Cash-Intensive Industries Remain Vulnerable to Money Laundering in Palau

A recent assessment by the Asia-Pacific Group on Money Laundering (APG) has highlighted ongoing vulnerabilities in Palau’s cash-intensive industries, which are often processed outside of financial institutions. These high-risk sectors include:

Real estate
Lawyers
Other industries not regulated for money laundering (ML)

Insufficient Risk-Based Approach

Palau has yet to fully adopt a risk-based approach for exemptions from anti-money laundering (AML) and combating the financing of terrorism (CFT) requirements. While positive steps have been taken, such as:

Formation of the National Executive Agency (NEA)
Establishment of the Human Trafficking Task Force

there is still a need for improvement.

Limited Use of Financial Intelligence

Financial intelligence has been used to some extent by law enforcement agencies (LEAs), but there is limited understanding of its benefits and use. LEAs also lack resources and capacity to act on financial intelligence. The Financial Intelligence Unit (FIU) provides decent-quality financial intelligence, but dissemination reports are based predominantly on suspicious transaction reports (STRs).

Limited Prosecutions and Confiscation

Palau has had five successful ML prosecutions since 2011, which is a reasonable outcome given the context. However, these convictions do not align with Palau’s higher-risk predicate offenses, and sentences often involve:

Suspended sentences
Fines that are not proportionate or dissuasive

Improvements Needed

To address these vulnerabilities, Palau needs to:

Improve its risk-based approach
Enhance cooperation between competent authorities
Increase the use of financial intelligence
Implement more effective confiscation measures
Establish proportionate sanctions for ML offenses

Overall, while Palau has made some progress in addressing money laundering and terrorist financing, there is still much work to be done to ensure that these threats are effectively mitigated.