Financial Crime World

Assessment Report on Palau’s Anti-Money Laundering (AML) and Combating Financing of Terrorism (CFT) Efforts

Key Findings

Palau has made progress in strengthening its AML/CFT legislative framework, but there are areas that require improvement.

Legislative Framework

  • Strengthened framework: Palau has enhanced its AML/CFT legislative framework.
  • Implementation gap: However, the lack of implementation is a significant concern.

Money Laundering Offense

  • Limited coverage: Only half of the FATF designated categories of predicate offenses are covered by the money laundering offense.

Financing of Terrorism

  • Criminalization: The financing of terrorism has been criminalized.
  • Inadequate implementation: However, the freezing of terrorist assets under UNSCRs 1267 and 1373 is not adequately addressed.

Provisional Measures

  • Availability: Seizing of evidence and property, as well as freezing of capital and financial transactions, are available but subject to approval by the Supreme Court.

Weaknesses in the AML/CFT System

The following weaknesses were identified in Palau’s AML/CFT system:

Lack of Resources

  • Inadequate staffing: The Financial Intelligence Unit (FIU) operates without dedicated full-time resources.

Inadequate Supervision

  • Lack of standard operating procedures: The FIU does not have documented standard operating procedures.
  • Insufficient access to information: The FIU should be able to obtain additional information from reporting entities in response to suspicious transaction reports (STRs) without a court order.

Insufficient Investigations

  • Limited investigation capacity: The Division of Criminal Investigation & Drug Enforcement (CID) has not initiated any investigations into money laundering or terrorist financing that were not related to an STR.

Recommendations

To address the weaknesses identified in Palau’s AML/CFT system, the following recommendations are made:

Enhance the FIU’s Effectiveness

  • Provide dedicated staffing: Provide dedicated full-time resources to the FIU.
  • Document standard operating procedures: Document standard operating procedures on STR analysis and dissemination.

Improve Supervision

  • Ensure access to information: Ensure that the FIU can obtain additional information from reporting entities in response to STRs without a court order.

Increase Investigations

  • Encourage investigations: Encourage the CID to initiate investigations into money laundering and terrorist financing cases, even if they are not related to an STR.

By implementing these recommendations, Palau can strengthen its AML/CFT system and protect its financial sector from misuse.