauru shall be compelled
to answer any question or produce any document
requested by any court or tribunal outside of
Nauru. The legislation also speci®cally outlines a
series of questions, which a person shall not be
compelled or required to answer, including:
(a) questions requiring the disclosure of information
which that person prohibited by any written law
from disclosing to either or any of the parties to
the proceedings in relation to which that person
is being examined;
(b) questions relating to acts done, or information
received, by the Registrar of Corporations, the
Page 75
Journal of Money Laundering Control Ð Vol. 7 No. 1
Journalof Money Laundering Control
Vol.7, No. 1, 2003, pp. 75± 83
#HenryStewart Publications
ISSN1368-5201
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