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Republic of the Marshall Islands Office of the Banking
Commission Annual Report
Fiscal
Year
2018
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Republic of the Marshall Islands
Office of the Banking Commission P.O. Box 1408 ~ Majuro ~ Marshall Islands ~ 96960
Commissioner Phone No. (692) 625-2310 ~ Office Phone No. (692) 625-6309
Email: [email protected]: www.rmibankingcomm.org
September 24, 2019
Commissioner's Letter to the Minister of Finance, Banking and Postal Services
Hon. Brenson S. Wase
Minister of Finance, Banking
and Postal Services
Republic of the Marshall Islands
Government
RE: Banking Commission Annual Report FY 2018 (October 2017 to September 2018)
Dear Honorable Minister Wase,
I hereby present to you the Banking Commission's Annual Report FY 2018
covering office tasks and activities from October 2017 to September 2018. Included in
the Report under Part III is the Financial Intelligence Unit (FIU) Report for the Republic
of the Marshall Islands (RMI) Cabinet issued pursuant to Part 13 Section 167 (1) (o) of
the Banking Act 1987.
On behalf of the staff and management of the Banking Commission, I would like
to convey our sincere gratitude and appreciation for your great leadership and support.
Sincerely,
Sultan Korean
Banking Commissioner
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Banking Commission Team & Organizational Structure
Minister of Finance, Banking and Postal Services
Hon. Brenson S. Wase
Banking Commissioner
Mr.Sultan T. Korean
Manager Financial Institutions
Mr.Rendy Johnny
Examiner
Ms. Tracy Oliver
Examiner Ms.Tatiana Sawej
Examiner Vacant
Manager Financial Intelligence Unit Ms.Samelda Leon
Analyst Ms.Sana Anien
Manager Financial Sector Development
Mr.Neumi N W Usumaki
Analyst Ms.Marlynn Lakabung
Administration Officer Mr.Souvenir
Ned
IT Officer Mr. Matt Muller
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I. BACKGROUND
The Office of the Banking Commission (Commission) was established under Title
17 Chapter 1 Banking Act 1987 (the Act) to ensure the safety and soundness of the
Republic of the Marshall Islands (RMI) banking sector and also deter money laundering
(ML) and terrorist financing (TF) in the financial system. Pursuant to Section 104 of the
Act the Commissioner of Banking reports to the Minister of Finance, Banking and Postal
Services.
The Financial Institution Supervision (FIS) division is responsible for the
licensing and supervision of banks, other non-bank financial institutions, and cash
dealers as defined under Section 102 of the Banking Act 1987 to ensure their safety and
soundness and full compliance with AML statutes and regulations. The FIS is also a
member of the Regulatory Policy Review Committee (RPRC) that was just recently
established in the formulation and revision of new operating policies and procedures,
including new regulations and guidelines for licensed banks and other reporting
entities.
In 2015, the RMI Cabinet issued a Cabinet Policy authorizing the Banking
Commissioner to secure domestic banks' access to international payments and clearing
systems, in particular, the U.S. Federal Reserve Payment System in response to the
impact of global de-risking on our banking sector.1 Due to the importance of securing
permanent access to international clearing and payment facilities for banks and
financial institutions, the RMI Cabinet approved the establishment of a Financial Sector
Development function of the Banking Commission. The primary objective of the
Financial Sector Development (FSD) division of the Banking Commission is to assist the
Banking Commissioner in the management of all activities related to financial sector
development and ensure the effective implementation of key strategies under the
Financial Sector Development Plan (FSDP) 2016-2020. This division will also be
responsible for coordinating with key stakeholders on the revision and development of
future FSDPs.
1 the termination of correspondent banking relations by larger foreign banks in response to tougher enforcement of anti-
money laundering and counter financing of terrorism laws in the U.S. and around the world. In the RMI's case, domestic banks
rely heavily on the payment and settlement services offered through a U.S. bank CBR in order to continue operating as a bank
using the U.S. dollar.
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The Commission is the lead agency in the RMI on
national anti-money laundering (AML) efforts pursuant to
Part 13 of the Act. It is empowered under Section 167 of the
Act to combat money laundering (ML) and terrorist
financing (TF) in the RMI. Under Section 167, the Banking
Commission acts as the financial intelligence unit (FIU) of
the RMI. One of the key responsibilities of the
Commissioner of Banking under Section 167 is to receive
from banks and financial institutions certain financial
reports. Financial information from such reports is
analyzed and disseminated to law enforcement when there
are reasonable grounds of ML activity within a bank,
financial institution, or cash dealer.
"The Financial
Institution
Supervision (FIS)
division is responsible
for the licensing and
supervision of banks
and financial
institutions to ensure
their safety and
soundness and full
compliance with AML
statutes and
regulations."
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II. FINANCIAL INSTITUTION SUPERVISION (FIS)
Key Responsibility: Supervision of Banks and Financial Institutions
Prudential Supervision: The Banking Commission is mandated under the Banking Act
1987 to perform effective supervision of licensed banks to ensure their safety and
soundness. The Banking Commission operates within a regulatory framework allowed
under the Act to conduct the following key responsibilities: (a) register and license
banks, (b) conduct ongoing offsite surveillance and onsite examination of their financial
performance to ensure their safety and soundness, (c) address compliance with all
provisions of the Banking Act, regulations, directives, including instructions and
other internal banking by laws.
Off-site Bank Surveillance Process
Offsite surveillance tasks involve:
• the receiving of financial returns from licensed banks in accordance with
requirements of the Banking Act 1987;
• using returns to extract crucial financial data and key ratios to analyze the
financial performance of licensed banks on an ongoing basis;
• compile banking data extracted from regulatory returns by inputting into a
spreadsheet or maintain in a database for analytical purposes;
• Financial Reports-financial data
• Received by Banking Commission
Data cleaning and input into OBSS
• Onsite visits
• Calls
• Memorandums
Cleaning, verification, prudential consultation
with banks • Further analysis, review, and verification
• Input data and conduct analysis
Examiners- analyze key ratios and produce
OSMR
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• based on the analysis the Banking Commission is
able to determine whether or not a bank needs to undergo
onsite examination due to its current financial state;
• financial returns are submitted weekly, monthly
and quarterly by licensed banks and provide the status on
the bank's current liquidity position, capital adequacy,
statement of income and balance sheets, interest rates for
loans and deposits, allowance for loan loss reserves, credit
risk exposures and limits in comparison with
requirements of the Banking Act 1987.
New Developments
Offsite Bank Surveillance System (OBSS) - With
the aim of strengthening the prudential supervision of
licensed banks operating in the RMI, the FIS continues to
improve the effective implementation of the Offsite Bank
Surveillance System (OBSS). The OBSS acts as an early
warning system for examiners as it allows for the timely
detection of emerging problems or risks in banks and the
banking system as a whole. The OBSS uses a CAELS
framework for both banks (Capital Adequacy-Asset
Quality-Earnings-Liquidity-Sensitivity to Market Risks).
Under the framework, banks are required to submit
financial reports to the Banking Commission on a weekly,
monthly, and quarterly basis, with the exception of the
Capital Adequacy Report that the foreign bank branch is
not required to file with the Banking Commission.
Through these financial reports, the FIS is able to produce
the Offsite Surveillance Monitoring Report (OSMR) each
quarter for both banks. The OSMR continues to be a
useful tool in assessing the financial condition of a bank
and used as a basis for conducting further onsite
examination by the FIS as it sees fit. The Banking
Commission has commenced the production of the
quarterly OSMR report for the domestic bank since 2016.
"With the aim of
strengthening
prudential supervision
of licensed banks
operating in the RMI,
the FIS continues to
improve the effective
implementation of the
Offsite Bank
Surveillance System"
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Regular Production of Banking Sector Report - In order to provide a regular update to
the Minister of Finance, Banking, and Postal Services on banking matters in the RMI,
the FIS has started producing banking sector report that is done every quarter. The FIS
continues to stress the importance for all banks to disclose all financial returns required
under the OBSS for it to continue the regular production of the banking sector report.
Although faced with some challenges in trying to collect all the necessary data from
banks, FIS was able to produce a sector assessment on banks’ financial condition based
on data available to us from both banks. We also managed to required BOG to submit
financial return that enables the assessment of its loan quality. The report is referred to
as the “Loan Classification” report and is submitted every quarter. This financial return
was finalized in late 2018 and was included for the first time into the bank’s first-
quarter fiscal year 2018 assessment report in December. Going forward, the FIS has
fully engaged both banks to ensure financial data are accurate and sound for quality
assessment and monitoring of the whole banking system.
Offsite Surveillance Linked with Onsite Examination Process
Prudential Onsite Examination
The Banking Commission uses the CAMELS framework (Capital Adequacy-
Asset Quality- Management Performance - Earnings Performance-Liquidity-Sensitivity
OSMR ProducedSupervisory Issues
warrant further examination
Determine whether target or
full scope examination
Scope and Planning stage
request information/data
Conduct onsite examination using ROCA or CAMELS
framework
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to Market Risks) to conduct an onsite examination of the
domestic bank. Onsite examination tasks using the CAMELS
framework involve the following tasks:
• CAMEL Examination- a key examination that provides a
clear picture into a bank's overall safety and soundness broken
down into these key elements: Capital Adequacy, Asset
Quality (mostly loans), Management Quality, Earnings, and
Liquidity;
• Review of a bank's compliance with applicable statutes,
directives, guidelines, and regulations set by the Banking
Commission.
