## _cr0909 ## Source details **Canonical URL:** [_cr0909](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0909.pdf) ## Other formats - [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0909.pdf.md) - [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0909.pdf.json) --- ### Assessment scope, methodology, and team - Assessment based on the Forty Recommendations 2003 and the Nine Special Recommendations on Terrorist Financing 2001 of the FATF. - Methodology: AML/CFT assessment Methodology 2004, updated February 2008. - On-site mission: March 3 to March 17, 2008. - Materials: authorities’ submissions, on-site information, and subsequent verifiable material. - Team composition: - Ms. Maud Bökkerink (LEG, team leader) - Ms. Marlene Manuel (LEG) - Ms. Gabriele Dunker (legal expert under LEG supervision) - Mr. John McDowell (financial expert under LEG supervision) - Mr. Lindsay Chan (APG Secretariat, observer) - Outputs: summary of measures in place; description and analysis; Palau’s compliance levels with FATF 40+9 (Table 1); recommendations to strengthen system (Table 2). - APG endorsement: plenary meeting in Bali, Indonesia of July 7-11, 2008. ### Legislative framework — recent changes and main findings - Key laws enacted/amended: - Money Laundering and Proceeds of Crime Act of 2001 (MLPCA) amended December 19, 2007. - Financial Institutions Act of 2001 (FIA) amended February 13, 2008. - Counter-Terrorism Act of 2007 (CTA) enacted April 2007. - Cash Courier Disclosure Act of 2007 (CCDA) signed August 22, 2007. - Main finding: legislation improved but "there has not been sufficient implementation." Authorities urged to "expeditedly devote the resources to implementing the legislation." - MLPCA amendment limited predicate offenses from “all crimes” to “all felonies.” - Money laundering offense: covers conversion/transfer, concealment/disguise, acquisition/possession/control; uncertainty whether it expressly covers "use of criminal proceeds." - Predicate coverage: only about half of the twenty FATF designated categories covered; excluded categories include participation in an organized criminal group and racketeering, illicit arms trafficking, illicit trafficking in stolen and other goods, counterfeiting and piracy of products, environmental crimes, extortion, piracy, insider trading and market manipulation. - CTA financing offence: Sections 23–26 criminalize financing of terrorism; no investigations/prosecutions to date. ### Institutional placement, FIU/FIC resourcing and operational capacity - FIU established 2001 in Office of the Attorney General (OAG); transferred to Financial Institutions Commission (FIC) by Executive Order No. 246 on February 12, 2008. - FIU operational history: - "Has been operating without dedicated full-time resources since its inception." - Processed 71 suspicious transaction reports (STRs) and disseminated STRs to CID without a documented standard operating procedure. - FIU-in-a-Box database in use; 71 total STRs received; 59 disseminated/investigated (49 to BPS-CID; 10 by OAG-CID staff); prosecutions based on STRs: 1. - FIC staffing: Executive Commissioner, one bank examiner in training, one support person; FIC budget averaged around $115,000 over last three years. - FIC assumed FIU responsibilities without additional budget or staff. - Recommendations to FIU/FIC: - Provide dedicated staffing resources. - Allocate a dedicated FIU budget under FIU head control. - Document standard operating procedures for STR analysis and dissemination. - Enable FIU to request additional information from reporting entities during STR analysis "without the need for a court order." - Provide STR/CTR forms, guidance, and feedback to reporting entities. - Recruit at least one additional FIU analyst with financial analysis/investigation skills. ### STRs, CTRs, cross-border reporting and databases - STRs: total received 71; average reporting "about 10 per annum since the MLPCA was introduced in 2001" (based on two banks reporting). - Disseminated to CID: 49; analyzed/investigated by OAG-CID staff: 10; total investigated: 59. - Prosecutions based on STRs: 1 (predicate charge breach of Foreign Investment Act; pending trial). - CTRs: approximately 100 CTRs received since January 2008; about half concern transactions by the government of Palau. - Cross-border cash disclosures (CCDA): five declarations sent to FIU; since November 2007 five declarations; CCDA threshold $10,000 or equivalent. - Customs detection record: about 90 occurrences since 1999 (pre-CCDA). - FIU feedback and publication: - FIU published first annual report on February 11, 2008. - No comprehensive typology analysis or sanitized case feedback to reporting entities to date. - Recommendations: - Issue STR and CTR standard forms and guidance. - Provide feedback and publish sanitized annual analysis. - Seek copies of STRs filed by U.S. banks (FinCEN) to ensure complete access. ### Preventive measures — financial institutions (coverage, CDD, monitoring, STRs) - Financial sector structure: - Seven