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 filling positions within these bodies is often problematic due to potential conflicts of interest in the small population. While local media plays a role in highlighting corruption issues, 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 approximately 40% to its GDP, while the government is the largest employer, accounting for about 30% of the workforce. The GDP in 2022 was $242 million, with a per capita income of around $13,764, and the country heavily relies on imports, running trade deficits, and facing vulnerabilities due to limited production capacity and a small agricultural base.

Palau's investment climate is characterized by a complex regulatory environment, with the Foreign Investment Act guiding foreign investments while restricting certain sectors to Palauan citizens. Although 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. Furthermore, foreign investors face limitations on land ownership and must navigate a bureaucratic process that can lack transparency.