New Developments
Implementation of the SOSA and ROCA Frameworks -
There is an ongoing review of new supervisory frameworks for
branches of foreign banks that are licensed to operate in the
RMI. The Banking Commission is currently reviewing the
applicability of the Strength of Support Assessment (SOSA) and
Risk Management-Operational Control-Compliance-Asset
Quality (ROCA) Frameworks for branches of foreign banks.
The SOSA and ROCA frameworks were developed by the U.S.
Federal Reserve as tools for supervising branches of foreign
banks operating in the U.S. Existing manuals produced by the
Federal Reserve to undertake SOSA and ROCA examinations
are currently reviewed by the Banking Commission for future
use. The plan is to tailor manuals to suit the RMI context based
on size, scale, and complexity of institutions supervised. The
existing CAELS framework is an important component of the
new SOSA framework and will be incorporated once the
revision is done.
Additionally, a team from the Financial Services Volunteer
Corps (FSVC) has agreed to work with the Commissioner and
the FIS develop a framework for the onsite examination of
foreign bank branches which will be mirrored into the ROCA
framework and best suited the need of the Banking
"Prudential
supervisory
oversight of MIDB
operations will
ensure that MIDB
continues to
operate in a safe
and sound manner
and that
Government assets
are safeguarded
and protected at
all times."
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Commission. Under the same arrangement with FSVC, the team will also be assessing
and suggests where appropriate changes to the current AML/CFT manual for use by FIS
during AML/CFT onsite examination. The team will be coming into the RMI in mid-
February 2018 for week engagement with FIS.
During the fiscal year 2018, the FIS did not conduct an onsite review of any of the
reporting entities due to the National Risk Assessment (NRA) that kicked off in 2018. It
is an effort that requires partnership commitment between the public and the private
sector. The product of the NRA when finalized will hopefully inform of the risks and
vulnerabilities in the context of money laundering in the RMI. This will then assist the
government and the stakeholders better when addressing AML/CFT and prioritize
resources accordingly. FIS was given the task to lead the risk assessment effort that may
be associated with the banking, insurance and other financial institutions sector that is
currently operating in the RMI.
Prudential Supervision of Marshall Islands Development Bank - The RMI
Cabinet authorized the Banking Commission under Cabinet Minute (C.M. 133) to
conduct prudential supervision of the Marshall Islands Development Bank in
accordance with new prudential guidelines that shall be set by the Banking
Commission. Prudential supervisory oversight of MIDB is a means to ensure that
MIDB continues to operate in a safe and sound manner and that Government assets are
safeguarded and protected at all times. Several countries in the world including the
Pacific have started supervising their development banks for the same reasons i.e.
Reserve Bank of Fiji, Central Bank of Nigeria, Palau Financial Institutions Commission.
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The RMI Cabinet also authorized the Banking
Commission to conduct a compliance examination of
MIDB's adherence to the Marshall Islands Development
Bank Act and to report all findings to the Minister of
Finance and the RMI Cabinet. The recent Cabinet
decision is based on past recommendations by the
International Monetary Fund stated in Article IV mission
reports for the RMI that stressed the need for the RMI
Government to bring MIDB under the Banking
Commission's regulatory framework. Furthermore, The
Banking Commission is still in the process of developing
the appropriate prudential guidelines and will commence
its supervisory work once guidelines have been set and
introduced to the Board of Directors and Management.
This will require a transition period for MIDB to adopt
and implement the guidelines. We are engaged with
PFTAC-IMF for assistance in putting in place the best-
suited framework for MIDB in 2019.
IMF PFTAC Annual Meeting for Pacific Islands
Bank Supervisors Vanuatu August 2018 - Mr. Sultan
Korean Commissioner of Banking, Manager of Financial
Institution Supervision, Mr. Rendy Johnny, and two
Financial Institution Examiners, Sharon Ading and Tracy
Oliver participated in the 2018 Annual Meeting IMF
PFTAC for Bank Supervisors in Vanuatu. During the
meeting, PFTAC facilitated a series of workshops centered
on bank regulatory and supervisory approaches to
managing cyber risks in the financial system and potential
implications of Fintech for financial sector supervision.
The annual meeting also provided an opportunity to
update the association on the Secretariat's activities and
PFTAC's ongoing technical assistance programs.
Opportunities were given to every member country to
give a presentation on issues and challenges faced by each
member country in relation to the banking environment in
each jurisdiction respectively.
"The FIS in
conjunction with
Financial Sector
Development division
are exploring
opportunities for
capacity building of
the examiners to
ensure that they are
well equipped with the
skills and knowledge
to undertake their
responsibilities as
young professionals"
"The Banking
Commission is also
mandated to regulate
banks, financial
institutions and cash
dealers for AML/CFT
compliance pursuant to
the anti-money
laundering provisions
under Part 13 of the
Act."
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AML/CFT Supervision
The Banking Commission is also mandated to regulate banks, financial
institutions and cash dealers for AML/CFT compliance pursuant to the anti-money
laundering provisions under Part 13 of the Act. All reporting entities are required to
comply with AML Regulations 2002 pertaining to customer due diligence, enhanced
due diligence for higher-risk customers, internal anti-money training program,
reporting of suspicious activity, reporting of currency transactions, maintenance of
bank records and other regulatory requirements stipulated under the Act and
associated regulations and guidelines.
Supervision of reporting entities involve the following activities:
• Offsite review of bank and other reporting entity data and files prior to
examination;
• Onsite examination of bank and other reporting entity's anti-money laundering
program to ensure full compliance with standards set by the Banking
Commission;
• Enforcing compliance with law and regulations through regulatory fines and
penalties for apparent violations;
• Ensure that apparent violations of the Act and regulations are rectified and
corrective actions implemented across the institution.
New Developments
AML/CFT Onsite Examinations - The FIS has deferred the scheduled for follow
up onsite examinations that were scheduled until further notice due to the need to
provide support work for the FIU in facilitating the National Risk Assessment process
(further information on the NRA is explained in the FIU section of the report).
Capacity Building and Training for Examiners - The FIS in conjunction with
Financial Sector Development division are exploring opportunities for capacity building
of the examiners to ensure that they are well equipped with the skills and knowledge to
undertake their responsibilities as young professionals. Training opportunities through
the IMF's PFTAC office in Fiji, the Financial Services Volunteer Corp, UNDP, ADB, and
the World Bank are currently explored by the FSD. There is a long-term plan to enroll
examiners in the Federal Deposit Insurance Corporation Risk Management School in
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Washington D.C. in the future. The FDIC School is a highly reputable institution that
provides the requisite certification for bank examiners in the U.S. who upon completion
of the five (5) - year program will be certified as Commissioned Examiners.
Additionally, FIS manager and one examiner had an attached arrangement with FIDC
examiners for the ANZ bank onsite full-scope examination in early 2018. The bank was
assessed on the basis of the CAMELS framework.
Licensing of Banks
The Banking Commission also has full responsibility for the licensing of all banks
operating in the RMI. The Banking Commission reviews the bank license application
pursuant to Section 111 of the Act and may extend additional conditions of license for
the proposed activity. The Banking Commission can deny or revoke the license if it
does not meet licensing requirements under the Act.
Banks are required to pay an annual licensing fee including a separate fee for
each branch establishment.
Approved License Renewal: In FY 2018, the Banking Commission granted license
renewal for the following banks:
• Bank of Marshall Islands- Uliga Branch, Airport Branch, Jaluit Branch, Ebeye
Branch, Kwajalein Branch, Wotje Branch and (6 Branches);
• Note: Kili Branch has come to closure during late 2018 due to land dispute
• BOG- Majuro Branch.
New Developments
There are two major revisions to the Banking Act 1987 that will require the
formulation and revisions of current directives, guidelines, and instructions that the
Banking Commission currently uses: Upon successful passage of the proposed
amendments to the Act, all financial service providers will shift under the scope of the
Banking Commission’s licensing regime.
Amendment to the Banking Act 2017 (Bill 94) - The Minister of Finance, Banking,
and Postal Service plans to introduce Bill 94 to the Nitijela during the January 2018
session. The proposed bill will provide additional powers for the Banking Commission
to supervise other financial service providers such as insurance companies and credit
institutions. The overall safety and soundness of the RMI financial system is crucial for
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the continued support in economic development and also to protect consumers of
financial products and services such as borrowers and insurance policyholders. The
new bill once passed into law will also establish a licensing regime for these entities and
provide the powers to the Banking Commission to collect fees and to deposit funds into
a new Banking Commission special revenues fund that will be non-lapsing. Long-term
financial self-reliance is one of the key objectives of the Banking Commission taking into
consideration fiscal constraints within the Government due to projected revenue
reductions and annual decrease in Compact grant assistance from the U.S. The bill also
establishes the Financial Intelligence Unit, Anti-Money Laundering Council, and
definition of Designated Non-Financial Service Providers (DNFBPs) as newly regulated
entities under Part 13 of the Act and to further comply with Financial Action Task Force
recommendations.
