Cash-Intensive Industries Remain Ongoing Vulnerability in Palau
Palau’s financial sector continues to grapple with cash-intensive industries, which pose a significant vulnerability in the country’s fight against money laundering (ML) and terrorist financing (TF).
Unreported and Unregulated Transactions
A report by the Asian-Pacific Group on Money Laundering (APG) highlights individual purchases of high-end goods such as cars, boats, and household items often going unreported and unregulated. This lack of transparency makes it challenging for authorities to track transactions, providing an opportunity for ML.
Concerns over Fund Movement
The report also notes the movement of funds, both cash and electronic wire transfers, from offshore sources as a concern and potential enabler for ML in Palau. The country’s real estate sector is small but poses a high risk for ML due to its lack of regulation.
Improvements in AML/CFT Measures
Palau’s anti-money laundering (AML) and counter-terrorist financing (CFT) measures have improved over the years, with the formation of the National Enforcement Agency (NEA) and the development of the Human Trafficking Task Force. However, the country still lacks a comprehensive AML/CFT strategy or policy informed by risk assessments.
Challenges in Coordination and Resource Allocation
There are concerns about coordination between authorities, with significant improvements needed to address TF and proliferation financing. Law enforcement agencies (LEAs) have limited understanding of financial intelligence and lack resources and capacity to act on it.
Quality and Quantity of Suspicious Transaction Reports
Palau’s FIU provides decent quality financial intelligence, but disseminated reports are largely based on suspicious transaction reports (STRs) from foreign banks. While the quality and quantity of STRs have improved in recent years, they do not fully align with assessed risks.
Limited Success in ML Prosecutions
The report highlights that Palau has had only five successful ML prosecutions since 2011, which is a reasonable outcome given the country’s context. However, these convictions did not always result in proportionate and dissuasive sanctions.
Challenges in Confiscation of Proceeds
Palau has struggled to confiscate proceeds from key proceeds-generating crimes, with drug trafficking being an exception. The report notes that Palau has improved its declaration system for incoming and outgoing cross-border transportation of currency and bearer negotiable instruments (BNI).
Way Forward
Overall, while Palau has made some progress in addressing ML and TF, the country still faces significant challenges in these areas. Strengthening coordination between authorities, improving financial intelligence analysis, and increasing confiscation efforts are key to addressing these vulnerabilities.
- Implement a comprehensive AML/CFT strategy or policy informed by risk assessments
- Improve coordination between authorities to address TF and proliferation financing
- Enhance understanding of financial intelligence among LEAs
- Increase resources and capacity for LEAs to act on financial intelligence
- Improve the quality and quantity of STRs
- Strengthen confiscation efforts to prevent proceeds from key crimes from being laundered or used to fund terrorism.