- The Washington Times - Thursday, April 17, 2003

The Treasury Department is proposing to apply one of its harshest penalties to punish the tiny Pacific island Nauru for money-laundering activities cutting off the country's financial institutions from the U.S. banking system.

If the measure is adopted, it would mark the first time the United States has used the power provided under 2001's Patriot Act.

In December, Treasury designated Nauru a "primary money laundering concern" because it had not acted to combat the problem. At the same time, Treasury said it intended to impose the tough measure, which was formally proposed Tuesday.

Nauru is an island of less than 8½ square miles and 12,329 persons, 26 miles south of the equator in the Pacific Ocean. Its only industry is phosphate mining, and its reserves are almost depleted.

The measure would block Nauru's institutions from the U.S. financial system by closing correspondent accounts with U.S. banks, securities dealers, mutual fund providers and others. Foreign banks and financial institutions use such accounts to do business in the United States.

The Patriot Act broadened the government's powers to go after money launderers and terror financiers.

Nauru is on the Financial Action Task Force's list of countries that have failed to combat money laundering. The multinational task force is part of the Organization for Economic Cooperation and Development.

Money laundering involves movement of profits from drug- or arms-trafficking, political corruption, prostitution and other illegal activities through a series of accounts or businesses to disguise them as proceeds of legitimate business.

The U.S. government also uses rules designed to control money laundering as a way to prevent people from bankrolling terrorism.

Under the Patriot Act, the Treasury proposal is subject to public comment before any final action would be taken, to give the affected financial institutions an opportunity to voice their concerns.

Treasury also announced that it was removing the "primary money laundering concern" designation from Ukraine. Ukraine and Nauru were the only two countries for which the designation had been used under the Patriot Act.

"The Ukraine has taken important steps to improve their anti-money-laundering regime," Treasury said. Still, the country remains on the OECD task force's blacklist.

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