banks licensed by FIC: four are branches of foreign banks; locally-chartered banks: three. - Nonbank: 12 insurance intermediaries ("insurance agents"), 12 finance companies, 14 MVTS, approximately 3 credit unions. - Foreign branches account for 80 percent of market. - Supervisory capacity: FIC has not yet supervised financial institutions for AML/CFT nor issued AML/CFT guidelines; "high priority" to staff, fund, and train FIC. - CDD and related deficiencies (MLPCA gaps): - PEPs: not included. - Cross-border correspondent banking and payable-through accounts: inadequate provisions. - Enhanced due diligence: high-risk categories not required to use EDD. - Casual/occasional customer threshold: identification threshold of $10,000; gap for wire transfers $1,000–$5,000. - Record-keeping: Section 12 does not require all transaction records for at least five years; account files and business correspondence not explicitly required for five years. - Wire transfer rules: Section 6 applies to transfers to/from foreign country of at least $5,000; transfers between $1,000 and $5,000 not covered; no risk-based procedures for incomplete originator information. - Monitoring: Section 11 requirements new and unimplemented; no procedures for counter-measures vis-à-vis other countries. - STR reporting: although required, "only two of the seven banks indeed have reported STRs" historically; reporting of suspicions related to financing of terrorism not sufficiently covered in MLPCA. - Compliance ratings excerpt: - R.5 — NC; R.6 — NC; R.7 — NC; R.8 — NC. - Recommendations (selected): - Require CDD for linked occasional transactions and for wire transfers of $1,000 or more. - Require CDD on suspicion of ML/FT. - Require beneficial owner identification and understanding of ownership/control for legal persons. - Incorporate PEP requirements, EDD, ongoing due diligence, and purpose/nature-of-relationship collection. - Amend wire-transfer rules to cover transfers of $1,000 or more and require originator information to travel with payment. ### MVTS / Alternative Remittance Systems (ARS) - MLPCA Section 8 brings MVTS under FIC licensing as ARS; ARS reporting threshold $1,000 for cash transaction reporting (Section 8(b)). - FIC intends to classify MVTS as ARS but "has not yet identified all ARS providers nor has it issued any implementing regulations." Consequently ARS/MVTS are largely unsupervised. - Known MVTS: three largest operators (including Western Union and Pinoy Express). - ARS operational issues: - Two of three ARS are subsidiaries with group compliance—CIP sometimes only requires ID number entry without verification. - Transaction/product limits: reported per-transaction limits $3,500 and $2,500 (pre-paid card), posing structuring risks. - SR.VI rating: NC. - Recommendations: - Identify and license ARS under Section 8. - Issue regulations requiring full CDD, beneficiary/agent lists, record retention for five years, STR/CTR forms, tipping-off prohibitions, and ARS supervision. ### DNFBPs (lawyers, CSPs, casinos, notaries, real estate) - DNFBP composition: - Lawyers: approximately 60 Palau Bar members; about 20 in private practice; about 13 attorneys provide company formation services (CSPs). - Casinos: covered by MLPCA but "no licensed casinos in Palau." - Other DNFBPs: notaries (124), real estate agents rare, dealers in precious metals/stones none meeting FATF categories. - Coverage gaps: - Attorneys providing company formation services are not covered under MLPCA and "in practice they also do not comply with the preventive measures of the MLPCA." - DNFBPs (lawyers and CSPs) not subject to AML/CFT legislation—R.12 and R.16 rated NC. - Recommendations: - Broaden AML/CFT coverage to include DNFBPs (at minimum lawyers and CSPs when performing FATF-defined DNFBP activities). - Designate supervisors for DNFBP sectors and issue guidance/regulations. - Provide training and require STR reporting and CDD/record-keeping obligations. ### Legal persons, corporate transparency, and trusts - Corporations: - Incorporation via Registrar of Corporations; foreign investment requires FIB pre-approval. - Registrar records names, citizenship, mailing address of incorporators, directors (at least three), initial officers, and share allocations; annual reports required. - Registrar does not verify accuracy of corporate data; FIB "vets applications to some extent." - Trusts and legal arrangements: - No specific trust law; trusts recognized as type of corporation; few family trusts hold land titles. - No specific obligations to obtain information on ultimate beneficial owners; R.33 — PC; R.34 — PC. - Recommendations: - Implement measures to ensure corporate and trust ownership/control information is accurate and current and available to FIU and law enforcement. - Enhance Registrar procedures and introduce fit-and-proper and beneficial ownership transparency measures. ### NPO sector and SR.VIII - NPOs: - 156 NPOs registered; categories include education, environment, religious, social welfare, etc. - Tax