Financial Crime World

Palau’s Struggle to Combat Money Laundering and Terrorist Financing

A recent assessment by the Asia-Pacific Group on Money Laundering (APG) has highlighted Palau’s ongoing vulnerability to money laundering (ML) and terrorist financing (TF). The report identified several areas of concern, including the lack of regulation in cash-intensive industries and the movement of funds from offshore.

Economic Vulnerability

Palau’s economy is heavily reliant on cash transactions, making it an attractive destination for criminals seeking to launder illicit funds. The country’s real estate and legal sectors have been identified as high-risk areas, with limited oversight and regulation in place.

Cash-Intensive Industries

  • Palau’s reliance on cash transactions makes it vulnerable to ML
  • Real estate and legal sectors are high-risk areas due to lack of regulation

Terrorist Financing Risk

While Palau has a low level of risk for TF, having never identified any cases of terrorism or TF within its borders, the country’s lack of expertise among relevant agencies and inadequate supervision of non-bank financial institutions (NBFIs) remain concerns.

Low-Level Risk for TF

  • No cases of terrorism or TF have been identified in Palau
  • Lack of expertise and inadequate supervision of NBFIs are concerns

Progress in Combating ML and TF

Palau has made some progress in combating ML and TF, including the establishment of a National Economic Authority (NEA) and a Financial Intelligence Unit (FIU). The FIU provides decent-quality financial intelligence to law enforcement agencies (LEAs), which has supported investigations into predicate offenses.

Progress Made

  • Establishment of NEA and FIU
  • Decent-quality financial intelligence provided to LEAs

Challenges and Recommendations

However, LEAs have been criticized for not making effective use of this information, with limited resources and capacity to act on it. Additionally, the quality, quantity, and scope of suspicious transaction reports (STRs) received by the FIU from foreign banks are improving, but still do not align fully with the country’s assessed risks.

Challenges

  • Limited resources and capacity among LEAs
  • Quality, quantity, and scope of STRs do not align with assessed risks

Recommendations

  • Adopt a risk-based approach to exemptions from anti-money laundering (AML)/CFT requirements
  • Improve coordination between competent authorities
  • Increase resources and capacity among LEAs to effectively investigate and prosecute ML and TF cases

Convictions and Sanctions

Palau has seen some successes in prosecuting ML cases, with five successful convictions since 2011. However, these convictions have not always resulted in proportionate and dissuasive sanctions, and the country’s legal framework lacks a focus on confiscation as a key priority.

Convictions and Sanctions

  • Five successful convictions since 2011
  • Proportionate and dissuasive sanctions are lacking
  • Legal framework lacks focus on confiscation

Conclusion

Overall, the APG report highlights Palau’s ongoing challenges in combating ML and TF, and emphasizes the need for continued improvement in its AML/CFT regime.