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.

Corruption poses significant challenges to business operations in Palau, despite existing legal frameworks 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 conflicts of interest and public trust in law enforcement hinder their effectiveness. Additionally, Palau faces various criminal activities, including human trafficking, illicit trade, and cybercrime, while the government strives for transparency and environmental protection amidst ongoing challenges in governance and law enforcement.

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, with around 30% of the workforce, while the country faces challenges such as a limited export base and reliance on imports, leading to trade deficits. Additionally, Palau's economy is supported by U.S. military exercises and foreign aid, particularly under the Compact of Free Association with the United States.

Palau's investment climate is characterized by a mix of opportunities and challenges for foreign investors. While the government actively seeks foreign direct investment and has established a Foreign Investment Board to regulate it, there are significant restrictions in certain sectors, and allegations of corrupt practices have been reported. Additionally, complexities in land ownership and the absence of bilateral investment protection agreements further complicate the investment landscape.