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.

Corruption poses significant challenges for business operations in Palau, despite the existence of a comprehensive legal framework aimed at combating it. Key institutions such as the Office of the Special Prosecutor and the Ethics Commission are tasked with oversight, but issues like conflicts of interest and a lack of trust in law enforcement hinder their effectiveness. While local media plays a role in highlighting corruption cases, there are no formal anti-corruption NGOs or international watchdogs present in the country.

Palau's economy is primarily driven by tourism, which contributes approximately 40% to its GDP of $242 million in 2022, translating to about $13,764 per capita. The government is the largest employer, accounting for 30% of the workforce, while the country faces challenges such as a limited export base, heavy reliance on imports, and vulnerability to external shocks, particularly following the implementation of the Palau Marine Sanctuary.

Palau's investment climate is characterized by a complex regulatory environment that includes restrictions on foreign ownership in certain sectors, requiring partnerships with local citizens for semi-restricted businesses. While the government actively seeks foreign direct investment, challenges such as allegations of corruption, complicated land ownership issues, and a lack of bilateral investment protection agreements may deter potential investors. Additionally, the absence of specific financial incentives and the need for transparency in bureaucratic processes further complicate the investment landscape.