VANUATU
Summary
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Sanctions

None

FAFT AML Deficient

Yes

Higher Risk Areas

 

Compliance with FATF 40 + 9 Recommendations

Not on EU White list equivalent jurisdictions

Offshore Finance Centre

Compliance of OECD Global Forum’s information exchange standard

Medium Risk Areas

 

US Dept of State Money Laundering assessment

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

World Governance Indicators (Average Score)

Failed States Index (Political Issues)(Average Score)

 

 

ANTI-MONEY LAUNDERING

 

FATF Status

Vanuatu is on the FATF List of Countries that have been identified as having strategic AML deficiencies

 

FATF Statement - 23 June 2017

In February 2016, Vanuatu made a high-level political commitment to work with the FATF and APG to address its strategic AML/CFT deficiencies. Since February 2017, Vanuatu has taken steps towards improving its AML/CFT regime, including by the passage and entry into force of 12 amendment acts and introducing one new act related to targeted financial sanctions. The FATF will need to review the final versions of these laws. Vanuatu should continue to work on implementing its action plan to address its deficiencies, including by: (1) assessing and responding to offshore terrorist financing risks; (2) adequately criminalising money laundering and terrorist financing; (3) establishing and implementing adequate procedures for the confiscation of assets related to money laundering; (4) establishing and implementing an adequate legal framework for identifying, tracing and freezing terrorist assets and other UNSCR sanctions; (5) ensuring a fully operational and effectively functioning financial intelligence unit; (6) strengthening preventive measures, including for wire transfers; (7) establishing transparency for the financial sector, and for legal persons and arrangements; (8) implementing an risk-based AML/CFT supervisory and oversight programme for all the financial sector and trust and company service providers; and (9) establishing appropriate channels for international co-operation and domestic coordination policies and actions on identified risks and ensuring effective implementation. The FATF encourages Vanuatu to continue implementing its action plan to address its AML/CFT deficiencies.

 

APG issues public statement on Vanuatu – September 2015

The APG remains concerned about the serious deficiencies in Vanuatu’s antimoney laundering and combating the financing of terrorism (AML/CFT) system.

Vanuatu’s latest mutual evaluation report, adopted by the APG membership in July 2015, indicates that many of the deficiencies first identified by the APG in 2006 have not yet been adequately addressed.  The report also finds that its system demonstrates low levels of effectiveness in implementing all of the FATF’s global AML/CFT standards.

The most important technical compliance deficiencies include:

  1. Inadequate criminalization of money laundering and terrorist financing;
  2. Inadequate measures to implement United Nations resolutions for targeted financial sanctions against terrorists;
  3. Inadequate customer due diligence (CDD); and
  4. Inadequate supervisory frameworks for financial institutions and designated nonfinancial businesses and professions.

The APG calls on Vanuatu to expeditiously address the remaining deficiencies and to enhance the effectiveness of its system to combat money laundering and terrorist financing.

This statement, which was first issued in October 2014, will remain in place until the most important deficiencies are adequately addressed, as determined by the APG membership, informed by its peer monitoring and follow-up process.

 

Background

In June 2014, Vanuatu enacted and brought into effect the AntiMoney Laundering and CounterTerrorism Financing (AML/CTF) Act and the AML/CTF regulations. The AML/CFT Act and regulations addressed some but not all of the deficiencies relating to CDD.

In January 2015, Vanuatu brought into force amendments to the Proceeds of Crime Act and the Counter Terrorism and Transnational and Organized Crime Act. These amendments did not, however, adequately address the deficiencies relating to the criminalization of money laundering and terrorist financing.

In July 2015, the APG adopted Vanuatu’s third mutual evaluation report. The evaluation was conducted under the FATF’s 2013 assessment methodology which focuses on effectiveness. The report reflects low levels of effectiveness across all of the FATF’s 11 Immediate Outcomes.  In light of these serious deficiencies and the length of time that they have been outstanding, the APG membership recently referred Vanuatu to the FATF’s International Cooperation Review Group for further action and scrutiny.

 

 

Compliance with FATF Recommendations

The last Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Vanuatu was undertaken by the Financial Action Task Force (FATF) in 2015. According to that Evaluation, Vanuatu was deemed Compliant for 1 and Largely Compliant for 9 of the FATF 40 Recommendations.

