Financial Crime World

Cash-Intensive Industries Remain Ongoing Vulnerability in Palau

Recent reports have highlighted the continued vulnerability of cash-intensive industries in Palau to money laundering (ML) and terrorist financing (TF). The report, released by APG, notes that individual purchases of high-end goods such as cars, boats, and household items are often not processed through financial institutions, making them susceptible to ML.

Vulnerabilities

  • Cash transactions for high-end goods, such as cars, boats, and household items, are not typically processed through financial institutions.
  • The movement of funds, both cash and electronic wire transfers originating from offshore, is a concern and potential enabler for ML in Palau.
  • Real estate and legal sectors have been identified as having high and medium-level risks for ML, respectively.

Low Risk of Terrorism Financing

In contrast to the risk of ML, Palau’s risk of TF is considered low. There are no links to terrorism or cases of TF reported. However, there are areas of concern:

  • Limited expertise among relevant agencies.
  • Lack of oversight of non-profit organizations (NPOs).
  • Negligible implementation of TF regulations in the non-bank sector.

Assessment of Risks

Palau completed its first formal assessment of ML/TF risk in 2017 through a National Risk Assessment (NRA). While the report highlights some high-risk predicate offenses, including illicit trafficking in narcotic drugs and psychotropic substances and human trafficking, corruption risks are not given sufficient focus.

Limited Financial Intelligence

  • The country’s financial intelligence unit (FIU) provides decent-quality financial intelligence to law enforcement agencies (LEAs) and prosecutors.
  • However, disseminated reports are primarily based on suspicious transaction reports (STRs).
  • LEAs have limited understanding of the benefits and use of financial intelligence.
  • They lack resources and capacity to act on it.

Prosecutions and Sanctions

Palau has had five successful ML prosecutions since 2011. However:

  • These convictions do not align with the country’s higher-risk predicate offenses.
  • Sentences for ML often involve suspended sentences and fines that are not proportionate and dissuasive.

Efforts to Improve Compliance

  • The creation of the National Enforcement Agency (NEA) in 2017 and the Financial Intelligence Unit (FCIU) in 2016 has allowed Palau to focus its limited resources on its most significant risks.
  • The country has also improved the declaration system for incoming and outgoing cross-border transportation of currency and bearer negotiable instruments.

Conclusion

The report highlights the need for Palau to strengthen its ML/TF regime, particularly with regards to cash-intensive industries and financial intelligence. While there are some positive developments, such as the creation of the NEA and FCIU, more needs to be done to address the country’s vulnerabilities and improve compliance.