Financial Crime World

Cash-Intensive Industries Remain Vulnerability in Palau’s Anti-Money Laundering Efforts

Palau, a small island nation in the Pacific, faces ongoing challenges in its anti-money laundering (AML) efforts, particularly in cash-intensive industries such as real estate and lawyers. A recent assessment by international authorities identified these sectors as high-risk for money laundering (ML), citing a lack of regulation and oversight.

The Challenges

  • Palau’s economy is largely cash-based, making it vulnerable to ML activities.
  • The movement of funds, both cash and electronic wire transfers, originating from offshore is also a concern, as it can facilitate ML.
  • Despite efforts to improve its AML framework, Palau still lacks a documented AML/CFT strategy or policy informed by risk assessments.

Weaknesses in Financial Intelligence Gathering and Analysis

  • The National Financial Intelligence Unit (NFIU) provides decent-quality financial intelligence to law enforcement agencies (LEAs), but there are limitations in the use of this information due to:
    • Lack of understanding among LEAs about its benefits.
    • Limited resources to act on it.

Successes and Concerns

  • Palau has had some success in prosecuting ML cases, with five successful prosecutions since 2011.
  • However, these convictions have not always resulted in proportionate and dissuasive sanctions, and the country’s approach to confiscation is also a concern.

Recommendations

  • Improve the risk assessment framework to identify areas vulnerable to ML.
  • Enhance financial intelligence gathering and analysis capabilities to better support LEAs.
  • Increase coordination among authorities to combat ML.
  • Consider implementing a risk-based approach to exemptions from AML requirements.
  • Strengthen enforcement of sanctions against ML offenders.

Ongoing Efforts

  • Palau is creating a new agency responsible for combating financial crimes, which aims to improve its AML regime.
  • However, more needs to be done to address the country’s ML vulnerabilities and ensure that it is not used as a haven for illicit financial activities.