Finance
Nauru Targeted for Money Laundering Sanctions
But Four Blacklisted Pacific Islands Look To Get Off the Hook
Secretive and eccentric Nauru is about to achieve a unique double — chairmanship of the Pacific Forum just as it faces, along with the Philippines and Russia, new and extreme sanctions from the world’s economic super-powers thanks to its failure to do anything constructive about its tax haven operations.
Three other Pacific nations — the Cook Islands, Marshall Islands and Niue — who with Nauru faced another deadline from the Organization of Economic Cooperation and Development (OECD) appear to have done enough to avoid the sanctions.
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The Pacific Four have been on a list of nations compiled by the OECD and another, but mostly similar list, compiled by the related Financial Action Task Force (FATF) which has its offices inside the OECD’s Paris headquarters. FATF/OECD both see tax havens as conduits for criminal and terrorist money laundering and they have pressed for measures that would make the otherwise secretive world more accountable.
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In late June, in response to the looming sanctions, Nauru announced it would pass required anti-money laundering legislation in July to beat the deadline, an action it’s been promising sporadically over the past two years.
The OECD’s “Harmful Tax Competition Initiative” set a July 31 deadline on named tax havens — including the Pacific Four — and said if they did not comply with a set of regulatory demands by then they faced international sanctions.
On April 29 the 16 nation Pacific Forum pleaded that complying with the deadline would have “possible and immediate to long-term loss of economic activity through the loss of offshore sector clients.”
They’ve found an unlikely savior in US President George W. Bush who, after sinking the Kyoto global warming treaty, did the same thing to the OECD initiative.
In mid-May U.S. Treasury Secretary Paul O’Neill warned against interference in a state’s internal affairs, saying that he was concerned over the direction the OECD initiative was taking, particularly the notion that a country or group of countries could interfere in how a sovereign state organized its fiscal system. The U.S. would not join attempts to dictate fiscal tax levels or methods of organization to individual states, and would reject moves to harmonize tax systems world-wide, O’Neill said.
France’s Finance Minister Laurent Fabius was outraged, and said Paris would continue the war on combating fiscal fraud. “Whether it is the war against the greenhouse effect or the war against money laundering or tax havens, the world’s leading power cannot disengage from the planet’s problems,” Fabius said.
The U.S. turnabout was regarded as surprising in the Pacific although diplomatic sources say it reflects more on the reality of tax haven banking. Tiny Nauru has 400 offshore banks registered to one government mail box and has long been accused of laundering U.S. $70 billion in Russian Mafia money. New information reveals, however, that many of the banks are, in fact, secret branches of United States banks who, it appears, are more active in money laundering than had previously been known.
FATF, a 29-nation group, said Nauru lacked a basic set of anti-money laundering regulations. “It has licensed approximately 400 offshore ‘banks’, which are prohibited from taking deposits from the public but are poorly supervised,” FATF says. FATF said they were recommending additional countermeasures against Nauru, the Philippines and Russia. These measures include “the possibility of enhanced surveillance and reporting of financial transactions and other relevant actions” after September 30.
In a separate development, U.S. Treasury Department Financial Crimes Enforcement Network officials gave the Marshalls a thumbs up after a May visit to establish the country’s new Financial Intelligence Unit, and said they would also be working with the Cook Islands and Niue later in the year to establish improved financial controls.
FATF’s report noted the Cooks had 1,200 registered international companies and seven off shore banks but has “no relevant information” on who they were. The Marshalls was noted for having a small financial sector with just three onshore banks and none off shore, but it had around 3,000 international companies registered to it. Niue has five offshore banks and 5,500 companies (the country has a current population of around 800).