 

Money Laundering / Terrorism Financing Risks (FATF Mutual Evaluation)

The most significant ML threat for Vanuatu arises from the laundering of foreign proceeds of crime, especially tax crimes (both domestic and international aspects), including illicit transnational flows of capital to and through Vanuatu and evidence of tax evaders exploiting Vanuatu’s offshore sector. This occurs in the context of Vanuatu, as a tax haven, streamlining company registration in concert with the Capital Investment and Immigration Program (CIIP) arrangements. The evaluation team identified that no ML/TF risk profiling of the offshore sector has been carried out and risk-based supervision activity is not evident.

Confidential information from APG jurisdictions, and risk assessments conducted by regional bodies, clearly identify infiltration by transnational organised crime groups as a significant ML/TF threat, with reports that Vanuatu has been used for weapons smuggling, as well as for the transhipment of illicit drugs and pre-cursor chemicals using small craft, cruise ships and air passenger and cargo environments. In addition, Vanuatu operates a Flags of Convenience (FOC) register (approx. 94 % of Vanuatu’s registered fleet is foreign owned), which is largely unregulated and could be used to facilitate illegal foreign fishing and movement of prohibited goods across borders.

The draft NRA is generally consistent with the assessment team’s view of the risk situation, identifying Vanuatu’s money laundering threats as arising primarily from foreign predicate offences (including foreign tax crimes), illicit cross border currency, domestic bribery and corruption, fraud (particularly VAT evasion) and drug offences. The high risk sectors are identified as the international sector (including international banks and companies), the remittance sector, trust and company service providers, currency exchange businesses, casinos, and interactive gaming businesses and of less, but still significant, risk are lawyers and accountants, real estate and high value asset dealers.

Some limited evidence exists of Vanuatu-based companies being linked to arms trafficking; however Vanuatu does not have a national policy to discourage PF, nor is any agency, or mechanism, assigned to address this issue.

Vanuatu does not have specific data available to estimate the country’s exposure to cross-border illicit flows (related to crimes in other countries) and there is little information on the techniques used or the degree to which foreign proceeds are being laundered in Vanuatu. Vanuatu was not able to supply the evaluation team with assessments or aggregated data to set out a clear picture of the nature or level of proceeds-generating crime in Vanuatu; and discussion with investigative authorities and the FIU did not provide relevant information regarding the source, nature and scope of the threat from cross-border illicit flows.

The main money laundering techniques used in Vanuatu appear to be cash deposits and withdrawals, the use of professional facilitators such as lawyers and accountants, the buying and selling of high value assets, use of the offshore sector and the use of cash couriers or money or value transfer systems to move funds out of the country. In addition, the MVTS sector poses ML/TF risks in Vanuatu due to the nature of the activity, combined with limited supervision of the sector.

 

US Department of State Money Laundering assessment (INCSR)

Vanuatu 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: -

 

Vanuatu has an agricultural and tourism-based economy; it is closely tied to the economies of Australia and New Zealand. Vanuatu is an offshore financial sector with a relatively small number of licensed banks, totaling five domestic and eight international banks. Vanuatu is known for strict secrecy provisions that have prevented law enforcement agencies and regulators from obtaining the beneficial owner information of entities registered in the offshore sector, except under a court order. As a result, legal entities (companies) and arrangements formed in Vanuatu face criminal misuse and are vulnerable to money laundering.

Vanuatu’s money laundering threats are primarily from foreign predicate offenses (including foreign tax crimes), illicit cross-border currency movements, domestic bribery and corruption, fraud (particularly value added tax (VAT) evasion), and drug offenses. High-risk sectors include remittances and currency exchange businesses, trust and company service providers, casinos, and interactive gaming businesses. Of less, but still significant risk are lawyers and accountants, real estate and high-value asset dealers. Political instability, with frequent government leadership changes, has an impact on high level political commitment to establish and maintain an efficient and effective AML/CFT system.

 

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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 – Control of Corruption

53

 

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INVESTMENT CLIMATE

This South Pacific island economy is based primarily on small-scale agriculture, which provides a living for about two-thirds of the population. Fishing, offshore financial services, and tourism, with nearly 197,000 visitors in 2008, are other mainstays of the economy. Mineral deposits are negligible; the country has no known petroleum deposits. A small light industry sector caters to the local market. Tax revenues come mainly from import duties. Economic development is hindered by dependence on relatively few commodity exports, vulnerability to natural disasters, and long distances from main markets and between constituent islands. In response to foreign concerns, the government has promised to tighten regulation of its offshore financial center. In mid-2002, the government stepped up efforts to boost tourism through improved air connections, resort development, and cruise ship facilities. Agriculture, especially livestock farming, is a second target for growth. Australia and New Zealand are the main suppliers of tourists and foreign aid.