Revision of Banking Act 1987 and Directives - As part of its key strategy to
address the impact of de-risking in the RMI banking as stated in the Financial Sector
Development Framework the Banking Commission was able to secure technical
assistance (TA) from the IMF to further strengthen the banking regulations. Two TA
came to the RMI and brought in legal experts from the IMF head office in D.C. to assist
in the revision of the Banking Act and Directives. A legal review was conducted by the
TAs introducing the amendment made to the reporting directives and
recommendations towards what is needed to be in the regulation. The Banking
Commissioner, Ms. Claire Loeak (Assistant Attorney General), Rendy Johnny (FIS
Manager), and the two examiners Tracy Oliver and Sharon Ading participated in the
legal review. The IMF legal team will work closely with the Attorney General's office in
the drafting of the new legislation and prudential statements.
Existing and New Regulations, Directives, Instructions, and Guidelines for Banks
and Financial Institutions
The following regulations, directives, guidelines, instructions, and advisories are
currently effective and used by FIS in ensuring the safety and soundness of banks. Also
banks, other financial institutions and cash dealers’ compliance with AML/CFT
requirements under the Act.
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Prudential Supervision
• Directive 2011-1 Lending Restrictions
• Directive 2- Accounting for Non-Performing Credits
• Directive 3- Asset Classification and Reserve Adequacy
• Guideline 1- Regulatory Reporting Requirement
• Guideline 2- Liquidity Risk Management
• Guidelines 3- Operational Risk Management
• Guideline 4- Requirements for the issue of a bank licensed under the Banking Act 1987
• Guidelines 5- Complaints and Grievances
• Advisory A-08- Unsecured Consumer Loan Rate
• Instructions and Reporting Forms 1- Statement of Asset and Liabilities;
• Instructions and Reporting Forms 2- Interim Profit and Loss Statement;
• Instructions and Reporting Forms 3- Report of Non-Performing Assets;
• Instructions and Reporting Form 4- Quarterly Report on Loan Classifications and Reserve
Adequacy;
• Instructions and Reporting Form 5- Report on Interest Rates
• Instructions and Reporting Form 8- Off-Balance Sheet Business
• Instructions and Reporting Form 9- Risk-Based Capital Reporting
• Instructions and Reporting Form 10- Largest Exposure
• Instructions and Reporting Form 11- Exposures to Shareholders, Directors, Managers, and
Related Persons;
• Instructions and Reporting Form 12- Liquid Asset Schedule
• Instructions and Reporting Form 13- Top Sources of Funds
• Instructions and Reporting Forms 14- Maturities Schedule
AML/CFT Supervision
• AML Regulations 2002 (Amended)
• Advisory A-05- Annual Audit for AML/CFT Compliance
• Advisory A-10- SAR Reporting of Financing of Terrorism
• Advisory A-10(b)- Anti-Money Laundering Regulations (AML) as Amended, May 2010
• Advisory B-01 (05)- Identification of Terrorist Financial Assets
• Instructions and Reporting 6- Suspicious Activity Reporting
• Instructions and Reporting 7- Currency Transaction Reporting
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Financial Sector Overview
The RMI financial sector consists of two commercial banks, Bank of Marshall
Islands and BOG (U.S. bank and FDIC insured) including other smaller financial
institutions and cash dealers that provide other types of financial services. There is also
the Marshall Islands Development Bank (MIDB) which is a government-owned
institution that is governed by the MIDB Act. Both commercial banks fall under the
supervisory framework of the Banking Commission and are required by the Banking
Act 1987 to adhere to prudential banking standards. MIDB has been recently added
into the regulatory framework where it will be subject to prudential and AML/CFT
supervision.
BOMI, BOG and other reporting entities defined as financial institutions and
cash dealers are required to adhere to anti-money laundering provisions under Part 13
of the Banking Act 1987 and the revised AML Regulations 2002. Below is a list of the
identified reporting entities that fall under the Commission’s purview as of the end of
FY 2018
Supervision of Reporting Entities
REPORTING ENTITIES
BANKS PRUDENTIAL SUPERVISION
or AML/CFT SUPERVISION
BANK of Marshall Islands BOTH
Uliga Branch BOTH
Majuro Airport Branch BOTH
Jaluit Branch BOTH
Wotje Branch BOTH
Kwajalein Branch BOTH
Bank of Guam
Majuro Branch BOTH
CREDIT INSTITUTIONS
Marshall Islands Services
Corporation
AML/CFT Supervision
Majuro Branch AML/CFT Supervision
Ebeye Branch AML/CFT Supervision
AjejdrikdrikInc Majuro AML/CFT Supervision
JAJ Corporation Majuro AML/CFT Supervision
Family Mart AML/CFT Supervision
Enewatak Ugelang Community
Loan Program
AML/CFT Supervision
MONEY TRANSFER
OPERATOR (MTO)
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Money Gram AML/CFT Supervision
Western Union AML/CFT Supervision
INSURANCE
Moylans Insurance AML/CFT Supervision
Marshall Islands insurance
Agency
AML/CFT Supervision
IAC Insurance AML/CFT Supervision
AML/CFT Supervision
CREDIT UNION AML/CFT Supervision
Kwajalein Employee Credit
Union
AML/CFT Supervision
New Developments
Completion of Financial Sector Profile - The FIS in FY 2018 continued to
develop a Financial Sector Profile of all reporting entities in the RMI. This included
banks, insurance companies, and other financial services, providers. Sector Profiling is
an ongoing work and effort is also part of the FIS’s work plan for continuation and
improvement in FY 2019. The Financial Sector Profile will assist the Banking
Commission in understanding the size of the market based on the respective shares of
each entity in terms of asset size. Additionally, the sectoring profile gives fair idea and
expectation of business activities that may be associated with each service provider
respectively and will be utilized from time to time by examiners when planning
examination work. The sector profile will also be crucial when assessing the whole
financial system in the RMI.
Creation of three (3) Examination Groups under FIS for FY 2018 – In FY 2018,
the FIS was able to secure two more examiner positions in early February. An
additional examiner position has been entertained by PSC although it has not been
filled. The FIS intends to plan and structure its activities into three (3) groups each
comprising of banks, financial institutions and cash dealers, where the FIS Manager will
lead each group with the assigned examiner. This way the heavy workload to
supervise all these entities will be fairly spread out amongst the three examiners with
the FIS Manager as the lead examiner. Offsite bank surveillance work will be carried
out by each examiner for the bank that they have been assigned for.
Assisting the FIU in facilitating the NRA – The FIS, in FY 2018, collaborated
with the FIU in completing the NRA as one of the 2020 goals of the Cabinet. The FIS
was assigned to assess the Banking Sector and Other Financial Institutions Sector to
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determine a country assessment that will show how vulnerable
and risky the RMI is to money laundering. (further information
on NRA will be explained on the FIU section of the report)
Banking Sector Report
The overall condition of the banking sector has continued
to be satisfactorily. The domestic bank is well-capitalized based
on the tier-1 risk-based capital ratio set by the Banking
Commission. The U.S. bank branch has adequate capital
support from the head office to support its operations in the
RMI. Asset quality continues to be satisfying and improving
throughout 2018.
Earnings performance overall is satisfactory. It has shown
consistent resulting from the net interest margin in both banks
and a decrease in overhead costs and interest expense. There is
excess liquidity in the system indicative of the ability of both
banks to meet their future obligations.
Capital Adequacy
The risk-based capital ratio for the uninsured domestic
bank reached the highest record of 38.2% during September. The
ratio has always been increasing since the beginning of the year.
The RMI domestic bank is well-capitalized based on strong
earnings performance from the past. Capital adequacy is
assessed based on minimum standards set by the Banking
Commission through regulatory financial returns. Licensed
Domestic banks are required to maintain at all-time 15% or more
of risk-based capital. The bank’s risk-based capital has always
been well above the statutory minimum reported during quart
ending March, June, and September at 36.8%, 37.6%, and 38.2%
respectively.
The foreign bank branch has adequate capital support
from its head office. The Banking Commission continues to
monitor the level of capital for the domestic bank on a regular
basis through its offsite bank surveillance system.
"The overall
condition of the
banking sector is
Satisfactory. The
domestic bank is
well capitalized
based on the tier-1
risk based capital
ratio set by the
Banking
Commission. The
U.S. bank branch
has adequate
capital support
from head office to
support its
operations in the
RMI."
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Asset Quality
The quality of the aggregated asset portfolio continues to be Satisfactory and
considerably stable although it has gone up to reach 3.02% Non-Performing during the
fourth quarter dated September. The chart below shows the movement and level of
Non-Performing Loans (NPL) to Gross Loans between first, second, third and fourth
quarters during the fiscal year 2018. It is relatively stable although it has increased to
reach the highest level during the fourth quarter. The decline in the NPL ratio is
indicative of improvement in the overall loan underwriting process to further enhance
credit risk management.
Aggregate assets in the banking sector equated to $256.9M as of September 30
2018, a decline by 5.86% from $272.9M record in prior quarter primarily due to an
increase in cash paid out during this period as reflected in the reduction of liquid asset
by approximated 13% and 9% between March and June and to September respectively.
