Money laundering risk in Fiji banks
MONEY laundering and terrorist financing are illicit activities aimed at disguising the origins of illegally obtained money and financing terrorist activities, respectively. While they are distinct activities, they often overlap in practice, as terrorist groups may use money laundering techniques to fund their operations. Both money laundering and terrorist financing pose significant risks to the integrity and stability of the financial system and can have serious implications for national security. Governments and financial institutions around the world have implemented various measures and regulations to combat these illicit activities.
The Fiji Intelligence Unit (FIU) released a report in January titled “Money Laundering and Terrorist Financing Risk in Fiji’s Banking Sector” that was a national assessment of money laundering and terrorist financing risks in Fiji’s banks as part of the National Risk Assessment (NRA) that was endorsed by the National Anti-Money Laundering Council. The banks that were assessed were ANZ Fiji, Bank of Baroda Fiji, BRED Bank Fiji, BSP Financial Group Ltd, HFC Bank Fiji and Westpac Fiji. The assessment concluded that the overall terrorist financing risk associated with the banks in Fiji is low. Furthermore, the assessment concluded that the overall money laundering risk associated with the banks in Fiji is medium to high.
Criminal threat environment
Banks generally face threats from criminals, terrorist groups and their facilitators who seek to use banking services and products to launder their funds or facilitate their transactions, states the report. The terrorist financing (TF) threat faced by banks in Fiji is assessed as low. There has been no substantive case or other indicators of TF activities or transactions taking place through Fiji’s banks. However, the threats that banks face from money laundering (ML) and predicate crimes is assessed as high, states the report. This assessment is based on the reports of suspicious transactions received from the banks and intelligence from law enforcement agencies and the FIU. Majority of the reports of suspicious transaction received from banks (after the FIU’s analysis) were disseminated in intelligence reports to Fiji Revenue and Customs Service for possible tax evasion or related crimes and to the Fiji Police Force for possible offences under the Crimes Act, Proceeds of Crime Act and other laws. The report states intelligence from key law enforcement agencies including the FIU strongly suggest that substantial proceeds linked to financial crimes such as tax evasion, fraud, cybercrime and drug related crimes are being channelled through bank accounts of individuals and entities involved and their associates.
Vulnerabilities
The assessment found the vulnerability that banks in Fiji face from their customers is assessed as medium while the vulnerability that banks face from the products and services they offer, channels of delivery of their products and services and countries they engage with is assessed as high. The report states banks are vulnerable to criminal activities including ML/TF activities due to the products and services they offer, the customers they engage with, the channels of delivering their products or services and the countries associated with their customers or with which they transact. Banks in Fiji cater for a wide range of customers ranging from individuals, legal entities, trusts, non-profit organisations, government agencies and public enterprises. Furthermore, banks in Fiji cater for a substantially large customer base in terms of number of customers and value of transactions or deposits. The report states the wide range and substantial size of the bank’s customer base make banks vulnerable to ML/TF activities and transactions. All banks frequently transact with Fiji’s major trading partner countries including countries with global financial centres. Five banks are branches of international banks which provides them with a wider global reach, said the report.
Consequences on banks
Consequence refers to the impact or harm that money laundering (ML) and terrorist funding (TF) activity may cause to the banks individually and as a sector. The report states ML/TF and predicate criminal activity in the banking sector is assessed as having major consequences on banks in Fiji. Financial crime and ML/TF activities can impact or harm a bank’s reputation, states the report. It can also cause financial loss and may impact adversely on the operations of the bank. These consequences of ML/TF and crime may be short or long term in nature and may impact the individual bank and the banking sector in Fiji as a whole. ML/TF or criminal activities in any of Fiji’s banks can have major consequences on the reputation of Fiji’s banking sector as a whole, states the report. This can harm the confidence and trust in the banking sector by customers, investors, donors and international financial institutions and organisations.
Risk mitigation strategies
The FIU assessment found the banks in Fiji have adopted comprehensive and strong systems and controls to mitigate the risk of ML, TF and predicate crime. These controls include policies and procedures on customer due diligence, ongoing monitoring, and reporting of transactions to the FIU. Banks in Fiji have continuously strengthen their risk and compliance staffing resources and capabilities to mitigate ML/TF risks. The report states a condition of banks’ license to operate in Fiji is that they must comply with Financial Transactions Reporting Act and Regulations. The Reserve Bank of Fiji regularly supervises all banks in Fiji for compliance with AntiMoney Laundering (AML) and Combating the Financing of Terrorism (CFT) requirements, the report states. As part of the RBF’s supervision framework, the banks continuously work to strengthens its AML/CFT systems to address any gaps identified by the RBF in its supervision. The report states the FIU also plays an enforcement role on all financial institutions including the banking sector.