Financial Crime World

Cash-Intensive Industries Remain Ongoing Vulnerability in Palau

======================================================

Palau’s financial sector continues to face challenges related to cash-intensive industries, including individual purchases of high-end goods that often bypass traditional financial institutions. The movement of funds, both cash and electronic wire transfers originating from offshore sources, has been identified as a concern and potential enabler for money laundering (ML) in the country.

Real Estate and Lawyers Pose Medium to High ML Risks

While the DNFBP sector is small, real estate agents and lawyers have been identified as having medium to high-level risks for ML. Unfortunately, these sectors are not regulated for ML, exacerbating the exposure.

  • Real estate agents: Unregulated transactions and lack of reporting requirements create an environment conducive to ML.
  • Lawyers: The legal profession’s confidentiality obligations can make it difficult to detect ML activities.

Terrorism Financing Risk Remains Low in Palau

Palau’s risk of terrorism financing (TF) remains low, with no links to terrorist activities or TF cases recorded. However, the country’s vulnerabilities include:

  • Limited expertise among relevant agencies
  • Lack of oversight of non-profit organizations
  • Negligible implementation of TF measures in the non-bank sector

Assessment of ML/TF Risks

Palau completed its first formal assessment of ML/TF risks in 2017 through a National Risk Assessment. While the risk findings are reasonable, further analysis is required to better understand the country’s ML/TF vulnerabilities.

Cooperation and Coordination

While there is a sound level of cooperation between competent authorities:

  • Significant improvements are needed in relation to TF and proliferation financing (PF)
  • The creation of the Financial Intelligence Unit (FIU) has contributed to improved coordination at an operational level

Financial Intelligence and Investigations

The FIU provides decent- quality financial intelligence and other relevant information to law enforcement agencies and prosecutors. However:

  • LEAs have limited understanding of the benefits and use of financial intelligence
  • Lacking resources and capacity to act on it

Prosecutions and Sanctions

Palau has had five successful ML prosecutions since 2011, but these convictions do not align with the country’s higher-risk predicate offenses. Sentences for ML often involve:

  • Suspended sentences
  • Fines that may not be proportionate or dissuasive

Conclusion

While Palau has made some progress in addressing its ML/TF vulnerabilities, there is still much work to be done to strengthen its financial sector and protect against these threats. Addressing the country’s cash-intensive industries, improving cooperation and coordination, and enhancing financial intelligence and investigations will be crucial steps towards achieving this goal.