Paradise for money laundering: Most Pacific island countries have inadequate systems to identify who owns what

By Jayvee Vallejera

Nauru and the Cook Islands have made progress in building defenses against money laundering. Both have enacted laws that comply with the Financial Action Task Force’s recommendation on the reporting of beneficial ownership for locally registered companies. The recommendation was designed to identify who really owns what.

Most Pacific island countries struggle to meet anti-money laundering standards, making the region an attractive destination for criminals seeking to obscure dirty money. Low compliance ratings can jeopardize their ability to access global financial markets.

According to the Asian Development Bank’s report released in February, most island nations were not fully compliant with the Financial Action Task Force’s recommendation to report “beneficial ownership,” which refers to the identity of the person who ultimately owns and controls an entity or asset that may be registered under another party. 

“Front” companies being used to avoid local immigration, foreign investor certification, or tax laws are not uncommon in the Pacific, ADB said.

The report, published by ADB’s Pacific Private Sector Development Initiative, noted that most of the 11 island countries assessed are just one step away from being gray-listed or being identified as non-compliant with anti-money laundering standards.

The report identified common gaps across jurisdictions, including a lack of pertinent local laws and beneficial ownership registries.

As of April 2025, only Vanuatu, the Cook Islands and Nauru are rated as “largely compliant” with the recommended steps, while Fiji, the Marshall Islands, Papua New Guinea, Samoa, the Solomon Islands and Tonga are rated “partially compliant.”  Palau and Niue are labeled “noncompliant.”

In terms of the effectiveness of a country’s system to prevent money laundering and terrorist financing, only the Cook Islands received a high rating. Nauru and Samoa received “moderate” ratings, while the rest received “low” ratings on the effectiveness scale. Kiribati has yet to be evaluated.

“Complying with international beneficial ownership standards is essential for countries that rely on international banks to connect to global financial markets, as do many Pacific countries,” said Terry Reid, the report’s author and international business law expert. “Strong compliance helps ensure businesses can maintain access to banking services, keep borrowing costs affordable and safeguard investor confidence.”

Reid said developing a robust, beneficial ownership legislative framework and deploying beneficial ownership registers will help Pacific countries strengthen compliance, a critical component of banking’s know-your-customer requirements.

The report also outlined country-specific recommendations for improving methods of tracking beneficial ownership, such as creating legal frameworks for collecting information, setting up a beneficial ownership registry, verifying information and monitoring activities to ensure accurate and updated entries.

Previously, the task force required companies to maintain beneficial ownership information in their internal records and to make it available upon request. The task force now requires mandatory submission of information to a centralized registry.

The Financial Action Task Force, created in 1989 to combat money laundering and terrorism financing and other threats to the global financial system, has developed 40 widely accepted international standards known as the FATF 40 Recommendations. These recommendations clamp down on money laundering and terrorist financing and increase transparency in financial transactions and legal arrangements.

Although the standards are officially voluntary, they have become de facto binding due to the significant consequences of noncompliance, including damage to a country's reputation and exclusion from global financial networks.

Many countries have integrated these recommendations into their national laws and regulatory frameworks to enhance the effectiveness of their anti-money laundering measures.

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