Marshall Islands -- Sanctions Compliance Regulatory Overview

The Republic of the Marshall Islands (RMI) operates within an international framework for financial regulation, including sanctions compliance. While it is a sovereign nation, its financial system is deeply integrated with global standards, particularly those influenced by the United States due to the Compact of Free Association (COFA). Consequently, VASPs operating in the RMI must comply with a robust set of anti-money laundering (AML) and counter-terrorism financing (CTF) regulations that incorporate international sanctions regimes.

Here's a breakdown of cryptocurrency sanctions and restrictions in the Marshall Islands:

1. Legal Framework for Sanctions Compliance

The primary legal framework governing AML/CTF and sanctions compliance in the Marshall Islands is:

• Anti-Money Laundering and Counter-Terrorism Financing Act 2018 (AML/CTF Act 2018): This Act forms the cornerstone of the RMI's regulatory regime. It mandates financial institutions, including VASPs, to implement robust AML/CTF programs, which explicitly cover sanctions compliance.
  • Reference: Republic of the Marshall Islands Anti-Money Laundering and Counter-Terrorism Financing Act 2018. While an official RMI government portal link is often difficult to find and maintain, these acts are generally accessible through regional legal databases or requests to the RMI Attorney General's office. An example of where you might find such legislation referenced is the Pacific Financial Technical Assistance Centre (PFTAC) or FATF Mutual Evaluation Reports.
• Financial Intelligence Unit Act 2006 (as amended): Establishes the RMI Financial Intelligence Unit (FIU), which is the primary body responsible for receiving, analyzing, and disseminating financial intelligence related to money laundering, terrorism financing, and other serious offenses, including sanctions violations.
• Digital Asset Secured Transaction Act 2023 (DASTA 2023): While primarily focused on property rights and the legal framework for digital assets as collateral, DASTA acknowledges and interacts with the broader regulatory environment for digital assets, implying that entities dealing with digital assets must comply with existing AML/CTF and sanctions laws.
  • Reference: Republic of the Marshall Islands Digital Asset Secured Transaction Act 2023. Available via International Registry of the Marshall Islands (IRI) or similar legal resource providers. Example of IRI link to DASTA related info.

2. OFAC/EU/UN Sanctions Compliance Requirements for VASPs

The AML/CTF Act 2018 requires VASPs (classified as "financial institutions" or "designated non-financial businesses and professions" where applicable to their services) to implement comprehensive AML/CTF programs that include sanctions compliance.

• UN Sanctions Compliance:
  • As a member state of the United Nations, the RMI is obligated to implement sanctions resolutions passed by the UN Security Council (UNSC).
  • The AML/CTF Act 2018 explicitly mandates compliance with UN sanctions. This means VASPs must screen against the UNSC Consolidated List, which includes individuals and entities designated under various UN sanctions regimes (e.g., related to terrorism, proliferation, specific countries like North Korea, Iran, etc.).
  • VASPs must freeze assets of sanctioned individuals/entities and report such findings to the FIU.
• OFAC Sanctions Compliance:
  • Due to the Compact of Free Association (COFA) with the United States, the RMI's financial sector is heavily influenced by US regulations. While OFAC sanctions are primarily US law, their practical effect and the RMI's alignment with international best practices mean that compliance with OFAC (Office of Foreign Assets Control) sanctions is a critical requirement for VASPs.
  • Practical Necessity: Any VASP transacting in USD, dealing with US persons or entities, or having any nexus to the US financial system (e.g., through correspondent banking relationships, cloud providers, software vendors) must comply with OFAC sanctions to avoid secondary sanctions or blocking by US financial institutions.
  • The RMI's AML/CTF framework implicitly and explicitly supports the need for compliance with international sanctions, which for practical purposes, includes OFAC.
• EU Sanctions Compliance:
  • Similar to OFAC, EU sanctions directly apply to EU persons and entities. However, any VASP in the RMI that deals with EU customers, transacts in EUR, or otherwise engages with the EU financial system will be expected to comply with EU Consolidated Sanctions Lists.
  • This is a matter of mitigating risk and ensuring interoperability with international financial partners.

