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.

Crime and corruption in Palau present ongoing challenges, despite the existence of a robust legal framework aimed at detection and prosecution. Key institutions like the Office of the Special Prosecutor and the Ethics Commission work to combat corruption, but issues such as nepotism, conflicts of interest, and a lack of trust in law enforcement hinder effective governance and public confidence.

Palau faces various criminal activities, including human trafficking, counterfeit goods trade, and illegal fishing, with foreign criminal networks increasingly involved in these operations. While the government prioritizes environmental protection and participates in regional law enforcement efforts, the judiciary's inefficiency and the economy's heavy reliance on U.S. aid complicate resilience against crime and corruption.

The Republic of Palau, a small island nation in the western Pacific, has an economy primarily driven by tourism, which contributes about 40% to its GDP of approximately $242 million as of 2022. The government is the largest employer, and while Palau's economic growth is projected to be robust at 6.5% for FY2024, the country remains heavily reliant on foreign aid and donor funding, particularly from the United States under the Compact of Free Association. Despite welcoming foreign investment, challenges such as bureaucratic inefficiencies, a complex land ownership system, and allegations of corruption hinder the investment climate, while the absence of bilateral investment protection agreements and strict regulations on foreign ownership in certain sectors further complicate the landscape for potential investors.