The gross loan has been relatively stable at 122.6M, 125.3M and 122.0M during March,
June, and September.
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There is active lending in the sector but there still remains excess deposit funds in
the system. Loans to deposit ratio for both banks as of reporting period (September 30,
2018) recorded 54.4%, which shows that there is sufficient liquidity in the system and
the potential for banks to lend available funds to further strengthen economic activity.
The RMI Banking Act permits up to 70% of the total deposits that could be made
available for loans.
The Allowance for Loan Losses and Leases (ALLL) for the uninsured domestic
bank has been in excess of the regulatory minimum required under Directive 3. During
September, the aggregated bank recorded an ALLL of $7.8 Million. The amount appears
to be sufficient at current to act as a cushion for potential loan losses or when there is
deterioration in asset quality when compared with the ALLL minimum that should be
maintained based on minimum requirements set by the Banking Commission’s
regulatory limit which would have been 1.5M correspondingly.
Earnings Performance
Earnings performance in the banking sector is Satisfactory and has shown a stable
pattern throughout the year. Net interest income at quarter-ending March, June, and
September was estimated to 3.37M, 3.48M, and 3.43M respectively. The overall
profitability of the banking sector is mainly affected by the spread between the yield on
earning assets and the cost of funding sources. The gap between the two buckets is
measured by the spread 2 . The spread has been stable during March, June, and
September at roughly 9.4%, 9.5%, and 9.5% respectively. The banking sector has
2 Spread is the difference between Internet on earning asset minus interest expenses or cost of
funding.
20 | P a g e
enjoyed the spread which is quite high when compared with other jurisdictions in the
region and the trend may be continuing or at least stable into the near future provided
that government policies remain unchanged. Before-tax profit although experienced
with a 14% drop from 2.5M to 2.1M June it picked up again by 7% from 2.1M to 2.3M at
quarter ending dated September 2018. The decline between March and June was mainly
influenced by the approximated 30% spike in overhead expenses during the
corresponding period.
Return on Assets (ROA) has reached the highest level during September with an
average of 3.5% slightly moved from 3.4% and 3.3% during March and June
respectively. The favorable ratio is indicative of how well banks have generated returns
on every asset invested during the year. Net Interest Margin (NIM) has also been
growing consistently and stable at a range from 9%, 9.21%, and 9.26% during March,
June, and September.
Liquidity
Liquidity in the banking sector remains Strong. As of the reporting period, sector
liquidity was reported to be 62.97% indicative of sufficient liquidity in the system and
compliance with a statutory minimum of 20% pursuant to section 122 of the Banking
Act. Sufficient liquidity in the system demonstrates the ability of banks to meet cash
needs to continue carrying out banks’ operations such as loan disbursements,
significant deposit withdrawals, and other operational purposes that require the
immediate use of cash. Sector liquidity has not been dropped below 60% all through the
year.
21 | P a g e
III. FINANCIAL INTELLIGENCE UNIT (FIU)
The Republic of the Marshall Islands (RMI), as a member of the international
community, has an obligation to participate in the international efforts to combat
financial crimes such as money laundering (ML) and terrorist financing (TF). To help
meet this obligation, the RMI Cabinet established the Domestic Financial Intelligence
Unit (DFIU), housed in the Banking Commission.
The DFIU was established by Cabinet Minute 236 (2000). At its meeting on 20
November 2000, the Cabinet approved the establishment of a DFIU spearheaded by the
Commissioner of Banking. The DFIU comprises of the Commissioner of Banking, Police
Commissioner, Tax and Customs Division Chief, a representative from the Attorney
General's Office, and the Trust Company of the Marshall Islands (TCMI).
The powers of the DFIU of the RMI are provided specifically in section 167, and
more broadly in sections 170 and 180 of the Banking Act 1987 (Act). Section 167 of the
Act provides the Commissioner of Banking with the full powers equivalent to a
Financial Intelligence Unit (FIU). Furthermore, Section 167 of the Act provides the
Commissioner of Banking with a range of statutory powers, including to receive, store
and disseminate reports from reporting entities to law enforcement authorities (LEAs)
for further investigation. Law enforcement authorities involved in regime to combat ML
in the RMI are the Attorney General, Auditor General, and Police Commissioner.
In October 2000, the Nitijela of the Marshall Islands passed the Banking Act
(Amendment) 2000. The purpose of the amendment to the Act is to make provision for
the prevention of money laundering and enable the illicit proceeds of serious crimes to
be identified, traced, frozen, and seized or confiscated.
Key Responsibilities
The role and function of the Financial Intelligence Unit are provided under Part
XIII, Section 167 of the Act. The Banking Commission is the lead agency in the RMI
responsible for the detection and prevention of ML and TF activities. The powers are
provided to the Commissioner of Banking, as the Head of the FIU, specifically in
Sections 167, and more broadly in sections 170 and 180 of the Banking Act.
The FIU's core objective is to protect the RMI from money laundering. The key
role and responsibilities of the FIU according to Section 167 of the Act are as follows:
➢ Assist the RMI Government in combating ML, TF, and other serious crimes;
22 | P a g e
➢ Receive, analyze, and develop financial intelligence from transaction reports
submitted by financial institutions and cash dealers;
➢ Share financial intelligence with LEAs if there are reasonable grounds for ML;
➢ Enforce compliance by reporting entities with the requirements of the
Banking Act and Anti Money Laundering Regulations;
➢ Compile statistics and records
➢ Disseminate information within the RMI or elsewhere;
➢ Create training and workshops for financial institutions and cash dealers with
respect to record-keeping and reporting obligations;
➢ Exchange information between international administrative authorities and
also assist international administrative authorities in conducting a money-
laundering investigation; and
➢ Investigate, in association with law enforcement authorities, money
laundering when there are reasonable grounds to suspect money laundering
activity is happening.
Regulated Entities
Under Part 13 of the Act, financial institutions and cash dealers are subject to the
supervision of the Banking Commission. The Financial Institutions Supervision (FIS)
Division of the Banking commission plays a key role in the supervision of all financial
institutions and cash dealers to ensure compliance with the Anti-Money
Laundering/Countering the Financing of Terrorism (AML/CFT) standards.
The Financial Intelligence Unit complements this role through joint examinations
with the FIS Division and participates in each AML/CFT examination that FIS conducts.
Financial institutions and entities that are subject to AML/CFT requirements of the RMI
are listed in the following diagram.
23 | P a g e
Governance Structure
Minister of Finance, Banking and Postal Services
The Banking Commission – FIU falls under the portfolio of the Minister of
Finance, Banking and Postal Services, Honorable Minister Brenson S. Wase. The
Banking Commission – Financial Intelligence Unit is accountable to the Commissioner
of Banking and ultimately to the Minister of Finance, Banking and Postal Services.
Commissioner of Banking
The Commissioner of Banking is responsible for the administration and
enforcement of the provisions of the Banking Act. The Commissioner is the Head of the
FIU and has specific powers under Part 13, Section 167 of the Act which is the same as
those of the FIU. The Commissioner of Banking is required under the Act to develop
and submit an annual FIU Report to the Cabinet at the end of every financial year.
Within a year, quarterly progress reports on the FIU are also submitted to the Minister
of Finance, Banking and Postal Services.
Banks
• Bank of the Marshall Islands (BOMI)
• Bank of Guam (BOG)
Credit Institutions
• MISCO
• Ajejdrikdrik inc.
• JAJ Coporation
• Enewetak Atoll Local Government
Money Transfer
Operators ("MTO")
• Money Gram
• Western Union
Insurance• Moylans Insurance
• IAC Insurance
• MIA
Credit Union
• Kwajalein Employee Credit Union
24 | P a g e
Manager of the Financial Intelligence Unit (FIU)
The FIU Manager post was established by Cabinet Minute (C.M.) 201 (2016) on
November 15, 2016. A key responsibility of the FIU Manager is to manage the affairs of
the FIU under the guidance and supervision of the Commissioner of Banking in the
implementation of Section 167 of the Banking Act on combating ML in the RMI. The
FIU Manager is the point of contact and lead member in all AML/CFT efforts
nationwide and primary contact for Egmont Group of FIUs and is tasked with Asia
Pacific Group on Money Laundering (APG) and Financial Action Task Force (FATF)
related matters.
Analysis of Financial Information Received
A key function of the FIU is to analyze reports of financial transactions –
Currency Transaction Reports (CTR) and Suspicious Activity Reports (SAR) – it receives
from financial institutions and cash dealers in the RMI. Financial institutions and cash
dealers are required under the Banking Act to report CTRs and SARs to the Banking
Commission – Financial Intelligence Unit.
Highlights of the financial reports received by the FIU in FY 2015 through FY
2017 are provided below. During FY 2016, the FIU received a total of 3756 financial
Minister of Finance, Banking and Postal Services
Honorable Min. Brenson S Wase
Banking Commissioner
Mr. Sultan T. Korean
FIU Manager
Ms. Samelda Neimon Leon
FIinancial Intelligence Analyst
Ms. Sana Grace Anien
FIinancial Intelligence Examiner
(Vacant)
25 | P a g e
transaction reports, which includes CTR and SAR submissions. Furthermore, during FY
2017, the FIU received a total of 3471 financial transaction reports, which shows a
significant 7.6% decrease in financial transaction reporting. The highlight of the
financial reports provided below shows a significant increase of 34 suspicious activity
reports submitted in FY2017 compared with FY2016. During FY 2017, there were 3,426
currency transactions and 45 suspicious activities reported to the Banking Commission -
FIU. On average, 289 financial transaction reports are submitted to the FIU every month
during FY 2017.
