Palau Country Summary

FATF Status

Palau is not on the FATF List of Countries that have been identified as having strategic AML deficiencies

Compliance with FATF Recommendations

The last follow-up Mutual Evaluation Report relating to the implementation of anti-money laundering and counter-terrorist financing standards in Palau was undertaken by the Financial Action Task Force (FATF) in 2024. According to that Evaluation, Palau was deemed Compliant for 5 and Largely Compliant for 18 of the FATF 40 Recommendations. It remains Highly effective for 0 and Substantially Effective for 1 of the Effectiveness Ratings.

Palau faces challenges related to corruption and crime, despite having a robust legal framework designed to address these issues. Corruption is a concern in business dealings, with key institutions in place to combat it, although conflicts of interest can hinder effective enforcement, while criminal activities such as human trafficking, illegal fishing, and cybercrime are prevalent, often linked to international networks.

The Republic of Palau, a small island nation in the western Pacific, has a GDP of approximately $282 million, heavily reliant on tourism, which accounts for 40% of its GDP, and government employment, which constitutes about 30% of the workforce. The economy is vulnerable due to its limited export base and reliance on donor funding, primarily from the United States under a Compact of Free Association, which provides $890 million in economic assistance over 20 years. While the government is actively seeking foreign direct investment, challenges such as restrictive foreign ownership laws, allegations of corruption in permit processes, and a complex land ownership system hinder investment opportunities, despite the country’s efforts to improve the business environment through regulatory reforms and infrastructure investments.