A recent foreign relations nightmare between PNG and Indonesia has raised suspicions over money laundering amongst PNG's political elite.
Both Deputy Prime Minister Belden Namah and National Planning Minister Sam Basil were on board the Falcon passenger jet typically used for official government purposes when it was intercepted by two Indonesian fighter jets over Indonesian air space on November 29.
The first reports of this event in PNG finally emerged in January.
Namah and Basil responded by criticising the Indonesian government - which only said the incident happened because the Falcon lacked sufficient flight clearance.
But Malaysian oil palm executives were also on board the now-famous flight and Namah and Basil were forced to deny media speculation that the plane was carrying $US250 million in cash.
While many questions about this flight seem likely to remain unanswered, the PNG government could certainly reduce such speculation by tightening up its anti-money laundering laws.
KnowYourCountry.com founding partner Gary Youinou has worked in finance for thirty years and his website provides research information on money laundering and sanction issues on a country-by-country basis. He revealed why money laundering was suspected to be a major problem in PNG despite a lack of prosecutions on this front.
"Papua New Guinea does not have an offshore sector, free trade zone, informal financial sector, or other area particularly vulnerable to financial crimes, nor is it a hotspot for the financing of international terrorism, however it is experiencing rapid economic growth, very large scale foreign investment and an escalating crime rate - all major factors influencing the level of money laundering to be found in modern growing economies," he told PNG Report.
Even though PNG has a stable banking system, key findings of the Asia/Pacific Group on Money Laundering's assessment last year suggested PNG faced very serious risks of money laundering from criminal activities such as smuggling and misappropriation of public funds.
Youinou said other major sources of illegal proceeds could include non-payment of taxes, undervaluing extractible exports and skirting customs regulations altogether through illegal logging, arms trafficking, human trafficking and fraud.
"A significant proportion of money laundering has also been identified as emanating from certain corrupt and nepotistic practices arising from the Wantok system, a family and social system found only in Papua New Guinea and neighbouring island nations where people are bonded together by a common language, ethnicity, district or provincial boundaries. Illegal proceeds are generally placed through the banking sector in Papua New Guinea and used to purchase real estate, high-value vehicles, distributed in cash or moved offshore."
While PNG's financial sector is required to adopt anti-money laundering (AML) measures, Youinou said only the banking sector and the postal service had heeded the obligations so far.
"Despite hard work by the Financial Intelligence Unit and some initial results to pursue proceeds of crime by the Office of the Public Prosecutor, it has become evident that there is a lack of clear political commitment to focus on the concept of ‘follow the money' to tackle corruption and other profit-driven crime, and little demonstrated appetite by financial sector regulators to regulate and supervise AML obligations, which severely hampers the authorities' ability to tackle financial aspects of corruption," he said.
"For instance, in 2010, although there were 1094 suspicious transaction reports lodged with the FIU, for the same year there were no prosecutions or convictions for money laundering."
The FIU is also chronically under-resourced. The APG evaluation last year revealed the FIU only had three staff compared to the seven it started with three years earlier.
"The APG also recommended that the FIU be given a formal structure within the police force so that it can fulfil the role it should be playing in developing the national AML system and receiving, analysing and disseminating suspicious transaction reports," Youinou said.
The finance industry specialist detailed what changes he would like to see in PNG.
"Papua New Guinea's legal system is still developing and transitioning from traditional law and order systems based on tribal seniority and indigenous customs.
"Western-style legislation is being generated, but enforcing agencies significantly lack the training, funding, assets, experience, and, in many cases, education to successfully combat sophisticated organised crime. Papua New Guinea is not yet a party to the UN Convention against Transnational Organised Crime and the 1988 UN Drug Convention.
"Although the Australian authorities have been partnering closely with Papua New Guinea counterparts in order to improve its anti-money laundering regulatory environment, the government of Papua New Guinea must show it has the will to continue its work to develop procedures to conform to international anti-money laundering/counter-terrorist financing programs and standards.
"Also, the APG have recommended that Papua New Guinean law enforcement, specifically the Financial Intelligence Unit and Prosecutor's office, should be encouraged to identify, disrupt, and prosecute suspected money laundering operations, whether this is by way of introduction of more legislation or better resourcing."
Youinou also discussed what it takes to iron out money laundering and related corruption amongst a political class in any nation.
"From Indonesia's Suharto to Nigeria's Abacha to the deposed leaders of nations affected by the Arab Spring, together with the political will of their extended families and sycophantic followers, they turned their country's economic budgets into their personal coffers, laundering vast amounts of money through offshore vehicles.
"As the old saying goes, power corrupts and absolute power corrupts absolutely.
"Transparency and accountability are necessities in the governance of countries that wish to minimise or iron out corruption and money laundering - from the top down.
"One has only to look at Transparency International's corruption perceptions index to see the usual suspects sat at the bottom and the expected ‘blue chip' countries at the top, but gradually, as much through the naming and shaming of non-committed countries, and follow-up evaluations, countries are tightening systems and enacting legislation to combat money laundering."
There are views that ill-gotten gains in PNG are often hidden offshore especially through investments in Australia, including Australian bank accounts.
But Australia has adopted the Financial Action Taskforce recommendations on anti-money laundering and counter-terrorism financing.
"Australian banks comply with the tough Australian laws which give effect to the recommendations," Australia Bankers' Association policy director Tony Burke told PNG Report.
"Obligations under Australian law include a requirement for equivalent [to Australian law] systems and controls for a bank's offshore permanent establishments, suspicious matter reporting across the corporate group and obligations in respect of ‘politically exposed persons'.
"Australia is also the only country which has full reporting on inwards and outwards international funds transfer instructions."
The government body AUSTRAC administers a comprehensive international funds transfer reporting regime in Australia and some of its work has even caught out those who regularly transfer funds from overseas of just under $A10,000 - the level which typically attracts attention.
AUSTRAC is also well aware that politically connected people form a major money laundering risk.
AUSTRAC chief executive officer John Schmidt told PNG Report of some of the measures it uses to mitigate the risks of overseas entities misusing Australia's financial system.
"To reduce money laundering risks, Australia's anti-money laundering/counter terrorism financing laws require reporting entities to put in place appropriate systems and controls to identify customers, whether domestic or foreign, who may be ‘politically exposed persons' and to determine whether those customers should be subject to additional checks," Schmidt said.
AUSTRAC is also there to ensure reporting entities in Australia - such as banks - comply with their customer identification obligations.
"Reporting entities are required to report to AUSTRAC any suspicious activity undertaken if the entity has reasonable grounds to suspect that the activity may be related to a money laundering offence," Schmidt said.
"AUSTRAC refers financial intelligence it receives relating to potential money laundering activity to relevant domestic and international counterparts."
Whether such a referral to PNG authorities will make an impact is hard to say given the lack of money laundering prosecutions in PNG.
However, it is clear that AUSTRAC, unlike PNG's under-resourced FIU, does achieve quantifiable results. While AUSTRAC would ensnare a lot more people each year, merely the 2011 case studies of money laundering and associated crime made available on its website reached a tally of 20.
Transparency International's 2011 Corruption Perception Index ranked PNG as the 154th worst country in the world -the same position it earned in 2010.
While there is no guarantee this rating will improve this year, the looming election at least means that politicians are talking about corruption. While rival political factions typically blame each other, Morobe governor Luther Wenge recently strayed from party lines altogether during a parliament debate on a national anti-corruption statement.
Wenge said corruption had become a part of PNG life from small people, to churches, the public service and members of parliament - perhaps an encouraging sign that MPs might be prepared to admit that corruption has reached saturation point.