Currency Transaction Reports (CTR)
Financial institutions and cash dealers are required under Section 180 of the
Banking Act to report to the Commissioner of Banking, all transactions involving the
currency of a value greater than $10,000 in a single transaction or multiple transactions
within a 24-hour period when aggregated. Financial institutions and cash dealers are
required to file CTRs to the Banking Commission within 10 working days since the date
of the transaction, per the Anti-Money Laundering Regulations. All records of currency
transaction reports shall be kept by the Banking Commission for a period of 15 years.
Oct Nov Dec Jan Feb Mar Apr May June July Aug Sept
FY 16 362 238 307 310 257 251 325 263 316 366 284 256
FY17 363 307 305 329 236 311 249 312 240 298 254 222
0
50
100
150
200
250
300
350
400
# o
f C
TR
s R
ec
eiv
ed
Currency Transactions Reported(FY 2016 & FY 2017)
FY 2015 FY 2016
FY 2017
CTR 3,535 3,745 3,426 SAR 8 11 45
Total 3,543 3,756 3,471 Total Monthly
Average 295 313 289
26 | P a g e
A total of 3,426 currency transaction
reports were received by the Financial
Intelligence Unit during FY 2017 compared
with 3,535 CTRs during FY 2017. There is a
decrease of 3% in CTR submissions from
financial institutions and cash dealers in FY
2017 compared to the previous FY 2016. CTRs
were received from Bank of Guam, Bank of the
Marshall Islands and Robert Reimer’s Western
Union.
Analysis of Currency Transaction Reports
Per the Banking Commission - Financial Intelligence Unit Standard Operating
Procedure, upon receipt of a CTR, the FIU shall, with the utmost confidentiality:
• Assign a unique reference number to the report, acknowledge receipt of the
report, establish electronic report in the Banking Commission Database, and
ensure that the report has been checked and signed by the reporting
institution's Compliance Officer;
• Review the content of the report and determine whether any immediate
action is required;
• Inquire further information from financial institutions or cash dealers, if
necessary; and
• Input CTR with assigned unique number into the Banking Commission
Database.
Suspicious Activity Reports (SAR)
A suspicious transaction is a transaction or attempted transaction in which a
financial institution or cash dealer has reasonable grounds to suspect may be related to
money laundering, terrorist financing, or other serious offense.
Financial institutions and cash dealers are required under Part 13 of the Banking
Act, Section 170 to report all suspicious transactions within three (3) days of detection of
suspicious transactions to the Commissioner of Banking.
27 | P a g e
The reporting of suspicious activity by financial institutions and cash dealers in
one of the cornerstones of the FATF 40 Recommendations. FATF Recommendation 20,
Reporting of Suspicious Transactions, states that if a financial institution suspects or has
reasonable grounds to suspect that funds are the proceeds of criminal activity, or are
related to terrorist financing, it should be required by law to report such activity to the
FIU. This reflects the commitment of the RMI to combat ML and TF.
The FIU received a total of 45
Suspicious Activity Reports during the FY
2017 which is a significant increase in
suspicious activity reporting compared to FY
2016 where only 11 SARs were reported to the
Banking Commission – FIU. The Financial
Intelligence Unit noted a significant spike in
suspicious reporting of counterfeit currencies
during the FY2017. The counterfeit currencies
will be reported to the United States Secret
Service for further investigation.
During FY 2017, a total of two dissemination case reports were forwarded to law
enforcement agencies for further investigation. Both dissemination case reports were
further investigated by our designated financial crimes investigator at the Marshall
Islands Police Department and further disseminated to the Attorney General’s Office
for further investigation and possible charges. Both cases have been investigated and
charged in Court. In one of the cases, the individual has been charged in High Court
with four counts related to forgery and theft of money. The SARs were initially received
by the Banking Commission – FIU from the Bank of Guam, Bank of Marshall Islands,
Western Union, and JAJ Corporation.
Analysis of Suspicious Transaction Reports
Per Section 170 of the Banking Act, the Anti-Money Laundering Regulations, and
the Banking Commission – FIU Standard Operating Procedures on “Receipt, Analysis
and Dissemination of Suspicious Activity Reports”, Section 170 of the Banking Act,
financial institutions and cash dealers are required to report to the Commissioner of
Banking all suspicious transactions within three (3) days of detecting the suspicious
activity. Records of all SARs must be kept for a period of 15 years.
Upon receipt of a SAR, the Financial Intelligence Unit shall, with the utmost
confidentiality:
28 | P a g e
• Assign a unique reference number to the report, acknowledge receipt of the report, establish
an electronic record of the report in the Banking Commission Database, and ensure that the
report has been checked by the reporting institution’s Compliance Officer;
• Review the content of the report and determine whether any immediate action, as listed
under Section 1.4 and 1.5 of the Banking Commission – FIU Standard Operating Procedures
on “Receipt, Analysis, and Dissemination of Suspicious Activity Reports”, is required;
• Inquire further information from financial institutions or cash dealers, if necessary
• Request for background information from external agencies on the subject to see if there are
any previous reports and known criminal activity, both domestic and foreign; and
• If additional information gathered on SAR confirms the hypothesis developed, the SAR will
either be disseminated to the relevant LEA or filed away with the endorsement of the
Commissioner of Banking.
Dissemination of Financial Intelligence
Dissemination of financial intelligence to relevant law enforcement agencies is a
core function of the Banking Commission - FIU as stipulated under Section 167 of the
Banking Act. The FIU receives, analyses and disseminates financial intelligence to
relevant law enforcement, such as the Attorney General's Office, Auditor General's
Office, and Police Commission, enabling the investigation of predicate crimes, money
laundering and terrorist financing activities.
The FIU analyses suspicious transaction and currency transaction reports
received from financial institutions and cash dealers to develop intelligence.
Additionally, if there are reasonable grounds to suspect that a transaction is suspicious
and additional requested information from internal and external agencies confirm the
hypothesis developed, the FIU will prepare an investigative file and disseminate a
cover report to the relevant LEAs. Under Section 167 of the Act, the Commissioner of
Banking, in association with law enforcement, may conduct an investigation if there are
reasonable grounds to suspect that money laundering activity is occurring.
After the analysis of a SAR and the intelligence gathering from internal and
external agencies, the SARs that are not disseminated to LEAs are filed away for future
intelligence reference and analysis.
29 | P a g e
Domestic Coordination and Engagement
AML/CFT Working Group
There is an Adhoc AML/CFT Working Group that has been active in
coordinating all activities related to the strengthening of the RMI's AML/CFT regime, in
particular, dealing with FATF and APG related issues. The working group currently
comprises of the Commissioner of Banking, Attorney General, Police Commissioner,
Chief of Customs and Taxation, Trust Company of the Marshall Islands, and other
members from other government agencies that may join upon invitation. The AML/CFT
Working Group is currently striving to ensure full implementation of all 40 FATF
Recommendations and aims at developing an effective national system in place to
combat ML and TF.
The Adhoc AML/CFT Working Group is also responsible for the timely
rectification of all the deficiencies that are identified in the RMI's most recent Mutual
Evaluation Report 2011 conducted by Asia Pacific Group on Money Laundering
(APGML) in preparation of the RMI's next round of evaluations scheduled for 2020. The
AML/CFT Working Group is also responsible for the planning and organization of the
RMI's 1st National Risk Assessment, as required under Recommendation 1 of the FATF
40 Recommendations. Additionally, the Working Group is responsible for improving
the overall AML/CFT framework for the RMI aligning it with the existing international
standards for the purpose of combating financial crimes domestically and
internationally.
Counter-Terrorism Committee (CTC)
The Banking Commission - FIU is a member of the Counter-Terrorism
Committee, a committee overlooked by the Permanent Secretary of the Ministry of
Foreign Affairs, and Trade (MOFAT) and is responsible for countering terrorism
implementation strategies. CTC is currently chaired by Commissioner of Banking
Sultan T. Korean. During FY 2018, the Banking Commission - FIU continued to
contribute to the meetings and works of the CTC.
Other members of CTC include the Attorney General and Registrar of Domestic
Corporations, Police Commissioner, MOFAT Permanent Secretary, and the Trust
Company of the Marshall Islands - Registrar of Non-Domestic Corporations.
30 | P a g e
Investment Reform Working Group
The Investment Reform Working Group kick-started with a workshop conducted
by the Office of Commerce and Investment (OCI) on May 9, 2017, at MIR Jemanun
Room regarding the drafting of a Universal Form for Foreign Investment Business
Licenses (FIBL). The Universal Form is designed to expedite the application process for
setting up a business in the RMI by foreign investors.
It was agreed by all task force members
that RMI FIU and Marshall Islands Police
Department (MIPD), particularly Interpol are
key players for a foreign investment license
application to go through. Interpol will do
criminal background checks and RMI FIU will
provide financial clearance on FIBL
incorporator and shareholders to make sure
investment is not derived from illicit
activities. The task force is in the process of
finalizing the Universal Form which will be available online for foreign investors.
