Financial Crime World

Palau’s Financial Intelligence Unit Struggles Amidst Limited Resources

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A recent assessment by international authorities has raised concerns over Palau’s ability to effectively combat money laundering and terrorist financing due to inadequate resources.

Limited Resources Impact Effectiveness

The Financial Intelligence Unit (FIU) of Palau, responsible for processing suspicious transaction reports (STRs), is operating without dedicated full-time resources since its inception in 2001. Despite receiving 71 STRs, including disseminating them to the Division of Criminal Investigation & Drug Enforcement (CID) for investigation, the lack of standard operating procedures and dedicated staffing resources hinders its effectiveness.

Deficiencies in Law Enforcement

The report also noted that Palau’s law enforcement agencies have not conducted any investigations or prosecutions relating to terrorist financing, despite the country’s commitment to combating terrorism. Furthermore, the freezing of terrorist assets under United Nations Security Council Resolutions 1267 and 1373 is not adequately addressed, with unclear procedures for designating and freezing terrorist funds.

The report highlighted deficiencies in Palau’s legal framework, including:

  • Lack of coverage by the money laundering offense of eight out of twenty FATF-designated categories of predicate offenses.
  • Property relating to predicate offenses cannot be confiscated, hindering efforts to disrupt criminal networks.

Progress Made, But Challenges Remain

Despite these challenges, Palau has made some progress in combating financial crimes. The country’s anti-money laundering law is broadly in line with international standards, and the recently enacted Combating Terrorism Act (CTA) criminalizes the financing of terrorism.

However, without dedicated resources and improved procedures, Palau’s efforts to combat money laundering and terrorist financing will remain hindered.

Recommendations

To enhance its effectiveness in processing STRs and disseminating information to law enforcement agencies, the report recommends:

  • Increasing dedicated staffing resources for the FIU.
  • Developing documented standard operating procedures on STR analysis and dissemination.
  • Allowing the FIU to obtain additional information from reporting entities without a court order.
  • Providing feedback on STRs to reporting entities.
  • Improving procedures for designating and freezing terrorist funds under UNSCRs 1267 and 1373.

Without addressing these concerns, Palau’s overall anti-money laundering and combating the financing of terrorism (AML/CFT) systems will remain deficient in several areas.