A series of 12 unauthorised withdrawals from the fund at Boston’s State Street Bank were sent - $982,265 to bank accounts in Ireland and Malaysia in June and July, local media has reported. It is believed only a portion of it has been recovered.
The withdrawals of $273,883 to Ireland were recovered but the $708,382 to accounts in Malaysia is yet to be returned, newspaper Marianas Variety said.
This comes as the Asian Development Bank approves a $2m grant to help the government strengthen its public finance management and fiscal position.
The two are not expected to be linked, but the ADB said the Marshall Islands’ dependence on external development assistance may result in increased challenges in achieving fiscal sustainability when the US assistance under the Compact of Free Association expires in 2023.
Principal economist from ADB’s Pacific department Ananya Basu said: “Strong management of public finances and the improved performance of SOEs will strengthen the fiscal position.”
Anthony Costanzo, the executive administrator of the Marshall Islands Trust Fund, said: “State Street Bank and Trust Company, the former trust fund’s custodian, released the funds in error and did not follow established processes and protocols.
“State Street was informed that the transactions were possible fraud on July 13 after exchanges of information regarding questionable cash account fluctuations.”
The fund had $320m in April and is being capitalised to provide funding to the government as US grants are to expire in 2023.
The Compact of Free Association is an international agreement establishing and governing the relationship between the US and three Pacific Islands, including Marshall Islands. The Marshall Islands gained independence from the US in 1986 and the compact guaranteed financial assistance over a 15-year period.
The agreement was renewed in 2003 for a 20-year period to promote economic advancement and budgetary self-reliance.
The newspaper reported that the any withdrawal from the account needed a signature from the chairman of the Marshall Islands Trust Fund. But the 12 withdrawals were not authorised by the chairman.
“The Trust Fund has an authorisation form with the approved authorisers and verifiers,” Costanzo reportedly said.
“No authorisers approved the removal of the funds and the fund removals were not approved or verified as established.”
ADB has worked with Marshall Islands’ government since 1990 and has approved 14 loans for $92.63m, six grants for $11.26m, and 52 technical assistance projects worth $22.17m.
The grant, announced on Monday, will help enhance the institutional capacity of the country’s Ministry of Finance to effectively implement public financial management and state-owned enterprise reforms.