Code Title 40 PNC 1002(w): donations tax deductible to max 10 percent of taxable income. - CTA Section 25 requires: - No NPO status if reasonable grounds assets may be diverted to terrorists. - NPOs to record donations ≥ $5,000 in records kept for 3 years; donations ≥ $10,000 must be reported to Attorney General and FIU. - Gaps: record-keeping 3 years (below FATF five years); no active monitoring, no fit-and-proper test, no audited statements for many NPOs; SR.VIII rating: PC. - Recommendations: - Review and risk-assess the NPO sector; identify higher-risk NPOs with international funding. - Require record-keeping for at least five years; designate a responsible agency for NPO AML/CFT matters; commence targeted audits/spot checks and outreach. ### Freezing, seizure, confiscation and terrorist asset measures - MLPCA confiscation framework: - Conviction-based confiscation: Section 33 (property forming subject of offense), Section 34 (property of criminal organization). - Standard of proof for confiscation: "beyond a reasonable doubt." - Section 33 allows confiscation of enrichment over three years preceding conviction. - Limitations: cannot confiscate proceeds/instrumentalities of predicate offenses absent money laundering charge; cannot confiscate instrumentalities merely intended for use. - R.3 rating: PC. - CTA confiscation/forfeiture: - Section 7 (criminal forfeiture) and Section 10 (civil forfeiture) allow seizure/forfeiture related to terrorism; standard in Section 7 is "preponderance of the evidence." - Section 7 (b) allows confiscation of property of equal value if subject property cannot be located. - Freezing under UNSCRs 1267/1373 (SR.III): - Section 13(l) CTA designates Minister of Justice to order freezing for UNSCR 1267 lists; Section 26(b) CTA references freezing. - Practical gaps: - No procedures to ensure freezing "immediately and without undue delay"; authorities believe freezing would require a court order. - No designated authority/procedures for UNSCR 1373. - No requirement to freeze without prior notice. - SR.III rating: NC. - Operational outcomes: - Two freezing orders issued historically: - First: U.S. request involving $100,000; assets frozen and later confiscated. - Second: domestic case ~ $60,000; lapse of freezing caused part of funds to be withdrawn and lost due to expiry/renewal gap. - No provisional/confiscation measures applied to terrorist financing property to date. - Recommendations (selected): - Amend MLPCA to expressly include laundered property and instrumentalities, and allow confiscation of proceeds/instrumentalities of predicate offenses and property of corresponding value. - Provide freezing measures for terrorism financing and procedures to identify and trace terrorism-related property. - Establish administrative procedures and designate authorities to receive and disseminate UNSCR 1267 and 1373 lists; ensure immediate communication to financial sector and guidance; adopt de-listing/unfreezing procedures and UNSCR 1452 access procedures. - Provide sanctions and monitoring for noncompliance with SR.III obligations. ### Law enforcement, prosecutions, investigative powers and special techniques - Competent authorities and capacities: - CID (BPS) responsible for ML/TF investigations: 18 CID staff (about half to criminal investigations, half to drug enforcement); two CID staff seconded to OAG. - OAG prosecutorial resources: Attorney General, four assistant AGs, one trial counselor, two clerks, two investigators. - Experience and prosecutions: - OAG has prosecuted six money laundering cases: - Two cases involved prostitution; two embezzlement; one bribery; one Foreign Investment Act crime. - Outcomes: one conviction (2007) — convict released on habeas corpus; one acquittal; one plea bargain; three pending. - One prosecution originated from an STR. - Assessors: volume of prosecutions "seems to be appropriate" given Palau size. - Investigative powers: - MLPCA Section 24: special investigative techniques (monitor bank accounts, access computer systems, surveillance/tapping, electronic recording, inspect communications) available upon probable cause and, absent exigency, only with Supreme Court warrant. - Controlled delivery/undercover: Section 25 authorized with prior Supreme Court authorization; seizing/freezing possible under Section 27/28 with timelines and extensions. - CTA lacks explicit special investigative techniques for TF. - Practical constraints: - Law enforcement "has not made use of any of the special powers" due to resource/equipment shortages. - CID tends to investigate predicate offenses and rarely initiates ML/TF investigations absent STR referrals. - Recommendations: CID should focus on ML offenses as well as predicate crimes; use available powers; develop audit trail for STRs between FIU, CID, and OAG. ### Mutual legal assistance, extradition and international cooperation - MLA framework: - Mutual Assistance in Criminal Matters Act of 2001 (MLA Act) allows wide assistance types (Section 7), including evidence-taking, search