Per the suggestion of the Attorney General's Office and the Universal Form
Taskforce, the FIU is now required to provide financial clearance on all FIBL
applications. The FIU started receiving FIBL clearance requests in September 2017.
Credibility checks are conducted per the Banking Commission-FIU SOP on Due
Diligence Checks. Once checks have been conducted on both the legal and natural
persons involved, the Commissioner of Banking will sign off on whether the Banking
Commission - FIU has any objection over the establishment of the business. The
Financial Intelligence Unit received and processed twelve (12) financial background and
credibility checks at the request of the President’s Office, Attorney General’s Office,
Chief Secretary’s Office, FIBL Unit, and OCI.
The final universal form has been submitted to the FIBL Unit for final review and
approval by the Finance Minister and Secretary. Additionally, a Memorandum of
Understanding (MOU) between the Tier 1 agencies to establish a cooperative
relationship between all the agencies involved in the FIBL process has been completed
and ready for signing by Head of Departments. Tier 1 agencies comprise of the
following:
• Division of Immigration
31 | P a g e
• Division of Labor
• FIBL Registrar (Tax & Revenue)
• Marshall Islands Social Security Administration
• Attorney General's Office
• Marshall Islands Police Department (Interpol)
• RMI Banking Commission - FIU
Currency Declaration – Arrival & Departure Card
One of the key recommendations put forth in the RMI's Mutual Evaluations
Report 2011 is to rectify the deficiencies in the current Currency Declaration Act 2009 in
order to comply with Recommendation 32, Cash Couriers, of the FATF 40
Recommendation. A team comprising of the following government agencies, met
together to amend the current Currency Declaration Act (CDA) to address the
deficiencies in the Act:
i. Customs Division, Ministry of Finance, Banking & Postal,
ii. Financial Intelligence Unit of the Banking Commission, Ministry of Finance,
Banking & Postal,
iii. Division of Immigration, Ministry of Justice, Immigration & Labor, and
iv. Division of Agriculture & Quarantine, Ministry of Natural Resources &
Commerce.
Amendments were included in the CDA to include:
• Definition of natural, legal persons, and currency to include bearer
negotiable instruments;
• Declaration to include mail and cargo;
• Inclusion of legal persons to the CDA;
• Inclusion of RMI Banking Commission - FIU and Quarantine Officer as an
authorized officer under the CDA; and
• Immunity for an authorized officer.
The Currency Declaration (Amendment) Act 2019 is currently with the Committee of
Ways and Means for final review before submitting to Nitijela for voting. The team also
32 | P a g e
met to revise the current Arrival Card and to create a Departure Card for the RMI. The
team is later joined by the OCI and the Ministry of Health to collaborate together to
finalize the arrival and departure cards. The revised Arrival Card and the new
Departure Card are in their final revision stages.
A MOU for Inter-Agency Collaboration & Information Sharing on Matters
Related to Ports of Entry Declaration Forms between the listed members above,
including OCI and Ministry of Health to improve the border security control and
monitoring of all ports of entry and desire to share information and collaborate on
exchange of resources and intelligence to promote effectiveness and efficiency in their
respective mandates and efforts on the movement of dangerous and prohibited
merchandise, food and animal products and all forms of currency amounting to at least
$10,000.
1st National Risk Assessment (NRA)
At its meeting on August 22, 2017, the Cabinet approved the establishment of the
Republic of the Marshall Islands' National Risk Assessment Working Group (NRAWG)
comprising of key stakeholders from the government and private sectors as follows:
• Office of the Auditor General
• Banking Commission
• Immigration Division
• Judiciary/ Courts
• Kwajalein Atoll Local
Government
• Marshall Islands Development
Bank
• Tax and Customs, MOFBPS
• FIBL, MOFBPS
• Police Commission
• RMI Law Society
• Trust Company of the Marshall
Islands (Non-Resident Domestic
Corporate Registry and Maritime
Administrator)
• Ajejdrikdrik, Inc.
• Bank of Guam
• Bank of the Marshall Islands
• Enewetak Credit Union
• Family Mart
• Individual Assurance Company
(IAC)
• Jurelang, Alice, Jessica (JAJ)
Corporation
• Marshall Insurance Company
• Marshall Islands Service
Corporation
• Money Gram
• Moylan’s Insurance
• Western Union, and
• Chamber of Commerce
33 | P a g e
Identifying, assessing, and understanding ML and TF risks is an essential part of the
implementation and development of a national AML/CFT regime, which includes laws,
regulations, enforcement and other measures to mitigate ML/TF risks. The NRA will
assist the RMI Government in identifying ML risks and efficiently allocating its
resources to mitigate the identified risks, i.e., the risk-based approach – which is central
to the FATF standards set out in Recommendation 1.
NRA Team Leaders - Video Conference
with World Bank
The NRA is also important in
addressing the impact of the U.S. de-
risking by U.S banks on our banking
sector. The Banking Commission has
prioritized the NRA as a key strategy in
strengthening the AML/CFT regime of the
RMI and providing assurance to foreign
authorities that the country, its authorities,
and citizen are fully aware of the ML/TF threats and vulnerabilities in the system and
that appropriate actions are taken to mitigate the potential ML/TF risks.
The NRAWG Coordinators and Team Leaders met with Mr. Stuart Yikona and
Mr. Nigel Bartlett, Senior Financial Sector Specialists at the World Bank via a video
conference on September 28, 2017, at Banking Commission's Conference Room. During
the workshop, the date for the first workshop for all team members was agreed upon
and the full NRA tool was shared and discussed with the NRA Coordinators and Team
Leaders.
The First NRA Workshop organized by the
Marshall Islands Banking Commission – Financial
Intelligence Unit in coordination with the World
Bank was conducted at the International
Convention Center (ICC) on January 15-17, 2018.
The workshop familiarized the participants with
the NRA and risk-based approach concepts and
relevant documents, facilitate brainstorming and
exchange of news on ML/TF risks in the Marshall
Islands, and to introduce the National ML/TF risk
assessment tools and process. The sessions of the
workshop are designed as interactive work sessions to allow the participants to
comprehending the NRA tool and process.
34 | P a g e
Basic Investigations Program
Financial Intelligence Unit participated in the one-week Basic Investigations
Program conducted on February 13-18, 2018 at the Marshall Islands Resort by
Australian Federal Police and Marshall Islands Police Department.
The program is an in-country training
program based on the fundamental
principles and processes of investigating
criminal offenses. The program covers the
progressive investigation system from
receipt of the initial complaint through to
preparing a case file for prosecution and
giving evidence in Court. The program
provides participants with a thorough
foundation of investigative skills whilst
laying a solid platform to build on to
become an efficient and effective
investigator.
OECD Working Group – Global Forum on
Transparency and Exchange of Information for
Tax Purposes
The Banking Commission, as a member of the
OECD Working Group – Global Forum on
Transparency and Exchange of Information for
Tax Purposes collaborated with the other
members of the OECD Working Group to
prepare the Republic of the Marshall Islands for
the Mock On-site Visit on May 17-18, 2018. The
members of the OECD Working Group include
the Competent Authority – MOFBPS’ Tax Division, Attorney General’s Office, the
Banking Commission, Domestic Corporate Registry, Non-Resident Domestic Corporate
Registry, FIBL, and MISSA.
The OECD Working Group collaborated together to finalize the lengthy
questionnaire and prepare for the next round of Exchange of Information Request
(EOIR) Reviews for the Republic of the Marshall Islands.
35 | P a g e
International Engagement and Contribution
Workshop on Implementing the International AML/CFT Standards
The IMF Legal Department and the IMF-Singapore Regional Training Institute
(STI) jointly offered a one-week workshop on Implementing the International AML/CFT
Standards – Enhancing Entity Transparency during June 4-8, 2018. The objective
discussed issues and best practices related to managing the transparency of legal
persons and arrangements including: (i) the creation and registration of legal persons
and arrangements, (ii) types of registries and roles of registrars; (iii) the role of
gatekeepers; (iv) obligations of legal persons and arrangements; (v) legal persons and
arrangements as customers of financial institutions and designated non-financial
business or professions (DNFBPs); (vi) international cooperation; and (vii) effective
supervision and enforcement. The discussions of the issues assisted in the increase in
participants’’ understanding of the requirements of the revised international AML/CFT
standards, the 2012 FATF 40 Recommendations, and the 2013 Methodology for
Assessing Compliance with the 40 Recommendations and the Effectiveness of
AML/CFT Systems relating to entity transparency.
FATF TREIN – FATF Standards Training Course
The Financial Intelligence Unit Manager and Analyst attended the FATF
Standards Training Course facilitated by the FATF TREIN in Busan, the Republic of
Korea from September 3-7, 2018. The 5-day program promoted better understanding
and implementation of the FATF 40 Recommendations and Standards and provided
practical insights into the key areas of the FATF Recommendations, including:
36 | P a g e
• Risk in-context,
• International cooperation,
• Risk-based supervision,
• Preventative measures,
• Financial Intelligence & Investigations,
• Counter-Terrorism Financing,
including NPOs & Implementation of
Targeted Financial Sanctions,
• Counter-Proliferation Financing, and
• Beneficial Ownership.
