Title: Palau’s AML/CFT Regime Under the Microscope: Key Findings and Recommendations from APG’s Evaluation

Introduction

Palau, a Pacific Island nation with a small economy and population, has come under increasing scrutiny regarding its efforts to combat money laundering and terrorist financing (ML/CTF). The Asia/Pacific Group on Money Laundering (APG), an international organization dedicated to combating ML/CTF, recently evaluated Palau’s regulatory framework.

APG’s Evaluation of Palau’s AML/CFT Regime (September 2018)

Key findings from APG’s Mutual Evaluation Report on Palau:

High-risk Predicate Offenses and Financial Institutions

1. Palau identified certain high-risk predicate offenses such as:

   • Illicit trafficking in narcotic drugs and psychotropic substances
   • Trafficking in human beings and sexual exploitation

2. High-risk financial institutions in Palau include banks and money lenders. In addition, the following professionals were found to have a high and medium level of risk for money laundering:

   • Real estate agents
   • Lawyers
   • Dealers in high-value assets

Exposure to Terrorist Financing

3. Palau’s exposure to terrorist financing is very limited, with no recorded instances of terrorism or terrorist financing. However, the island lacks a national policy and strategic mechanism to address TF risks. The private sector’s understanding of TF is also negligible, reducing Palau’s ability to identify potential threats.

Absence of a Written National AML/CFT Policy

4. The absence of a written national AML/CFT policy is a significant deficiency. Although Palau has made essential policy decisions based on risk, coordination and international cooperation are required in relation to TF and proliferation financing.

Law Enforcement Agencies and Financial Intelligence

5. Palau’s law enforcement agencies have some understanding of financial intelligence but have limited resources and capacity to act decisively. Proactive financial investigations and a more extensive use of available financial intelligence are necessary.

Financial Intelligence Unit (FIU)

6. Palau’s FIU provides decent quality financial intelligence to law enforcement agencies and prosecutors, primarily based on Suspicious Transaction Reports (STRs) and Cash Transaction Reports (CTRs). However, there is a lack of understanding and utilization of financial intelligence by LEAs.

Declaration System

7. Palau’s improvement of its declaration system for incoming and outgoing cross-border transportation of currency and bearer negotiable instruments (BNI) has led to increased reporting and declarations from tourists.

Recommendations for Palau

Several recommendations were made to strengthen Palau’s AML/CFT framework, including:

• Developing a written national policy
• Enhancing the understanding of TF risks
• Improving the utilization of financial intelligence by law enforcement agencies
• Addressing the lack of transparency and beneficial ownership oversight for non-financial institutions and non-profit organizations

APG’s Mutual Evaluation Report

For more information on APG’s evaluation and recommendations for Palau, please refer to the mutual evaluation report on the organization’s website.