Papua New Guinea is under a close watch for money laundering, running a risk of being abandoned by global investors.

The Financial Action Task Force (FATF) has placed PNG on its “grey list” due to “strategic deficiencies” in government oversight.

The grey-list means that watchdog officials are monitoring closely, and that the government is time-bound to address their blind spots.

PNG is now one step away from the far more precarious “black list”, where other countries are compelled to stay away in order to protect the international financial system.

There are only three countries on the black list: North Korea, Iran, and Myanmar.

Prime Minister James Marape told local media outlet NBC that he accepted the conclusions of the FATF and welcomed their support.

“There is no point blaming the past. What has been identified, we will fix,” Marape said.

Need secure economy
“It is in our country’s interest to have a secure economy, not one with gaps that can be exploited.”

Marape said that investors could be assured the PNG government was doing all that is can ahead of elections in 2027.

“Our investors will not run away . . .  Papua New Guinea will work its way out of the grey-list and towards a trusted, credible financial standing,”

But as many as 30 banks have publicly ruled out the possibility of investing in Papua LNG, an Exxon-backed project in the Gulf of Papua, as reported by AAP.

The project owners, seeking to produce six million tonnes of LNG per annum for a predominantly Asian market, have yet to make a final decision on whether to move forward.

Far-reaching consequences
A note from the International Monetary Fund (IMF) in November 2025 called PNG “a fragile state” noting an “unstable social and political environment”.

It’s a judgment of PNG’s institutions, weakened by conflict and poor governance, thus creating ideal conditions for money laundering and corruption to thrive.

Michael Kabuni, an anti-money laundering researcher at Australian National University, told RNZ Pacific the grey-listing sends a signal to overseas banks and investors that business in PNG is rife with danger.

“We were saying all along that PNG was going to be added to the grey list. The evidence points to it.”

PNG’s greatest vulnerability is the exposure of each MP, bureaucrat and public servant to bribes and corruption, Kabuni said.

The more powerful an individual, the more likely they are to be targeted by criminals, and the greater those incentives to bend the rules would be.

“There was the anti-corruption body that was set up in 2014 called the task force suite,” he noted.

“It did an impressive job in confiscating proceeds of crime, arresting, prosecuting and jailing those involved. But eventually they went after the Prime Minister, and that task force was disbanded.”

Kabuni noted that MPs are given 10 million kina (NZ$3.9 million) each year in the course of their work, but rarely is it all accounted for.

He said it was also common for less money to be allocated to “integrity agencies”, such as watchdogs and enforcement bodies, than they are actually budgeted.

“It’s a combination of factors, from political interference, whether it’s appointments or interference into the investigations, to capacity and resources,” he said.

In the case of Papua LNG, Kabuni said he “would think” that the bank boycott was motivated in large part by the grey-listing.

“Investors use the mutual evaluation reports as a risk matrix to determine whether this country is safe.”

“It’s going to be difficult to draw investors finances . . .  we’ve never actually had an investor come in during the grey-list period.”

Risks for New Zealand
The Reserve Bank of New Zealand said banks were required to assess the associated risks with the countries that they dealt with.

“This may mean that transactions to or from Papua New Guinea may be subject to greater scrutiny,” it said.

Meanwhile, the Department of Internal Affairs said all customers from PNG are considered “high risk” under the Anti-Money Laundering and Countering Financing of Terrorism Act 2009.

“This could be a PNG company operating in New Zealand or a non-resident individual (such as a person on a temporary work visa),” a spokesperson said.

“As a result, an enhanced level of customer due diligence must always be applied.”

Anti-money laundering expert Kerry Grass told RNZ Pacific that businesses dealings with PNG were inherently risky.

“Trade-based money laundering (trading value for value) is not captured as an activity under the AML/CFT Act for international reporting obligations of trade,” Grass said.

Escaping obligations
“Hence I can trade you a shipping container of car parts for 1kg of Cocaine hidden in a container of coconuts. That type of international trading is escaping obligations of reporting under the AML/CFT Act if no wire transfer is relied on.”

