Financial Crime World

Cash-Intensive Industries Remain Vulnerability in Palau, Anti-Money Laundering Efforts Lag

Palau’s financial system is vulnerable to money laundering and terrorist financing due to its cash-intensive industries and lack of regulations in certain sectors.

Vulnerabilities Identified

  • Individual purchases of high-end goods such as cars, boats, and household items are often not processed through financial institutions, making them susceptible to money laundering.
  • The movement of funds, both cash and electronic wire transfers originating from offshore, is a concern in Palau.
  • The country’s real estate sector, which has high and medium-level risks for money laundering, is not regulated for anti-money laundering (AML) purposes.
  • Lawyers, another high-risk sector, are also not regulated for AML.

Terrorist Financing Risks

  • Palau’s exposure to terrorist financing (TF) is considered low, with no links to terrorism or cases of TF reported in the country.
  • However, the lack of oversight and monitoring of non-profit organizations (NPOs), as well as limited expertise among relevant agencies, poses a vulnerability to TF.

Anti-Money Laundering Efforts

  • Palau has completed its first formal assessment of money laundering/terrorist financing risk, but further analysis is required.
  • The country’s financial intelligence unit (FIU) provides decent-quality financial intelligence and other relevant information to law enforcement agencies and prosecutors, which has supported ML investigations over the past two years.
  • However, law enforcement agencies have limited understanding of the benefits and use of financial intelligence, and lack resources and capacity to act on it.

Recommendations

  • Further analysis is required to improve Palau’s anti-money laundering/terrorist financing efforts.
  • Financial intelligence analysis, law enforcement cooperation, and confiscation of proceeds of crime require further improvement.
  • The quality, quantity, and scope of suspicious transaction reports (STRs) reported to the FIU need to be improved, including receiving STRs from all significant reporting entities.

Overall, Palau’s efforts to combat money laundering and terrorist financing require further improvement in various areas. Addressing these vulnerabilities is crucial for maintaining the integrity of Palau’s financial system and preventing illicit activities.