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 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 preventing corruption, but difficulties in filling investigative positions and a lack of public trust in law enforcement hinder their effectiveness. While local media plays a role in reporting corruption, Palau lacks formal anti-corruption NGOs and does not appear in Transparency International’s Index of Corruption.

Palau's economy is primarily driven by tourism, which contributes about 40% to its GDP of $242 million in 2022, translating to approximately $13,764 per capita. The government is the largest employer, accounting for 30% of the workforce, while the country relies heavily on imports and has a limited export base, making it vulnerable to external shocks. Additionally, Palau's economic stability is supported by donor funding, particularly from the United States under the Compact of Free Association.

Palau's investment climate is characterized by a mix of opportunities and challenges. 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 corruption have been reported by some investors. Additionally, complexities surrounding land ownership and the lack of bilateral investment protection agreements further complicate the investment landscape.