Palau’s Anti-Money Laundering and Counter-Terrorist Financing Efforts Receive Mixed Review

A recent report by the National Rifle Association (NRA) has evaluated Palau’s efforts to combat money laundering (ML) and terrorist financing, concluding that while there are areas of improvement needed, overall the country’s efforts are deemed reasonable in the circumstances.

High-Risk Predicate Offenses Identified

The NRA assessment identified two high-risk predicate offenses that pose significant ML risks for Palau:

• Illicit trafficking in narcotic drugs and psychotropic substances
• Trafficking in human beings and sexual exploitation

Corruption Risks and Cash-Based Economy Pose Significant Risk

However, the report highlighted that corruption risks are not given sufficient focus in Palau, and the country’s cash-based economy poses a significant risk. Additionally, there is no documented anti-money laundering (AML) and counter-terrorist financing (CFT) strategy or policy informed by risk assessments.

Positive Steps Taken but Significant Improvements Required

While Palau has taken some positive steps over the last few years, including:

• The creation of the Financial Intelligence Unit (FIU) at an operational investigative level
• Sound cooperation between competent authorities through the Money Laundering Working Group at a strategic level

Significant improvements are still required in relation to terrorist financing and proliferation.

Use of Financial Intelligence and Information

The NRA report found that some use has been made of financial intelligence and information by competent authorities investigating ML or predicate offenses. The FIU provides decent quality financial intelligence and other relevant information to law enforcement agencies and prosecutors, but disseminated reports are based predominantly on suspicious transaction reports (STRs) and to a lesser extent cash transaction reports (CTRs).

Recommendations for Improvement

The NRA assessment recommends that Palau:

• Focus its limited resources on its most significant risks
• Develop a multi-agency task force focused on investigating STR-generated ML cases
• Address the country’s high-risk predicate offenses and corruption risks through further analysis and strategy development

Conclusion

Overall, while Palau has made some progress in combating money laundering and terrorist financing, further analysis is required to address the country’s high-risk predicate offenses and corruption risks. The NRA assessment concludes that with focused efforts and strategic planning, Palau can improve its AML/CFT regime and reduce the risk of ML and TF.