Financial Crime World

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Palau Adopts Risk-Based Approach to Combat Money Laundering and Terrorist Financing

In a move to strengthen its anti-money laundering (AML) and combating the financing of terrorism (CFT) regime, Palau has adopted a risk-based approach to identify, assess, and mitigate money laundering and terrorist financing risks. This approach is in line with the Financial Action Task Force’s (FATF) recommendations on assessing risks and applying a risk-based approach.

Risk-Based Approach

Under this approach, Palau will require financial institutions and designated non-financial businesses and professions (DNFBPs) to:

  • Identify their money laundering and terrorist financing risks
  • Assess these risks and take effective action to mitigate them
  • Review the risk profiles and risk assessments prepared by these entities to ensure that they are effectively implementing necessary measures

Level of Scrutiny and Supervision

Palau’s risk-based approach is designed to ensure that:

  • Higher-risk entities or transactions will be subject to more stringent requirements
  • Lower-risk ones may be allowed to adopt simpler measures
  • The level of scrutiny and supervision is commensurate with the level of risk posed by each entity or transaction

Responsibilities of Financial Institutions and DNFBPs

To effectively implement Palau’s risk-based approach, financial institutions and DNFBPs are expected to:

  • Have policies, controls, and procedures in place to manage and mitigate risks
  • Monitor the implementation of these measures and enhance them if necessary
  • Identify their money laundering and terrorist financing risks and take appropriate steps to mitigate them

Simplified Customer Due Diligence (CDD) Measures

Palau’s risk-based approach will also allow financial institutions and DNFBPs to apply simplified CDD measures for lower-risk customers or transactions. This is designed to:

  • Reduce the compliance burden on entities that are deemed to be low-risk
  • Ensure that they are subject to adequate levels of scrutiny

Positive Impact on Financial Sector

Palau’s adoption of a risk-based approach is expected to have a positive impact on its financial sector, including:

  • Reducing the compliance burden on lower-risk entities while still ensuring that higher-risk ones are subject to adequate levels of scrutiny
  • Improving the country’s ability to identify and prevent suspicious transactions
  • Enhancing Palau’s overall anti-money laundering and combating the financing of terrorism regime

Implementation and Oversight

The implementation of this risk-based approach will be overseen by Palau’s financial regulatory authorities, who will work closely with financial institutions and DNFBPs to ensure that they are effectively implementing necessary measures. The country’s anti-money laundering and combating the financing of terrorism regulations will also be updated to reflect its new risk-based approach.