Cash-Based Economy Remains Vulnerability in Palau
Palau’s economy remains vulnerable to money laundering (ML) and terrorist financing (TF), according to a recent report by the Asia-Pacific Group on Money Laundering. The country’s cash-based economy and lack of regulation in certain industries have contributed to this vulnerability.
Lack of Regulation and Monitoring
The report highlights that individual purchases of high-end goods, such as cars, boats, and household items, are often not processed through financial institutions, making it difficult to track transactions. Additionally, cash-intensive industries like real estate and lawyers’ services have medium to high levels of risk for ML, but are not regulated for anti-money laundering (AML) purposes.
- Cash-based economy makes it difficult to track transactions
- Real estate and lawyers’ services have medium to high levels of risk for ML
Concerns over Offshore Funds
The report also expresses concern over the movement of funds, both cash and electronic wire transfers, that originate from offshore. This highlights the need for Palau to improve its monitoring and reporting mechanisms to detect suspicious transactions.
- Limited resources and expertise among relevant agencies
- Lack of oversight of non-profit organizations (NPOs)
- Negligible implementation of TF regulations in the non-bank sector
Assessment of AML/CFT Measures
The report assesses Palau’s overall level of effectiveness and technical compliance in implementing AML/CFT measures. While Palau has made some progress, including the formation of a National Enforcement Agency (NEA) and a Financial Intelligence Unit (FIU), there are areas that require improvement.
- LEAs have limited understanding of financial intelligence
- Limited resources to act on financial intelligence
- Quality, quantity, and scope of Suspicious Transaction Reports (STRs) could be improved
Recommendations for Improvement
The report recommends that Palau focus its efforts on addressing ML/TF risks in key sectors, including real estate and lawyers’ services, and improve its financial intelligence gathering and analysis capabilities.
- Improve financial intelligence gathering and analysis capabilities
- Focus efforts on addressing ML/TF risks in key sectors
- Enhance use of information provided by the FIU
- LEAs should take a proactive approach to carrying out parallel financial investigations
Conclusion
While Palau has made some progress in implementing AML/CFT measures, there is still much work to be done to address its vulnerabilities to ML/TF. The country must continue to strengthen its regulatory framework and improve its monitoring and reporting mechanisms to combat these threats.