warrants, locating/restraining property, enforcement of foreign confiscation orders. - Extradition and Transfer Act of 2001 allows extradition subject to dual criminality and specific conditions. - Practical points: - Attorney General may grant/refuse/postpone MLA requests; in practice no request has been refused; one MLA request from the United States granted (location and confiscation); Palau made one MLA request to New Zealand (bank records). - Dual criminality requirement may limit MLA and extradition where predicate offenses not covered by MLPCA. - MLA Act (Section 13/14) permits enforcement of foreign restraining/confiscation orders; Supreme Court may enter and enforce foreign confiscation orders subject to conditions. - Asset sharing: Section 16 MLA Act authorizes asset-sharing agreements; Section 19 MLA Act provides disposition for drug-related proceeds. - Assessors' ratings: - R.36: PC; R.37: LC; R.38: PC; SR.V: PC. - Recommendations: - Amend Criminal Code to include all FATF-listed predicate offenses to maximize MLA/extradition effectiveness. - Permit MLA even absent dual criminality for noncoercive measures. - Clarify and expedite MLA processes; consider formal arrangements to coordinate seizing/confiscation actions; ensure ability to identify/trace/freeze terrorism-related property. ### Sanctions, supervisory enforcement and remedial measures - Sanctions framework: - MLPCA Sections 29–32: criminal penalties for ML (natural persons up to 10 years imprisonment or fines), corporate sanctions, civil penalties up to $50,000 for noncompliance with Sections 5–20, and other offenses. - FIA Section 63: remedial measures and penalties for financial institutions (warnings, agreements, cease & desist, fines, suspensions, revocations). - Implementation gap: - FIC has not promulgated regulations under Section 14(b) MLPCA; no AML/CFT sanctions have been applied by FIC. - Recommendations: - FIC to promulgate remedial regulations and execute AML/CFT supervisory program; utilize sanctioning powers where warranted. ### Ratings summary — selected key ratings (as reported) - R.1 — PC - R.2 — C - R.3 — PC - R.4 — C - R.5 — NC - R.6 — NC - R.7 — NC - R.8 — NC - R.9 — NC - R.10 — NC - R.11 — NC - R.12 — NC - R.13 — PC - R.14 — LC - R.15 — PC - R.16 — NC - R.17 — LC - R.18 — PC - R.19 — C - R.20 — LC - R.21 — NC - R.22 — NC - R.23 — NC - R.24 — NC - R.25 — NC - R.26 — PC - R.27 — LC - R.28 — LC - R.29 — PC - R.30 — PC - R.32 — NC - R.33 — PC - R.34 — PC - R.35 — PC - R.36 — PC - R.37 — LC - R.38 — PC - R.39 — LC - R.40 — C - SR.I — PC - SR.II — LC - SR.III — NC - SR.IV — PC - SR.V — PC - SR.VI — NC - SR.VII — NC - SR.VIII — PC - SR.IX — LC ### Key operational statistics and case examples - Banks: 7 commercial banks (4 foreign branches, 3 locally-chartered). - Pacific Savings Bank failure (November 2006): had approximately 7,500 customers and $23 million in deposits; capital deficiency about $12 million; led to two ML prosecutions (pending trial). - STRs: 71 total received; 59 investigated; 1 prosecution based on STR. - CTRs: about 100 since January 2008. - CCDA detections: since November 2007 five declarations to FIU; three attempts in 2008 to carry > $10,000 without disclosure—on each, funds seized; in two of three administrative 5 percent penalty imposed and remainder returned. - Freezing orders: two historic freezing orders (one U.S. request $100,000; second domestic ~$60,000 with procedural expiry loss). ### Consolidated recommended action plan — selected priorities (from Table 2 and report) - Draft a new unified AML/CFT law to resolve MLPCA inconsistencies and duplications rather than piecemeal amendments. - Criminalization and predicate offenses: - Ensure inclusion of FATF-listed predicate offenses: participation in organized criminal group and racketeering; illicit arms trafficking; illicit trafficking in stolen and other goods; counterfeiting and piracy of products; environmental crimes; extortion; piracy; insider trading and market manipulation. - Amend ML offense to expressly include "knowingly using criminal proceeds." - Amend definition of "proceeds of crime" to expressly cover direct as well as converted proceeds. - FIU/FIC resourcing and operational effectiveness: - Allocate dedicated staff and budget to FIU; recruit financial analyst/investigator. - Formalize STR analysis/dissemination SOPs; enable FIU to obtain additional information from reporting entities at preliminary stage without court order. - Issue STR/CTR forms and guidance; provide feedback to reporters; publish sanitized annual report. - Confiscation and freezing: - Amend law to allow confiscation of proceeds/instrumentalities of predicate offenses and property of corresponding value; enable freezing for terrorism financing; adopt procedures to identify/trace terrorism-related property. - Establish SR.III administrative procedures, designate authority for UNSCR 1373, implement immediate freezing without prior notice where required, and set de-listing/unfreezing/access procedures consistent