Financial Crime World

Mutual Evaluation Report: Anti-Money Laundering and Combating the Financing of Terrorism in Palau

Executive Summary

The Asia-Pacific Group on Money Laundering (APG) conducted a Mutual Evaluation Report assessing Palau’s compliance with international standards for Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT). This summary highlights key findings from the report.

Risk Assessment

Palau is considered to have a low risk of money laundering and terrorist financing, but it has high and moderate risks within its own context. Specifically:

  • Illicit trafficking in narcotic drugs and psychotropic substances poses a significant threat.
  • Human trafficking is a concern.
  • Corruption is prevalent.

Private Sector Engagement

The process for preparing the first National Risk Assessment (NRA) was not optimal from a private sector perspective due to limited understanding of AML/CFT risks among most private sector reporting entities.

AML/CFT Strategy

Palau does not have a documented AML/CFT strategy or policy informed by risk. However, positive steps have been taken based on risk, such as:

  • The formation of the National Enforcement Agency (NEA).
  • The establishment of the Human Trafficking Task Force.

Financial Intelligence Unit (FIU)

The FIU provides decent quality financial intelligence and other relevant information to law enforcement agencies (LEAs) and prosecutors. However, disseminated reports are predominantly based on Suspicious Transaction Reports (STRs).

Law Enforcement Capacity

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

Prosecutions and Sanctions

Since 2011, Palau has had five successful money laundering prosecutions. However:

  • These convictions do not align with Palau’s higher risk predicate offenses.
  • Sanctions often appear proportionate and dissuasive.

Confiscation

Confiscation is not a key priority in Palau’s criminal justice regime or pursued as a primary policy objective.

Terrorist Financing

Palau has a low level of risk for terrorist financing.

Recommendations

To improve its AML/CFT framework, Palau should:

  • Enhance the NRA process.
  • Develop a comprehensive AML/CFT strategy informed by risk.
  • Improve the use of financial intelligence by LEAs.
  • Increase confiscation as a means to disrupt money laundering activities.