FinCEN Advisory

Banks and other financial institutions operating in the United Statesare advised to give enhanced scrutiny to all financial transactions originatingin or routed to or through the Republic of Nauru, or involving entitiesorganized or domiciled, or persons maintaining accounts, in Nauru. Theneed for such enhanced scrutiny is discussed in the remainder of thisAdvisory.
Nauru is a small South Pacific island nation with a population ofapproximately 10,600. For the past two decades, Nauru has sought toestablish itself as an offshore financial center. It has granted 400 licenses toso-called offshore banks.
Offshore banks are licensed by the Nauru Agency Corporation(.NAC.), which also is available, along with its affiliated companies, to actas a nominee shareholder or director of one or more of the banks it licenses.Persons seeking to establish offshore banks in Nauru are often representedby agents registered by the country.
The counter-money laundering regime embodied in the legal,supervisory, and regulatory systems of Nauru suffers from serious systemicproblems.

• Money laundering is not a criminal offense in Nauru.
• Offshore banks licensed by Nauru are not required to obtain identification information from their customers.
• Offshore banks licensed by Nauru are not required to maintain customer identification or transaction records.
• Nauruan financial institutions are under no obligation to report suspicious transactions.
• There are serious questions whether the NAC is either in a position or possesses the authority properly to supervise any aspect of the offshore sector.
• Nauru maintains strong bank secrecy laws.

These deficiencies, among others, have caused Nauru to be identifiedby the Financial Action Task Force on Money Laundering (the .FATF.) asnon-cooperative .in the fight against money laundering.. The FATF, createdat the 1989 G-7 Economic Summit, is a 29 member international group thatworks to combat money laundering.
Nauru has indicated an awareness of the impact of the deficiencies inits counter-money laundering systems noted above. It has cooperated withofficials from other countries in certain criminal investigations involvingNauruan institutions, and it has recently suspended the licenses of a largenumber of institutions pending a review of their ownership. More importantfor the long term, it is considering legislative changes that could remedy atleast some of the deficiencies described above, and it is seeking relevanttechnical assistance in order to do so.
Nonetheless, the legal, supervisory, and regulatory systems of Nauruat present create significant opportunities and tools for the laundering andprotection of the proceeds of crime, and allow criminals who make use ofthose systems to increase significantly their chances to evade effectiveinvestigation or punishment. Nauru.s commitment to bank secrecy and theabsence of any supervisory or enforcement mechanisms aimed at preventingand detecting money laundering increase the possibility that transactionsinvolving Nauruan offshore entities and accounts will be used for illegalpurposes.
Thus, banks and other financial institutions operating in the UnitedStates should give enhanced scrutiny to any transaction originating in orrouted to or through Nauru, or involving entities organized or domiciled, orpersons maintaining accounts, in Nauru. A financial institution subject tothe 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 correspondingrules of the federal financial institution supervisory agencies, shouldcarefully examine the available facts relating to any such transaction todetermine if such transaction (of $5,000 or more, U.S. dollar equivalent)requires reporting in accordance with those rules. Institutions subject to theBank Secrecy Act but not yet subject to specific suspicious transaction reporting rules should consider such a transaction with relation to theirreporting obligations under other applicable law.
It should be emphasized that the issuance of this Advisory and theneed for enhanced scrutiny does not mean that U.S. financial institutionsshould curtail legitimate business with Nauru.
To dispel any doubt about application of the .safe harbor. totransactions within the ambit of this Advisory, the Treasury Department willconsider any report relating to a transaction described in this Advisory toconstitute a report of a suspicious transaction relevant to a possible violationof law or regulation, for purposes of the prohibitions against disclosure andthe protection from liability for reporting of suspicious transactionscontained in 31 U.S.C. 5318(g)(2) and (g)(3).
United States officials stand ready to provide appropriate technicalassistance to Nauruan officials as they work to remedy the deficiencies inNauru.s counter-money laundering systems that are the subject of thisAdvisory.

James F. Sloan
Director