with UNSCR 1452. - Preventive measures and supervision: - Implement CDD, EDD, ongoing monitoring, PEP rules, wire transfer originator rules (cover $1,000 threshold), and record-keeping for five years including account files and business correspondence. - Identify and license ARS/MVTS; issue ARS/MVTS regulations. - Broaden AML/CFT coverage to DNFBPs (lawyers, CSPs); designate supervisors and provide guidance and training. - Fund and staff FIC to carry out AML/CFT supervisory program and use enforcement powers and sanctions. - Mutual legal assistance and extradition: - Amend Criminal Code to include full list of predicate offenses to remove dual-criminality impediments. - Allow MLA for noncoercive measures absent dual criminality. - Streamline MLA execution procedures and consider formal agreements to coordinate asset recovery and confiscation actions. - NPO sector: - Conduct risk assessment of NPO sector; require five-year donor/transaction records; designate responsible agency; commence targeted reviews and outreach. ### Other institutional and systemic observations - National cooperation: Money Laundering Working Group (MLWG) established 2003 but "meeting on a too irregular basis"; MLWG has not developed an overall AML/CFT strategy. - Integrity and training: - Judiciary "held in high regard" with high integrity. - Limited but growing AML/CFT training: some OAG attorneys, CID officers, and judiciary workshops; UNODC, PALP, AMLAT, and APG training delivered. - Resources and statistics: - Significant human and financial resource shortfalls for FIU and FIC. - Palau does not regularly review effectiveness of AML/CFT system; lacks comprehensive statistics on STRs, ML investigations, amounts frozen/seized/confiscated, MLA and extradition requests. - Authorities’ response: Palau authorities reviewed the assessment, "agree with a majority of the findings," committed to work on the Recommended Action Plan, and expect many deficiencies to be addressed during remainder of 2008 and into Q1 2009. *Source: IMF assessment Preface and country report excerpts (assessment mission March 3 to March 17, 2008; APG endorsement July 7-11, 2008).* ### Preface ................................................................................................................ ### _cr0909 - Preface ................................................................................................................ ### Assessment scope and methodology - The assessment of the anti-money laundering (AML) and combating the financing of terrorism (CFT) regime of the Republic of Palau was based on the Forty Recommendations 2003 and the Nine Special Recommendations on Terrorist Financing 2001 of the Financial Action Task Force (FATF). - The assessment was prepared using the AML/CFT assessment Methodology 2004, as updated in February 2008. - Materials considered included all materials supplied by the authorities, information obtained on site during the mission from March 3 to March 17, 2008, and other verifiable information subsequently provided by the authorities. - The assessment examined institutional framework, relevant AML/CFT laws, regulations, guidelines and other requirements, and regulatory and other systems in place to deter and punish money laundering (ML) and the financing of terrorism (FT) through financial institutions and designated non-financial businesses and professions (DNFBP). - The assessors examined the capacity, implementation, and effectiveness of all these systems. ### Assessment team and on-site engagement - The assessment was conducted by a team composed of staff of the International Monetary Fund (IMF) and two experts and an observer from the Asia/Pacific Group on Money Laundering (APG) acting under the supervision of the IMF. - Evaluation team members: - Ms. Maud Bökkerink (LEG, team leader) - Ms. Marlene Manuel (LEG) - Ms. Gabriele Dunker (legal expert under LEG supervision) - Mr. John McDowell (financial expert under LEG supervision) - Mr. Lindsay Chan (APG Secretariat, observer during the assessment visit by prior agreement with the authorities) - During the mission the assessment team met with officials and representatives of all relevant government agencies and the private sector. A list of the bodies met is set out in Annex 2 to the detailed assessment report. ### Outputs and follow-up - The report provides: - A summary of the AML/CFT measures in place in Palau at the time of the mission or shortly thereafter. - A description and analysis of those measures. - Palau’s levels of compliance with the FATF 40+9 Recommendations (see Table 1 of the report). - Recommendations on how certain aspects of the system could be strengthened (see Table 2 of the report). - The report was presented to the APG and endorsed by this organization in its plenary meeting in Bali, Indonesia of July 7-11, 2008. ### Institutional focus and evaluation emphasis - The assessment covered: - Financial institutions and designated non-financial businesses and professions (DNFBP). - Legal and regulatory frameworks, supervisory and enforcement arrangements. - The Financial Intelligence Unit and other competent authorities. - Mechanisms for confiscation, freezing and seizure, and for international cooperation. - Emphasis was placed on implementation, effectiveness, and institutional capacity to prevent and combat ML and FT. *Source: IMF assessment Preface (assessment mission March 3 to March 17, 2008; APG endorsement July 7-11, 2008).