Cash-Intensive Industries Remain Vulnerability in Palau’s Anti-Money Laundering and Counter-Terrorist Financing Efforts

Palau, a small island nation in the Pacific, continues to struggle with cash-intensive industries posing a significant risk to its anti-money laundering (AML) and counter-terrorism financing (CFT) efforts.

Unreported High-End Purchases Pose Risk

The country’s financial intelligence unit (FIU) has identified that individual purchases of high-end goods such as cars, boats, and household items often go unreported and are not processed through financial institutions. This lack of transparency creates an opportunity for money laundering (ML).

Offshore Funds and Unregulated Real Estate Sector Pose Additional Concerns

Offshore funds, both cash and electronic wire transfers, also pose a concern for Palau, with the potential to enable ML. The country’s real estate sector, which is largely unregulated, has been identified as a high-risk area for ML. Lawyers, who have medium-level risks for ML, are also not regulated.

Low Risk of Terrorism Financing

Palau’s risk assessment of low risk for terrorism financing (TF) appears appropriate, with no links to terrorism or cases of TF reported in the country. However, the lack of oversight of non-profit organizations (NPOs), limited expertise among relevant agencies, and negligible implementation of CFT measures in the non-bank sector remain vulnerabilities.

Need for a Risk-Based Approach

The country’s AML/CFT strategy is not informed by risk, and there is no documented policy to address ML/TF risks. While positive steps have been taken, such as the formation of a national economic agency (NEA) and the development of a human trafficking task force, more needs to be done to fully adopt a risk-based approach.

Limited Financial Intelligence and Investigations

Financial intelligence has been used to support ML investigations, but LEAs lack understanding of its benefits and use, and resources are limited. The FIU provides decent-quality financial intelligence, but disseminated reports are based mainly on suspicious transaction reports (STRs) and cash transaction reports (CTRs).

Limited Sanctions and Prosecutions

Palau has had five successful ML prosecutions since 2011, but these convictions do not align with the country’s higher-risk predicate offenses. Sanctions have been inconsistent, with suspended sentences and fines often being imposed.

Conclusion

In conclusion, Palau faces significant challenges in combating ML and TF, particularly due to its cash-intensive industries and lack of regulatory oversight. The country must prioritize implementing a risk-based approach, improving financial intelligence, and enhancing sanctions for ML offenses to effectively address these threats.