In an ideal world, Grass said, customs officials would be able to manage risk based on knowledge of the source, but this could be disguised.

Efforts to stop ill-gotten gains from PNG to NZ would depend on their ability to decipher this information.

“I don’t think New Zealand is actually operating at a jurisdiction level where these controls or knowledge are actually down to that level,” she said.

This article is republished under a community partnership agreement with RNZ.

Article by AsiaPacificReport.nz

However, the Prime Minister said that the government’s robust firewall security systems were able to fend off these attempts.

Brown revealed this while speaking in support of the Financial Transactions Reporting Amendment Bill 2024, which was passed in Parliament last week.

The hacking attempts from overseas had, however, affected a couple of local companies in the hospitality industry in which their systems were compromised, he said.

“We were able to provide support to reduce any damage caused by these cyber security threats,” Brown said.

The Financial Transactions Reporting Amendment Bill’s primary purpose is to implement the recommended actions put forth by the Global Forum on Transparency and the Exchange of Information for Tax Purposes.

This Forum conducts peer reviews and assessments across over 130 jurisdictions in which Cook Islands is a member of. The aim of these reviews is to evaluate the country’s ability to cooperate effectively with established standards, Brown explained.

‘Increasing collaboration’
“The financial transactions reporting requirements that our country have signed up to is an example of the increasing collaboration among international jurisdictions to share information. Additionally, the need to protect the integrity of our financial centres and enhance our cybersecurity measures will only intensify as the world increasingly moves toward digital currencies.

“Our initial peer reviews took place in 2017, and the Cook Islands received a very positive rating for its capacity to exchange information.

“In light of the subsequent growth and improvements in both the quality and quantity of information exchanges, as well as enhancements to the standards themselves, a second round of assessment was initiated just last year. This latest round includes a legal framework assessment and peer reviews that also cover technical, operational, and information security aspects.”

Brown said that during this process several gaps in the legal framework were identified, and the Global Forum provided recommendations aimed at helping the country maintain a positive rating.

He said Cook Islands is required to address these recommendations by implementing the necessary legislative amendments by the 31st of this month in order to qualify for another round of onsite assessments and reviews in 2025.

The Prime Minister said the security of information is very important, and the security of tax information, in particular, is of significant importance to the Global Forum.

He added that some of the areas identified for improvement extend beyond legislative requirements.

Security codes
“For example, all doors in the RMD (Revenue Management Division) office that hold tax information must have security codes. The staff that work there must have proper identification cards with ID cards to swipe and allow access to these rooms,” Brown said.

“It is a big change from how our public service has operated for many years and maybe we do not see the actual need for this level of security. However, the Global Forum has its standards to maintain and we are obligated to maintain those standards, so we must follow suit.

“Not only that but now there’s also a requirement for proper due diligence to be conducted on employees or people who will work inside these departments. It is these sorts of requirements that compels us in our government agencies, many of them now to change the way we do things and to be mindful of increased security measures that are being imposed on our country. ”

Justice Minister Vaine “Mac” Mokoroa, who presented the Bill to Parliament, said: “The key concern here is to ensure that the Cook Islands continues to be a leader in the trust industry . . .  our International Trust Act has been at the forefront of the Cook Islands Offshore Financial Services Industry since its enactment 40 years ago, establishing the Cook Islands as a leader in wealth protection and preservation.”

“At that time, these laws were seen as innovative and ground-breaking, and their success is evident in the growth and development of the sector, as well as in the number of jurisdictions that have copied them, either in whole or in part.”

Mokoroa said that the Cook Islands Trust Companies Association, which comprises seven Trustee Companies licensed under the Trustee Companies Act, along with the Financial Supervisory Commission, conducted a thorough review of the International Trust Act and recommended necessary changes. These changes were reflected in the Financial Transactions Reporting Amendment Bill.

Republished from the Cook Islands News with permission.

Article by AsiaPacificReport.nz