* ### 1. Palau has recently strengthened its AML/CFT legislative framework that has been in place ### Palau has recently strengthened its AML/CFT legislative framework that has been in place ### Overview and main findings - Palau amended the Money Laundering and Proceeds of Crime Act of 2001 (MLPCA) and the Financial Institutions Act of 2001 (FIA), and enacted the Counter-Terrorism Act of 2007 (CTA) and the Cash Courier Disclosure Act of 2007 (CCDA). - Despite legislation being in place since 2001, "there has not been sufficient implementation." - Authorities should "expeditedly devote the resources to implementing the legislation." ### Scope and gaps in criminalization and provisional measures - Money laundering is criminalized in the MLPCA, but "only about half of the twenty FATF designated categories of predicate offenses are covered by the money laundering offense." - The CTA (enacted April 2007) criminalizes financing of terrorism largely in line with the international standard, but at the time of the on-site mission there had been no investigations or prosecutions for terrorist financing. - Freezing of terrorist assets under UN Security Council Resolutions 1267 and 1373 "is not adequately addressed." Procedural aspects and responsibilities for designations and dissemination are unclear; no procedures ensure funds are frozen "immediately and without undue delay." - Provisional measures (seizing of evidence and property; freezing of capital and financial transactions) are available but: - All such measures are subject to approval by the Supreme Court. - Freezing measures "may only be applied with respect to capital or transactions suspected to involve money laundering but not terrorism financing." - Measures to identify and trace property are available for money laundering but not for terrorism financing. - Confiscation: criminal confiscation of proceeds of money laundering and civil or criminal confiscation related to terrorism financing are allowed. However, property related to predicate offenses, instrumentalities used or intended for use, or property of corresponding value to property laundered cannot be confiscated. ### FIU, FIC, law enforcement capacity and resources - The Financial Intelligence Unit (FIU) was established in 2001 in the Office of the Attorney General (OAG); since February 12, 2008 it was relocated to the Financial Institutions Commission (FIC). - The FIU "has been operating without dedicated full-time resources since its inception." - The FIC has developed a draft new organizational structure and proposed a supplemental budget to submit to the Olbiil Era Kelulau (OEK, Congress). - Despite resourcing issues, the FIU processed 71 suspicious transaction reports (STRs) and disseminated STRs to the Division of Criminal Investigation & Drug Enforcement (CID) for investigation—this was done "without having a documented standard operating procedure." - Recommendations to enhance FIU effectiveness: - Provide dedicated staffing resources. - Document standard operating procedures on STR analysis and dissemination. - Allow the FIU to obtain additional information from reporting entities in response to STRs "without the need for a court order." - Start providing STR forms, guidelines, and feedback to reporting entities. - The CID of the Bureau of Public Safety (BPS) is tasked with investigating ML/TF; it follows up on FIU disseminations but "never has initiated an investigation into money laundering or terrorist financing that was not related to an STR." - The FIC has not been provided with additional human, technical or financial resources to carry out the FIU task. ### Preventive measures — Financial institutions (legal framework and supervision) - Financial sector structure: - "Seven banks licensed by the FIC of which four are branches of foreign banks." - Nonbank financial sector: insurance agents, finance companies, MVTS, and credit unions. - All these financial institutions are covered by the MLPCA; insurance agents are covered by the MLPCA yet "not for AML/CFT supervision." - Supervisory capacity: - The FIC staff "only consists of an Executive Commissioner, a bank examiner in training, and a support person." - The FIC "has not yet supervised its financial institutions to ensure effective implementation of AML/CFT requirements" and "has not yet supervised" nor issued guidelines to assist implementation. - A "high priority" is proper staffing, funding, and training of individuals in the FIC to implement AML/CFT regime and supervise covered entities. - MLPCA preventive deficiencies: - Customer due diligence (CDD): PEPs