3. Sanctioned Entity Screening Obligations

VASPs in the RMI are required to:

• Develop and implement a risk-based sanctions screening program. This involves screening all customers (at onboarding and ongoing), beneficial owners, and transactions against relevant sanctions lists.
• Screen against the following lists at a minimum:
  • UN Security Council Consolidated List: This list includes individuals and entities subject to asset freezes, travel bans, and arms embargoes imposed by the UN.
    • Reference: UN Security Council Consolidated List
  • OFAC Specially Designated Nationals and Blocked Persons (SDN) List: This is the primary list for US sanctions. VASPs should also be aware of other OFAC lists (e.g., Sectoral Sanctions Identifications List, Foreign Sanctions Evaders List).
    • Reference: OFAC SDN List
  • EU Consolidated List of persons, groups and entities subject to EU financial sanctions:
    • Reference: EU Consolidated List
• Establish policies and procedures for identifying, reporting, and freezing assets related to sanctioned individuals or entities, and for rejecting or blocking prohibited transactions.
• Conduct ongoing monitoring to ensure that new customers or existing customer activities do not involve sanctioned parties or jurisdictions.

4. Geographic Restrictions

Geographic restrictions are primarily derived from the international sanctions lists. This means that VASPs are effectively restricted from engaging in transactions, or establishing relationships, with:

• Individuals, entities, or governments designated on the above-mentioned sanctions lists, regardless of their location.
• Persons or entities located in, or closely associated with, comprehensively sanctioned jurisdictions. While the RMI does not issue its own list of prohibited countries, compliance with UN, OFAC, and EU sanctions means that transactions with countries like North Korea, Iran, Cuba, Syria, and regions or entities subject to targeted sanctions (e.g., certain entities in Russia, Venezuela) are either prohibited or extremely high-risk and require enhanced due diligence.
• The AML/CTF Act 2018 and related guidance from the RMI FIU will emphasize a risk-based approach, where transactions originating from or destined for high-risk jurisdictions are subject to enhanced scrutiny.

5. Penalties for Violations

The AML/CTF Act 2018 outlines significant administrative and criminal penalties for non-compliance, including sanctions violations:

• Administrative Penalties: The FIU or other supervisory authorities can impose fines, directives, and other administrative measures on financial institutions and their employees for failures in AML/CTF and sanctions compliance. These can include:

  • Monetary penalties (fines).
  • Orders to cease and desist from specific activities.
  • Suspension or revocation of licenses for VASPs.

• Criminal Penalties: Individuals found guilty of offenses under the Act, including aiding or abetting money laundering or terrorism financing (which includes violations of sanctions aimed at preventing these crimes), can face:

  • Imprisonment for substantial terms (e.g., up to 20 years for serious offenses).
  • Significant monetary fines.
  • For VASPs, corporate liability can also lead to substantial fines and operational restrictions.

• Reference: Specific penalty provisions would be found in the "Offences" and "Penalties" sections of the AML/CTF Act 2018.

6. Country-Specific Sanctions Lists for Crypto

The Marshall Islands does not maintain its own unique country-specific sanctions lists that specifically target cryptocurrency or crypto entities. Instead, its regime focuses on implementing and enforcing the internationally recognized sanctions lists (UN, OFAC, EU) through its national AML/CTF framework.

Any "country-specific" aspect for the RMI would refer to how its domestic legislation incorporates and gives effect to these international obligations. For a VASP in the RMI, this means that while the lists themselves are international, the legal obligation to comply with them within the RMI arises from RMI law.

Conclusion

VASPs operating in the Marshall Islands are subject to a comprehensive AML/CTF framework that mandates strict compliance with international sanctions regimes. This includes screening against UN, OFAC, and EU sanctions lists, implementing robust KYC/CDD and transaction monitoring, and reporting suspicious activities. Non-compliance carries severe administrative and criminal penalties. It is crucial for VASPs to have a thorough understanding of these obligations and to maintain an up-to-date, risk-based compliance program.

Disclaimer: This information is for general informational purposes only and does not constitute legal advice. VASPs operating in the Marshall Islands should consult with legal counsel specializing in RMI law and international sanctions to ensure full compliance with all applicable regulations.