Egmont Secure Web
The FIU continues to participate in activities of the Egmont Group of Financial
Intelligence Units. As a member of the Egmont Group of FIUs, the RMI is committed to
sharing information with other Egmont Group members when needed. During FY 2017,
the FIU continued to provide assistance and information to other Egmont Group
members upon request via Egmont Secure Web.
Per the Banking Commission - FIU Standard Operating Procedure, upon receipt
of a request by a foreign counterpart for assistance, the FIU, under the direction of the
Commissioner of Banking, shall enter data relative to the request into the International
Administrative Authority Spreadsheet with the name and address of the agency,
contact person, type of agency - whether administrative or investigative, and the type of
information jurisdiction is requesting. The FIU must ensure the authenticity, and
reasonableness of the request and respond to the request, in a timely manner.
During FY 2017, the FIU received a total of thirteen (13) incoming requests
through the Egmont Secure Web regarding beneficial ownership information on non-
resident domestic corporations registered with the Trust Company of the Marshall
Islands. Each request that came in sought for beneficial ownership information on one
or more non-resident domestic corporations. Each of those requests was responded to
in a timely manner through the cooperation of relevant agencies within the RMI.
Additionally, the FIU received thirty (30) spontaneous dissemination through the
Egmont Secure Web from our partner jurisdictions. The RMI-FIU made four (4)
outgoing requests to our partner FIU jurisdictions regarding possible a possible money
laundering case.
37 | P a g e
Egmont Secure Web FY 2017
Incoming Request 13
Outgoing Request 4
Spontaneous Dissemination 30
In 2012-2013, the FIU received a total of 30 incoming requests for information
from foreign counterparts and a total of 20 incoming requests received in 2014-2015. In
addition to receiving reports from financial institutions and cash dealers, one of the
FIU's most significant responsibilities is to respond to requests for information from
foreign partner jurisdictions. The Financial Intelligence Unit submitted the following
reports to Egmont: (i) The Biennial Census 2017 and (ii) World Bank – Egmont Group of
FIUs Joint Study on FIUs working with LEAs/Prosecutors.
Carnegie Mellon University Student Consultation to the Banking Commission –
Phase II
During the FY 2017, the Banking Commissioner Mr. Sultan Korean signed an MOU
with Carnegie Mellon University for Technical Assistance for troubleshooting and the
improvement of the current FIU database to include data mining and other additional
features to the FIU database on May 24,
2018.
The FIU engaged and assisted in the
Technical Assistance with Carnegie
Mellon University (Ms. Daisy Nkweteyim
and Mr. Nikolas Rebovich) to further
develop and troubleshoot the FIU
Database for CTR and SAR, including the
creation of forms and reports as well as
printing capabilities. Currently, reporting
entities, Bank of the Marshall Islands and
Bank of Guam, are submitting CTRs and
SARs online and are imported to the database that has more capabilities than before.
The FIU Database is now managed by
the FIU Analyst and is overseen by the
Head of FIU and FIU Manager. Tutorials
and guides were given by the Carnegie
Mellon University Consultants to the
Banking Commission – FIU and IT staff on
data modifications to make table, forms,
38 | P a g e
and reports in the database, how to import into the database and ways to identify and
fix importation errors, which was something the FIU lacked during Phase I of the
Database Consultation. The Consultants were able to troubleshoot the problems with
the FIU database and the [email protected] email, including the networking of
all departments of the Banking Commission.
Asia-Pacific Group (APG) on Money Laundering
The Asia Pacific Group on Money Laundering ("APGML") is an autonomous and
collaborative international organization currently comprising of 41 member countries.
The Republic of the Marshall Islands has been a member of the APG since June 2002.
Per Cabinet Minute 072 (2002), the Cabinet at its meeting on 23 May 2002,
endorsed the RMI's membership bid to join the APGML. CM 072 endorsed the
appointment of the Commissioner of Banking as the central contact person for the APG
Secretariat. The Police Commissioner, Chief of Customs and Taxation, Registrar of
Foreign and Domestic Corporations, and the Attorney General were all endorsed to
assist in all APG related initiatives. The Financial Intelligence Unit submitted the
following reports during the FY17, (i) FATF/APG Wildlife Crime Report, (ii) 2017
Typologies Report, and (iii)APG Annual Status Report.
APG/ FATF TREIN Typologies Workshop
The Financial Action Task Force Training and Research Institute (FATF-TREIN)
and the Asia/Pacific Group on Money Laundering hosted the 2017 Joint Typologies and
Building Workshop between November 13-16, 2017 in Busan, Korea.
The APG/FATF TREIN Typologies workshop brought together over 200 law
enforcement, prosecutors, financial intelligence unit and regulatory practitioners from
many of the 41 APG member jurisdictions, observer jurisdictions, and organizations, as
well as participants from non-government and private sector entities. The Typologies
workshop provided an opportunity for participants to discuss terrorist financing risks,
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trends, and methodologies, policy issues emerging from those trends as well as other
challenged facing the regions. The workshop facilitated a valuable exchange of
expertise which will improve regional cooperation and implementation of the FATF
Recommendations. The workshop had three concurrent sessions that focused on: (i)
proliferation financing, (ii) human trafficking and people smuggling, and(iii)
investigating and prosecuting internet facilitated money laundering and terrorist
financing.
21st APG Annual Meeting and Technical Assistance Forum
The 21st APG Annual Meeting and Technical Assistance Forum 2018, consisted
of pre-plenary mutual evaluation-related meetings, working group and steering group
meetings, technical seminar, and plenary and technical assistance forum. 2018 APG
Annual Meeting was held in Soaltee Crowne Plaza, in Kathmandu, Nepal from July 21-
27, 2018. Financial Sector Development Manager represented the Republic of the
Marshall Islands during the 21st Annual APG Meeting in Kathmandu, Nepal.
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IV. FINANCIAL SECTOR DEVELOPMENT (FSD)
Key Responsibilities
The key responsibilities of FSD are to assist the
Commissioner of Banking in:
(i) Establishment of a monetary authority per the Cabinet’s
adoption of a policy for the establishment that will
undertake all the necessary functions of a central bank
apart from the issue of domestic currency and conduct of
monetary policy;
(ii) Identification, development and implementation of key
strategies for financial sector development in the RMI and
collaborate with relevant stakeholders in the development
and implementation of the financial sector development
plan.
(iii) Act as a secondary contact with key organizations
such as the IMF, World Bank, Asian Development Bank,
and other key international organizations and
development partners for technical assistance engagement
and other related policy advice and issues with respect to
financial sector development;
(iv) Coordinate with international organizations with
respect to surveys and reports on global de-risking and
correspondent banking in the RMI, and assist in
identifying and developing a viable contingency plan for
the existing CBR arrangement between local banks and
U.S banks;
(v) Develop, compile and analyze financial data from the
financial institutions for the purpose of understanding the financial linkages
"The primary objective
of the Financial Sector
Development (FSD)
division of the Banking
Commission is to
oversee all activities
related to financial
sector development and
ensure the effective
implementation of key
strategies for Financial
Sector Development in
the RMI."
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of the RMI financial system with the global financial
system and the impact of global de-risking on the
domestic financial sector.
Monetary Authority (MA), Access to the U.S. Financial
System and Financial Sector Challenges
The RMI Cabinet in December 2015, adopted the
policy to establish a Monetary Authority which is
envisaged to strengthen links of the RMI financial system
to the international and U.S. financial system. The
establishment of a Monetary Authority would assist in
minimizing the risk of complete termination of the RMI
financial system from the U.S. financial system, in
particular, the termination of RMI’s correspondent
banking relationship with the U.S. banks which affects
RMI’s local bank, Bank of the Marshall Islands.
This work is envisaged to be long term in nature
where the proper MA model and functions appropriate for
the RMI would be examined and evaluated together with
other domestic financial sector developments prior to any
implementation decision. Expert assistance, advice and
technical inputs from multilateral agencies and
development partners are critical for this work and would
be pursued in this undertaking going forward.
The RMI is also confronted with financial sector challenges
and the Banking Commission endeavors to address the
challenges’ through (a) having powers under a MA law to
supervise the financial system to ensure a sound, safe, and
robust system, (b) oversight of Financial Intelligence Unit
(FIU) responsibilities, (c) regulating and overseeing a
domestic payment system for banks (d) overseeing
financial sector development efforts of the country- financial inclusion, financial
"The establishment of a
Monetary Authority, in
particular, would
assist in minimizing
the risk of complete
termination of the RMI
financial system from
the U.S. financial
system."
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literacy, small-medium enterprise lending, deposit insurance etc., (e) acting as the
primary banker for the Government and banks through the management of RMI
Government and commercial bank accounts (f) acting as lender of last resort for banks
and holding statutory deposit reserves for banks - for liquidity purposes.
Present efforts by the Banking Commission - The Banking Commission has undertaken
a 3 days’ attachment program with the National Reserve Bank of Tonga (NRBT) from
November 20-22, 2017 where the Commission has been able to review the NRBT’s
central bank operations and obtained the necessary background documents on the
NRBT’s establishment. The insights gained from this attachment would be used in
internal assessments of the appropriate model to consider for the proposed RMI MA.
