MARSHALL ISLANDS
Summary
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Sanctions

None

FAFT AML Deficient

No

Higher Risk Areas

Not on EU White list equivalent jurisdictions

Offshore Finance Centre

Compliance of OECD Global Forumís information exchange standard

Medium Risk Areas

 

Non - Compliance with FATF 40 + 9 Recommendations

US Dept of State Money Laundering Assessment

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)

 

 

ANTI-MONEY LAUNDERING

 

FATF Status

The Republic of the Marshall Islands 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 The Republic of the Marshall Islands was undertaken by the Financial Action Task Force (FATF) in 2011. According to that Evaluation, The Republic of the Marshall Islands was deemed Compliant for 5 and Largely Compliant for 16 of the FATF 40 + 9 Recommendations. It was Partially Compliant or Non-Compliant for all 6 of the Core Recommendations.

 

US Department of State Money Laundering assessment (INCSR)

The Republic of the Marshall Islands was deemed a Jurisdiction of Concern by the US Department of State 2016 International Narcotics Control Strategy Report (INCSR).

Key Findings from the report are as follows: -

 

The Republic of the Marshall Islands (RMI) consists of 29 atolls and five islands, covering 70 square miles of land, spread across 750,000 square miles of ocean. The country is economically underdeveloped and has limited resources for private sector development. The RMI signed a Compact of Free Association with the United States in 1986, and relies on the United States for the majority of its economic support. Although the Marshall Islands accounts for less than one percent of the global market for offshore financial services, making it a tiny player compared with other secrecy jurisdictions, the RMI offshore corporate sector is vulnerable to money laundering.

There are two banks in the country, the Bank of the Marshall Islands and a branch office of the Bank of Guam. There are no brokerage houses or other types of financial firms in the country.

Land is almost never sold due to customary land tenure practices. There are no realtors, nor are there casinos or other entities typically used to launder money. Domestic crime is low, but an analysis of suspicious transaction reports suggests tax evasion, smuggling, prostitution, embezzlement, counterfeit financial instruments, check fraud, and narcotics trafficking on the islands could be predicate offenses for money laundering.

Non-resident domestic corporations (NRDCs), the equivalent of international business companies, can be formed online subject to approval by the Registrar. Marketers of offshore services via the internet promote the Marshall Islands as a favored jurisdiction for establishing NRDCs and handle the incorporation process for applicants. A number of Marshall Islands NRDCs have gone public on exchanges in the U.S. and Europe. NRDCs are allowed to offer bearer shares. Corporate officers, directors, and shareholders may be of any nationality and live anywhere. NRDCs are not required to disclose the names of officers, directors, shareholders, or beneficial owners listed with the Registrar, and corporate entities may act as directors, officers, and shareholders. The Registrar does not release the number of NRDCs or other offshore corporate operations data. The corporate registry program does not allow the registering of offshore banks or insurance firms, online gaming institutions, or other companies which are financial in nature. All known parties to any corporate or maritime transaction are vetted by the Registry through a commercial database, which combines the UN, U.S., EU, and other national and international specially designated national lists. NRDCs must maintain a registered agent in the Marshall Islands, and corporations can transfer domicile into and out of the RMI with relative ease. In addition to NRDCs, the RMI offers resident partnerships, unincorporated associations, and limited liability companies through the Attorney Generalís office.

The Trust Company of the Marshall Islands, Inc., the Registrar for NRDCs, and the Office of the Maritime Administrator (collectively the Registry) administer a registration program of corporations and ships. The RMI shipping fleet is the third largest flagged fleet in the world, although few of the vessels frequent the Marshall Islands. The port of Majuro is visited mainly by tuna fishing boats, with a few cargo ships per month delivering food and fuel to the nation.

 

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SANCTIONS

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

 

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BRIBERY & CORRUPTION

 

Index

Rating (100-Good / 0-Bad)

Transparency International Corruption Index

N/A

World Governance Indicator Ė Control of Corruption

56

 

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INVESTMENT CLIMATE - Executive Summary (US State Department)

The Government of the Marshall Islands encourages foreign investment and recognizes its important role in encouraging private sector development. The government particularly encourages foreign investment in fisheries, tourism, and light manufacturing and provides certain investment incentives for foreign investors. Most local government officials encourage foreign investment, though attitudes may differ from island to island. Foreign investment in the Marshall Islands is complicated, however, by laws that prevent non-Marshallese from purchasing land. There is no public land in the country, and foreign businesses must lease land from private landowners in order to operate in the country.

Foreign investment is governed through the Foreign Investment Business License (Amendment Act (2000), which established the Registrar of Foreign Investment and details restrictions on foreign investments. The Ministry of Resources and Development, Trade and Investment Division administers the law in coordination with the Office of the Attorney General.

The Republic of the Marshall Islands has a responsive judiciary that consistently upholds the sanctity of contracts. Land issues and disputes concerning leases are subject to customary law governing land tenure, and proceedings can take a protracted time to resolve.

 

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REPORTS

IMF Report: 2016 Article IV Consultation with the Republic of the Marshall Islands

Some progress is being made to respond to challenges related to withdrawal of correspondent banking relationships (CBRs) (Box 4). The RMIís sole domestic commercial bank could lose its CBR with a U.S.-based bank as a result of heightened due diligence by banks in the United States. The consequent loss of access to the U.S. payment and settlement services, given the use of the U.S. dollar as legal tender, could disrupt cross-border payments and economic activity, as well as weaken financial inclusion for outer islands serviced by the domestic bank. In response, the authorities are drafting a new Anti-Money Laundering (AML) legislation in line with Financial Action Task Force (FATF) standards and United Nations Convention against Corruption (UNCAC) rules, have hired external consultants and met with U.S. officials, and also attended in early April a LEG/STI organized workshop on implementing the international AML/CFT (Combating the Financing of Terrorism) standards. Staff encouraged the authorities to strengthen the implementation of AML/CFT requirements, particularly in relation to Know-Your-Customer requirements, and have an open and regular dialogue with U.S. regulators.

Background. The RMIís only domestic commercial bank has had a CBR with a U.S.-based bank (First Hawaiian Bank, a subsidiary of BNP Paribas), and was recently notified that it may terminate the relationship, due to concerns about the cost of complying with new U.S. regulations, including on AML. As of May 2016, however, the planned termination of the relationship was put on hold.

Drivers. A recent IMF survey found that many Pacific islands are experiencing negative effects from the withdrawal of CBRs. Outside the Pacific, there is evidence that similar developments are also taking place in the Caribbean, Middle East, and North Africa. The terminations of CBRs are due to several factors, including the enforcement of stricter global regulatory standards, prudential regulations, sanctions, and tax and AML/CFT requirements. As a result, some business lines are being perceived as too costly in terms of compliance, and therefore being cut off by global banks.

Offshore companies. According to the latest AML/CFT assessment by the Asia Pacific Group (APG), the FATF-style regional body of which the RMI is a member, vulnerabilities derive mainly from RMIís offshore company registration sector. For registered non-resident entities, there is no mandatory requirement for legal persons to provide information either on the legal or beneficial ownership of shareholders.

Remittances. The cost of transferring remittances to Pacific islands has increased as global banks have closed bank accounts of small money transfer operators, forcing transfer of remittances only through banks. This could be an additional issue for the RMI, given its high reliance on remittances. So far, however, the cost of transferring remittances to the RMI has not been affected significantly, as almost all the remittances come through two large operators (MoneyGram and Western Union) that have existing partnerships with banks.

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