are not included; cross-border correspondent banking and payable-through accounts not adequately addressed; high-risk categories do not require enhanced due diligence; threshold gap for occasional customers using wire transfers. - Record-keeping: no requirement to maintain all necessary records on transactions for at least five years; no requirement to maintain account files and business correspondence for at least five years; no wire transfer requirements for domestic institutions; gap for foreign wire transfers between $1,000 and $5,000 not covered by wire transfer requirements; no risk-based procedures for wire transfers lacking complete originator information. - Monitoring: Section 11 requirements are new and unimplemented; institutions not provided information regarding AML/CFT weaknesses in other countries; no plan or procedure to apply counter-measures related to other countries’ AML/CFT systems. - STR reporting: financial institutions are required to report suspicions to the FIU, yet "only two of the seven banks indeed have reported STRs." Reporting of suspicious transactions related to financing of terrorism is "not sufficiently covered in the MLPCA." - U.S.-owned banks previously reported to U.S. authorities; they indicated they will start reporting STRs to the Palau FIU following amendments and FIU relocation. ### MVTS, ARS and licensing - The MLPCA covers MVTS as financial institutions and as alternative remittance services (ARS); "depending on the categorization different requirements apply." - The FIC intends to classify MVTS as ARS and license them, but it "has not yet identified all ARS providers nor has it issued any implementing regulations." Consequently, ARS are unsupervised for AML/CFT compliance with the MLPCA. ### Preventive measures — DNFBPs - DNFBPs operating in Palau: - Attorneys who provide company formation services are present and "are not covered under the MLPCA, and in practice they also do not comply with the preventive measures of the MLPCA." - Casinos are the only DNFBPs covered under MLPCA, but "there are no licensed casinos in Palau." - Other DNFBPs (notaries, auditors, real estate agents, dealers in precious metals or precious stones) exist but "their activities fall outside the intended scope of the FATF Recommendations." ### Legal persons, arrangements and NPOs - Corporate registration and ownership information: - Corporations must register with the Registrar of Corporations; foreign ownership or foreign investment requires pre-approval from the Foreign Investment Board (FIB). - The FIB "vets applications to some extent," but the Registrar of Corporations does not conduct examinations to verify accuracy of corporate data. - Authorities should implement measures to ensure that information on corporations and their ownership and control structure "is accurate and current" to support FIU and law enforcement in STR analysis and investigations. - Nonprofit organizations (NPOs): - Rudimentary oversight: basic registration requirement with Registrar of Corporations and requirement for annual reports. - The competent authority "has neither undertaken a review of the NPO sector nor monitor NPO activities." ### National and international cooperation - A Money Laundering Working Group (MLWG) was created in 2003 to provide input to the President but "has been meeting on a too irregular basis." - Operational cooperation has chiefly occurred on an ad hoc basis due to Palau’s small community; no specific legal mechanisms are in place for operational cooperation. - Mutual legal assistance and extradition framework (Mutual Legal Assistance in Criminal Matters Act; Extradition and Transfer Act) is "basically sound." Palau has cooperated in a few cases. - Dual criminality requirement may limit Palau’s ability to provide mutual legal assistance where predicate offenses are not covered by the MLPCA. - Both FIC and FIU are authorized to cooperate internationally, yet "both agencies have had limited experience with the exchange of information." ### Other issues and recommendations - Persistent resourcing shortfalls: "Palau has significant problems with respect to adequate financial and human resources for the FIU and FIC," and without additional resources "the overall AML/CFT system will remain deficient." - The amended MLPCA contains inconsistencies and duplications; a suggested remedy is to "draft a new law on AML/CFT taking into account the recommendations provided in this report" to provide a common set of requirements and permit further compliance with the FATF 40+9 Recommendations. ### Crime context and economic vulnerabilities - Overall crime rate "is relatively low." - Major ongoing sources of criminal proceeds: prostitution and consumer marijuana sales; illegal fishing by unlicensed foreign vessels is also a problem. - "There is no known organized crime in Palau, nor any known terrorist financing situation." - The OAG has prosecuted six cases of money laundering offenses. ### Relevant national information (demographics, governance and