Financially Wounded: The Devasting Impact of Financial Crime in Palau’s Economy

**Amidst the tranquil waters of Palau, a tropical paradise in the Pacific, a hidden menace lurks.**1 Financial crime, although often overshadowed by the country’s scenic beauty, poses a significant threat to individuals and businesses.

Understanding Financial Crime in Palau

Financial crime includes:
- Money laundering
- Terrorist financing

Consequences of Financial Crime in Palau

Fiscal Consequences

Losses to government revenue due to tax evasion
Funds could support public services or poverty alleviation
Costs of investigating and prosecuting financial crimes

Monetary Consequences

Inflation due to increased money supply
Weakened currency
Economic instability

Financial Consequences

Reputational damage
Loss of customer trust
Financial losses

Structural Consequences

Increased regulatory scrutiny for high-risk industries
Compliance costs for businesses
Higher prices or reduced access to financial services for consumers

Addressing the Impact of Financial Crime in Palau

Robust anti-money laundering and counter-terrorist financing frameworks
Capacity building
Transparency

Collaborative Efforts to Combat Financial Crime

Governments
Financial institutions
International partners

1: This article is a collaborative effort by Carolina Claver, Chady El Khoury, and Rhoda Weeks-Brown from the International Monetary Fund. The opinions expressed are their own and do not necessarily reflect the views of the IMF or its member governments.