Financial Crime World

Palau’s Efforts Against Money Laundering and Terrorist Financing: An Assessment

Introduction

This report assesses Palau’s efforts to prevent and combat money laundering (ML) and terrorist financing (TF). Located in the Pacific, Palau is a small island nation that faces unique challenges in addressing these financial crimes.

Risk Assessment

Palau has identified two high-risk predicate offenses:

  • Illicit trafficking in narcotic drugs and psychotropic substances: This offense poses significant risks to Palau’s financial system and national security.
  • Trafficking in human beings and sexual exploitation: This crime is a major concern for the country, given its potential to facilitate ML and TF.

AML/CFT Strategy

While there is no documented AML/CFT strategy or policy informed by risk, Palau has made positive steps to address ML/TF risks:

  • Formation of the National Enforcement Agency (NEA): This agency plays a crucial role in investigating and prosecuting financial crimes.
  • Development of the Human Trafficking Task Force: This task force focuses on combating human trafficking and related offenses.

Financial Intelligence

Palau has made some use of financial intelligence and information to investigate ML or predicate offenses:

  • Use of Suspicious Transaction Reports (STRs): These reports are a key source of financial intelligence for competent authorities.
  • Use of Currency Transaction Reports (CTRs): While less common, CTRs also provide valuable insights into suspicious transactions.

ML Prosecutions

Palau has had five successful ML prosecutions since 2011:

  • Reasonable outcome: Given the Palauan context, these prosecutions are a positive development in combating financial crimes.

Confiscation

Most sentences for ML involve suspended sentences and fines, which do not appear proportionate or dissuasive:

  • Maximum sanctions available: Despite satisfactory maximum sanctions available for both natural and legal persons, confiscation procedures need improvement.

Terrorist Financing

Palau has a low level of risk for TF and has never identified either terrorism or TF as a significant threat.

Conclusion

This report highlights areas where Palau needs to improve its efforts to combat money laundering and terrorist financing:

  • Developing a comprehensive AML/CFT strategy: This is essential for addressing ML/TF risks in the country.
  • Enhancing financial intelligence: Improving the quality and dissemination of financial intelligence will help investigators combat financial crimes more effectively.
  • Improving confiscation procedures: Ensuring that sentences are proportionate and dissuasive will help deter financial crimes.