The Banking Commission’s plan to undertake a second learning attachment with
the Timor-Leste Central Bank in FY 2018 to extend its research on an appropriate MA
model for the RMI was put on hold due to the RMI’s move in early 2018 for the
adoption of digital currency. The adoption of a digital currency suggests that the need
for a MA or central bank in the RMI would be unnecessary. The Timor-Leste Central
Bank is seen as an appropriate model for the RMI’s adaptation as the authority does not
conduct monetary policy but provides the payment means for commercial banks and
provides the regular supply of U.S. notes and coins to commercial banks and citizens.
The knowledge expected to be gained from the Timor-Leste Central Bank would be
relevant to the RMI’s efforts to set up a suitable domestic MA. Forward efforts on the
establishment of a MA will be closely evaluated in conjunction with the development of
the RMI’s digital currency.
Financial Sector Development Plan
Further to the review work on the Financial Sector Development Plan (FSDP)
that was conducted in May-June 2017, in May-Jul 2018 the Banking Commission carried
out a call for submission in Majuro from the public, private and civil society
stakeholders. The main aim of the call for submission was to obtain stakeholders' views
of the strategic objectives that should be considered in the FSDP that are critical to the
development of the RMI financial system. In August 2018 the Banking Commission also
consulted stakeholders in Ebeye on their views.
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The feedbacks obtained from the consulted stakeholders has been logged and is
to be integrated into the reformulated FSDP. The FSDP work has been reprioritized due
to the need for focus efforts to address the high consumer debt problem in the RMI as
well as the Banking Commission’s involvement to put together the RMI’s Economic
Policy Statement (EPS). The Banking Commission’s contributions in the development
of the EPS are further discussed under the Sustainable Economic Development Sector
Committee section below.
High Consumer Debt Problem in the RMI
The IMF’s Article IV report of 2017 identifies household debts in the RMI is high
which was estimated to be 60 percent of employee’s compensation in 2015. The
Banking Commission views that a coordinated strategy by financial institutions, civil
society organizations, educational institutions, and Government ministries and agencies
is critical to comprehensively address high household debts in the country. The Banking
Commission intends to draft guidelines that propose a ceiling on the debt service ratio
including criteria on non-performing loan classification to be initially issued to banks
for their reviews. Also, it has encouraged the two banks to conduct financial literacy in
the communities and the schools. The Banking Commission will also encourage non-
Government organizations to undertake financial literacy programs in the communities
as well as consult with the RMI Public School System to consider integrating a financial
literacy program into its schools’ curriculum.
Technical Assistance Support
The Banking Commission in FY 2018, continued to engage and utilized technical
assistance (TA) support to improve the operation of the office including the
improvement of the regulatory framework, strengthened supervisory capacity and
improved surveillance systems for money laundering and the financing of terrorism.
The TA support received in FY 2018 are as follows:
Pacific Technical Assistance Centre (PFTAC) Support for Examination Capacity
Development – In February 2018, the PFTAC supported the participation of two
Banking Commission Examiners in the FDIC examination of the ANZ branch in Guam
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from February 28 – March 14, 2018. The examination was an opportunity for our
Examiners to learn from FDIC Examiners the methodology of their BSA/AML
examination of foreign bank branch operations which could be adapted and applied in
the examination of BOG’s branch operations in the RMI.
IMF review of the Banks and Financial Institutions Act 1987 – In June 2018, the
PFTAC facilitated the engagement of a legal expert from the IMF’s legal department to
assist the Banking Commission to review the Banks and Financial Institutions Act 1987
against the BASLE’s Core Principles for Effective Banking Supervision. This exercise
has been completed and the Banking Commission intends to submit the proposed
changes to the legislation for the RMI Government’s consideration after the changes to
the Act proposed by Bill 94 been passed.
Carnegie Mellon: Student IT Consultants – From June-August 2018 the Banking
Commission utilized the IT services of two Carnegie Mellon student consultants. The
student's scope of work involved the maintenance of the Banking Commission’s
technology infrastructure, develop data modification skills in the FIU, improve FIU
importation process, website development, and networking of the departments. Upon
the completion of their work, the FIU and IT staff were trained and provided guidance
documents on how to maintain and use the systems and software.
The Banking Commission will continue to utilize the services of the student IT
consultants where it sees it as necessary and appropriate.
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Sustainable Economic Development Sector Committee
The Banking Commission chairs the Sustainable
Economic Development Sector Committee (SEDSC) which
is one of the five working groups that operate under the
RMI National Strategic Plan Sector Steering Committee.
The SEDSC consists of member stakeholders from the: (a)
Ministry of Finance, Banking, and Postal Services (b)
Ministry of Resource and Development (c) Office of
Commerce and Investment and Tourism (d) Marshall
Islands Maritime Resources Authority and the (e) The
Chamber of Commerce.
In April 2018, the Banking Commission through the
Office of the Chief Secretary sought technical assistance
from the United Nations Development Program Office in
Suva, Fiji, to help the RMI develop an Economic Policy
Statement (EPS) to guide the country forward in
developing its economy in expectation of the termination
of the U.S compact agreement in 2023.
The UN technical experts are expected to be on-
island in November 2018 where consultations with all
relevant RMI stakeholders will be held before a draft of the
EPS is presented to the RMI Government for reviews and
endorsement.
"The Banking
Commission in 2017,
engaged and utilized a
number of technical
assistance (TA)
support to review the
regulatory framework,
provide legal input
including support to
strengthen supervisory
capacity and improve
the surveillance
systems on money
laundering and the
financing of terrorism."
"The Banking
Commission chairs the
Sustainable Economic
Development Sector
Committee (SEDSC)
which is one of the five
working groups that
operates under the RMI
National Strategic
Plan Sector Steering
Committee."
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V. TRAINING AND CAPACITY BUILDING
INITIATIVES
The Banking Commission strives to become a full-
fledged financial systems regulator and has set as one of
its immediate priorities training and capacity building
initiatives for its staff and managers. There are plans to
propose by way of Cabinet Paper the Banking
Commission's staff eligibility for RMI Scholarship funding
for professional certification courses. This will provide the
opportunity for staff and management to enhance their
professional skills in financial industry supervision,
financial sector development, and anti-money laundering.
Furthermore, the Banking Commission will continue to
participate in all available and relevant capacity building
and training opportunities available domestically and
abroad.
Key Training/Capacity Building Workshops and
Meetings- International
The following capacity building programs and
meetings were attended by Banking Commission staff and
their counterparts from other Ministries/Agencies of the
RMI Government:
Prudential Supervision Trainings/Meetings
• MENAFATF/APG Joint Typologies and Capacity
Building Workshop, Nov 28 – Dec 1, 2016 - Mr. Sultan
Korean, Banking Commissioner, Mr. Rendy Johnny,
Manager FIS, and Ms. Samelda Leon, Manager FIU;
• IMF High-Level Dialogue, April 7, 2017 - Mr.
Rendy Johnny, Manager FIS.
"The Banking
Commission strives to
become a full-fledged
financial systems
regulator and has set
as one of its immediate
priorities training and
capacity building
initiatives for its staff
and managers."
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AML/CFT Training / Meetings
• APG/FATF TREIN Typologies Workshop (Busan Korea, November 13-16, 2017) –
Ms. Samelda Neimon Leon, FIU Manager;
• 21st APG Annual Meeting and Technical Assistance Forum (Kathmandu Nepal,
July 21-27, 2018) – Mr. Neumi Usumaki, FSD Manager;
• Australian Federal Police and Marshall Islands Police Department – Basic
Investigations Program (Marshall Islands Resort, February 13-18, 2018) – Ms.
Samelda Neimon Leon, FIU Manager, and Ms. Sana Grace Anien, FIU Analyst;
• IMF-Singapore Regional Training Institute and IMF Legal Department –
Implementing the International Standards: Enhancing Entity Transparency
(Singapore, June 4-8, 2018) – Ms. Samelda Neimon Leon, FIU Manager;
• FATF-TREIN STC6 Training Course, Busan Korea, September 3-7, 2018- Ms.
Samelda Neimon Leon, FIU Manager, and Ms. Sana Grace Anien, FIU Analyst.
Financial Sector Development Training/Meetings
• Annual Meetings 2017. World Bank Group & International Monetary Fund,
Washington DC (October 11-15, 2017) – Mr. Sultan Korean, Banking
Commissioner, and Mr. Neumi N W Usumaki, Manager FSD;
• 32nd Meeting of South Pacific Central Bank Governors, Nukualofa, Tonga
(November 14-17, 2017) – Mr. Sultan Korean, Banking Commissioner, and Mr.
Neumi N W Usumaki, Manager FSD;
• Legal Aspects of International Financial Institutions, IMF-STI, Singapore
(December 4-8, 2017) – Mr. Neumi N W Usumaki, Manager FSD;
• Pacific Financial Technical Assistance Centre Steering Committee Meeting, Suva,
Fiji (March 27-28, 2018) – Mr. Sultan Korean, Banking Commissioner, and Mr.
Neumi N W Usumaki, Manager FSD.