Palau’s Cash-Intensive Industries Remain Vulnerable to Money Laundering

A recent report by the Asia-Pacific Group on Money Laundering (APG) has highlighted concerns over Palau’s continued vulnerability to money laundering (ML) and terrorist financing (TF). The small Pacific island nation’s cash-intensive industries, such as luxury goods sales, real estate, and legal services, remain at risk of being used for illicit activities.

Cash-Intensive Industries at Risk

The report found that Palau’s DNFBPs (Designated Non-Financial Businesses and Professions), including lawyers and real estate agents, have high and medium-level risks for ML. Furthermore, the lack of regulation in these sectors increases the exposure to ML.

Here are some key findings:

• Luxury goods sales: High risk of ML due to cash transactions and lack of transparency
• Real estate: Medium-high risk of ML due to cash-based transactions and property purchases
• Legal services: Medium-high risk of ML due to cash payments for legal fees

Cash-Based Economy Poses Significant Risk

Palau’s cash-based economy also poses a significant risk, as transactions are often not processed through financial institutions, making it difficult to track and monitor suspicious activities.

Progress Made, but More Needs to be Done

While Palau has made some positive steps in recent years, including the formation of the National Economic Agency (NEA) and the Human Trafficking Task Force, there is still no documented AML/CFT strategy or policy informed by risk assessments. This hinders efforts to address ML/TF risks.

Financial Intelligence Unit’s Challenges

The Financial Intelligence Unit (FIU) provides decent quality financial intelligence to law enforcement agencies (LEAs), but LEAs lack understanding of its benefits and use it infrequently. The FIU has also not conducted strategic analysis, limiting its ability to identify trends and patterns in suspicious transactions.

Prosecution Record

Palau’s ML prosecution record is reasonable, with five successful prosecutions since 2011. However, the convictions do not align with Palau’s higher-risk predicate offenses, and sentences often involve suspended sentences and fines that are not proportionate and dissuasive.

Recommendations for Improvement

The APG report emphasized the need for Palau to improve its AML/CFT regime by implementing a risk-based approach, enhancing cooperation between competent authorities, and increasing resources for law enforcement agencies. Additionally, Palau should:

• Implement stricter regulations on cash transactions
• Improve its declaration system for cross-border transportation of currency and bearer negotiable instruments
• Increase public awareness campaigns to prevent TF

Ongoing Monitoring and Technical Assistance

The APG will continue to monitor Palau’s progress in addressing ML/TF risks and provide technical assistance to help the country strengthen its AML/CFT regime.