PAPUA NEW GUINEA
Summary

Sanctions

None

FAFT AML Deficient

No longer on list

Higher Risk Areas

 

Compliance with FATF 40 + 9 recommendations

Weakness in Government Legislation to combat Money laundering

Not on EU White list equivalent jurisdictions

Corruption Index (Transparency International & W.G.I.)

World Governance Indicators (Average Score)

Failed States Index (Political Issues)(Average Score)

 

 

ANTI-MONEY LAUNDERING

 

FATF Status

Papua New Guinea is no longer on the FATF List of Countries that have been identified as having strategic AML deficiencies

 

Latest FATF Statement - 24 June 2016

The FATF welcomes Papua New Guinea’s significant progress in improving its AML/CFT regime and notes that Papua New Guinea has established the legal and regulatory framework to meet its commitments in its action plan regarding the strategic deficiencies that the FATF had identified in February 2014. Papua New Guinea is therefore no longer subject to the FATF’s monitoring process under its on-going global AML/CFT compliance process. Papua New Guinea will work with the APG as it continues to address the full range of AML/CFT issues identified in its mutual evaluation report.

 

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Papua New Guinea was undertaken by the Financial Action Task Force (FATF) in 2011. According to that Evaluation, Papua New Guinea was deemed Compliant for 2 and Largely Compliant for 6 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)

Papua New Guinea 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: -

 

Papua New Guinea (PNG) is not considered a major financial center. It has a relatively stable banking system closely integrated with the financial systems of Australia and New Zealand. Smuggling and public corruption are significant problems in PNG.

Corruption is one of the main sources of illegal proceeds, especially related to misappropriation of public funds linked to the extraction industries and related licensing procedures, and through fraudulent compensation claims. The risk of domestic corruption continues, fueled by large- scale foreign investment in the mining and petroleum sectors. Corruption is also a serious issue in party politics. Misappropriation of government funds occurs via government payments which, according to the authorities, are generally placed through the banking sector and used to purchase real estate or high-value vehicles, distributed in cash, or moved offshore.

The techniques to launder proceeds from other large-scale crimes in PNG, such as illegal logging, arms trafficking, and fraud, are less clear. The financial intelligence unit (FIU) reports that criminals continue to use corporate entities to hide funds and move them offshore. Additional risks stem from the transshipment of drugs and other illegal goods en route to Australia, limited PNG capacity in border control, and the presence of organized criminal groups. PNG relies on assistance from Australia to deter illegal cross-border activities, including illegal narcotics trafficking, primarily from Indonesia.

In PNG, the financial sector is small and provides little reach to the very large informal, rural, and self-employed segments of the population. The great majority of the adult population lacks access to the formal sector. The financial sector is in development and trying to increase its outreach to rural areas.

 

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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

28

World Governance Indicator – Control of Corruption

14

 

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INVESTMENT CLIMATE - Executive Summary (US State Department)

Formally, the Government of Papua New Guinea (PNG) welcomes foreign investment and on paper, the country has a liberal investment regime. The reality is more complicated, PNG is rich in gold, oil, gas, copper, silver, and timber, and is home to abundant fisheries. Under Prime Minister Peter O’Neill, the government has recently placed a priority on the downstream processing of these assets to drive economic growth. Strong macroeconomic management, until recently, had created the longest uninterrupted period of economic growth since the country’s independence in 1975.

Large investments to date have been concentrated in the minerals and petroleum sectors. While Exxon Mobil PNG’s $19 billion PNG liquefied natural gas (PNG LNG) investment has been the most notable, other investments in communications, construction, and real estate, for example, have given significant impetus and created spillovers into other sectors. These investments have supported growth in formal employment, creating shortages of skilled labor. The government supports developments in the tourism sector, and believes that the country has huge untapped potential in this area. The government gives preference to foreign investment proposals to develop renewable resources including forests, fisheries, and agricultural commodities.

The PNG government has taken several steps over the last year to create additional opportunities for PNG business owners and to protect certain industries from foreign investment, and has expropriated PNG’s largest taxpaying company, Ok Tedi Mining Limited, and said publically that the rationale for doing so was to remove foreign leadership and ensure that assets were directly benefiting the people of PNG. Since August 2013, the PNG government has: passed a new national interest test for foreign companies; drafted an SME policy that increases the economic sectors that will be reserved for nationals only; prevented Vodaphone Fiji from acquiring BeMobile, blocked Malaysian company Kulim from acquiring majority shares in New Britain Palm Oil Limited; and announced its intention to limit foreign ownership of the media.

The government has discussed establishing a sovereign wealth fund for several years, but that appears to be on hold while it restructures the revenue management system for its mining and petroleum investments and state owned enterprises. Under the restructuring, PNG’s Independent Public Business Corporation and PNG’s Petromin Holdings will cease to exist, and the state’s ownership of all its ventures will be vested in three new “Kumul” entities. Referred to as the “Kumul Trust,” these three entities will own the PNG government’s petroleum, mining, and other state-owned enterprises. The legislation to create this arrangement has not yet been passed, however, so these changes have not yet gone into effect.

Over the last year, PNG has taken steps to increase transparency in its extractive sector. After submitting its application to be an Extractive Industries Transparency Initiative (EITI) candidate country in December 2013, PNG’s application was approved on March 19, 2014. PNG now has one year to submit the required reporting on natural resource contracts and revenues in the country. This report will detail payments made by extractive companies to the government, and will shed light on what the government is doing with these earnings.

Challenges to investment include weak enforcement of contracts, inconsistent government policies, corruption, crime, inadequate infrastructure (including unreliable power), underdeveloped private markets, and extremely high commodity and internet costs. Recruitment and retention of skilled workers is also an impediment to doing business in Papua New Guinea. U.S. companies have shared concerns about the PNG government’s tendering process, saying competitions have been narrowed to limit contenders – at times to a single source – and that this resulted in U.S. companies not being able to compete. U.S. companies have also reported a trend of the PNG government preferring to make deals through third party companies rather than directly to the source company for materials and services.

 

 

 

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