Palau’s Anti-Money Laundering and Counter-Terrorist Financing Efforts Remain Vulnerable

Palau, a small island nation in the Pacific, continues to struggle with anti-money laundering (AML) and counter-terrorist financing (CFT) measures, leaving it vulnerable to financial crimes.

Cash-Intensive Industries Pose Significant Risk for Money Laundering

According to a recent report by the Asia-Pacific Group on Money Laundering (APG), Palau’s cash-intensive industries, including high-end goods such as cars, boats, and household items, remain unregulated and pose a significant risk for money laundering. The movement of funds, both in cash and electronic wire transfers, originating from offshore is also a concern.

Designated Non-Financial Business Sector (DNFBP) Sector at Risk

The report highlights that while the country’s DNFBP sector is small, real estate and lawyers have high and medium-level risks for money laundering respectively, and are not regulated for AML/CFT. The lack of regulation in the real estate sector exacerbates this exposure.

Low Level of Risk for Terrorist Financing

On the other hand, Palau has a low level of risk for terrorist financing (TF), having never identified any links to terrorism or TF cases. However, the country’s vulnerabilities include limited expertise among relevant agencies, lack of oversight of non-profit organizations (NPOs), and negligible implementation of CFT measures in the non-bank sector.

Challenges in Implementing AML/CFT Measures

The report also notes that Palau has not fully adopted a risk-based approach for exemptions from AML/CFT requirements, and the application of enhanced or simplified preventative measures has been limited. Additionally, there is a need for improved coordination between competent authorities, particularly in relation to TF and proceeds of crime (PF).

Financial Intelligence

In terms of financial intelligence, while some use has been made of it by competent authorities investigating money laundering or predicate offenses, there is a lack of understanding among law enforcement agencies (LEAs) about the benefits and use of financial intelligence. LEAs also lack resources and capacity to act on it.

Conclusion

The report concludes that Palau’s LEAs have not made effective use of information provided by the Financial Intelligence Unit (FIU), and there has been no strategic analysis conducted or disseminated by the FIU. The country has had some successful money laundering prosecutions, but these have not always resulted in proportionate and dissuasive sanctions.

Overall Assessment

Overall, while Palau has taken some steps to improve its AML/CFT regime, it still faces significant challenges in implementing effective measures to combat financial crimes.