Palau’s Anti-Money Laundering and Counter-Terrorist Financing Efforts Show Promise, But Room for Improvement

A recent assessment by the National Rifle Association (NRA) has found that Palau’s efforts to combat money laundering and terrorist financing are showing signs of progress, but still require significant improvement.

Comprehensive Framework, Limited Private Sector Understanding

According to the NRA report, while Palau’s anti-money laundering (AML) and counter-terrorist financing (CFT) framework is generally comprehensive, there are areas where the country can improve its effectiveness. For instance:

• The private sector’s understanding of AML/CFT risks in Palau is limited.
• The country lacks a documented AML/CFT strategy or policy informed by risk.

High-Risk Predicate Offenses and Cash-Based Economy

The report also highlights that Palau has some high-risk predicate offenses, including:

• Illicit trafficking in narcotic drugs
• Human beings
• Corruption

Additionally, the country’s cash-based economy poses significant AML/CFT risks.

Positive Steps Toward Addressing ML/TF Risks

Despite these challenges, the NRA assessment notes that Palau has taken positive steps to address ML/TF risks, such as:

• The formation of the National Enforcement Agency (NEA)
• The development of a Human Trafficking Task Force

Importance of Financial Intelligence

The report also highlights the importance of financial intelligence in combating ML/TF. While some use has been made of financial intelligence by competent authorities, there is still room for improvement in terms of LEAs’ understanding of the benefits and use of financial intelligence.

Recommendations for Improvement

The NRA assessment recommends that Palau:

• Adopt a risk-based approach to exemptions from AML/CFT requirements
• Improve coordination between competent authorities to combat TF and predicate offenses

Recent Progress and Areas for Improvement

Palau has made some progress in recent years, including the creation of the Financial Intelligence Unit (FIU) and the formation of the FCIU. The FIU provides decent quality financial intelligence and other relevant information to LEAs and prosecutors, which has supported ML investigations over the past two years.

However, there is still room for improvement in terms of:

• The quality, quantity, and scope of STRs reported to the FIU by foreign banks
• LEAs’ limited resources and capacity to act on financial intelligence
• Improved training and capacity building

Conclusion

The NRA assessment concludes that while Palau’s AML/CFT efforts are showing promise, further analysis and improvement are required to address ML/TF risks effectively.