Financial Crime World

Palau’s Anti-Money Laundering and Counter-Terrorism Financing Efforts Hobbled by Lack of Resources

Palau’s efforts to combat money laundering and terrorist financing have been severely hindered by a lack of resources, according to a recent assessment. Despite making progress in some areas, the country’s anti-money laundering (AML) and counter-terrorism financing (CFT) systems remain deficient in several key areas.

Crime Rate and Sources of Criminal Proceeds

The report highlights that Palau’s crime rate is relatively low, with prostitution and consumer marijuana sales being the main sources of criminal proceeds. However, illegal fishing by unlicensed foreign vessels poses a significant problem. Fortunately, there have been no reported cases of organized crime or terrorist financing in the country.

Money Laundering Laws

Palau’s money laundering laws are broadly in line with international standards, but there are some serious shortcomings. Eight out of twenty FATF-designated categories of predicate offenses are not covered by the money laundering offense, which is particularly concerning given Palau’s economic dependence on tourism, agriculture, and fishing.

Terrorist Financing Laws

The country’s terrorist financing laws were only enacted in April 2007, and as a result, there have been no investigations or prosecutions related to terrorist financing. The report notes that property related to predicate offenses cannot be confiscated, which hinders the effectiveness of AML/CFT efforts.

Provisional Measures

Provisional measures are available under Palauan law, including:

  • Seizing of evidence and property
  • Freezing of capital and financial transactions
  • Identifying and tracing property

However, these measures are subject to approval by the Supreme Court and are not adequately addressed in relation to terrorist assets frozen under United Nations Security Council Resolutions 1267 and 1373.

Financial Intelligence Unit (FIU)

The FIU is responsible for coordinating Palau’s AML/CFT efforts, but it has been operating without dedicated full-time resources since its inception. The FIU has processed over 70 suspicious transaction reports, but lacks documented standard operating procedures and relies on the Division of Criminal Investigation & Drug Enforcement to investigate reported cases.

Recommendations

To enhance its effectiveness, the report recommends that:

  • The FIU receive dedicated staffing resources
  • Establish documented standard operating procedures for STR analysis and dissemination
  • Obtain additional information from reporting entities without the need for a court order
  • Provide STR forms, guidelines, and feedback to reporting entities

Conclusion

Overall, Palau’s AML/CFT efforts are hindered by a lack of resources, which has resulted in a deficient system that fails to effectively combat money laundering and terrorist financing. Without additional support, it is unlikely that Palau will be able to fully implement its AML/CFT obligations.