international arrangements) - The Republic of Palau: - "More than 300 islands" in the Western Pacific; land area "458 square kilometers." - Politically divided into "16 states." - Population "approximately 20,900" with "more than two-thirds" residing in or near the state of Koror. - Seat of government moved from Koror to Melekeok; new governmental capitol complex opened in October 2006. - Independence and Compact with the United States: - Palau became independent in free association with the United States on October 1, 1994. - The Compact of Free Association includes defense and security provisions that last for "50 years" and financial aid provisions that last for "15 years," with those financial provisions set for renegotiation during 2008 as they expire in 2009. - Political institutions: - Constitution effective January 1, 1981. - President elected for not more than two consecutive four-year terms. - Olbiil Era Kelulau (OEK) is bicameral: "nine Senators and 16 Delegates"; Congressmen are elected for four year terms; next election scheduled for November 2008. - Constitutional Amendment (2004) limits Congressmen to no more than "3 terms" in Congress. - Judiciary: unified judiciary with Supreme Court (appellate and trial division) and Court of Common Pleas; judges hold office for life on condition of good conduct. - Palauan laws are patterned after U.S. laws; Palau National Code (PNC) comprises Acts. *Source: IMF country report text provided.* ### 41. The judiciary is held in high regard by all sectors of Palauan society, including by politicians ### _cr0909 - 41. The judiciary is held in high regard by all sectors of Palauan society, including by politicians ### Judiciary and governance - The judiciary is held in high regard by all sectors of Palauan society, including by politicians and government officials. - The Courts have deliberated on numerous suits and counter suits, both against and for politicians and government officials. - By all independent accounts, the judiciary is an institution with a high level of integrity. - Corruption practices exist, especially within some governmental sectors from local to national levels; cases mainly involve misuse of government funds, favoritism and cronyism. - Mechanisms to increase government accountability include a Special Prosecutor and a Public Auditor. - The Office of the Special Prosecutor has filed numerous charges over the past years against elected OEK members and state officials for misuse of public funds. - The Public Auditor is subject to a peer review process every three years in accordance with U.S. accounting practices. - Palau’s anti-corruption measures include the Code of Ethic Act of 1999 and the Public Service Rules and Regulations of 1996. ### Economic context and labor - Palau is a medium-income country with a small market-based economy largely sustained by transfer payments from the United States. - Nearly half the work force is employed by National and State governmental entities. - Tourism and other service sectors account for most other paid employment. - Tuna, harvested by foreign-owned and foreign-crewed fishing fleets, is the dominant export. - Much of the population still works in traditional subsistence agriculture and fishing. - More than 5,000 persons of the population are migrants, mainly from the Philippines. - A Free Trade Zone Act was adopted in 2003, but no free trade zone has yet been established in Palau. ### General situation of money laundering (ML) and financing of terrorism (FT) - Major ongoing sources of criminal proceeds: - Prostitution (individual karaoke bars or massage parlors). - Consumer marijuana sales; marijuana farmers export crops to Guam and the Federated States of Micronesia and sell to local individual consumers. - Other observed criminal activity: - A few cases of drugs trafficking from the Philippines and two human trafficking cases. - Illegal fishing by unlicensed foreign vessels occurs, but since the vessels avoid entering the seaport of Palau, there are no proceeds laundered in Palau. - There is no known organized crime in Palau, nor any known terrorist financing situation. - Bank failure case and associated ML investigations: - In November 2006, the Financial Institutions Commission (FIC) closed and placed into receivership the Pacific Savings Bank, a locally-chartered bank that had approximately 7,500 customers and $23 million in deposits. - The bank was closed for insolvency and illiquidity after members of the board of directors took out large unsecured personal loans resulting in a capital deficiency of about $12 million. - This case resulted in two money laundering prosecutions (pending trial) by the Office of the Attorney General (OAG) of persons connected to the bank. - The Office of the Independent Prosecutor, installed for the investigation into the failed bank, is pursuing further money laundering investigations against the directors of this bank. ### Financial sector structure and supervision - Banking sector: - The Palau banking industry consists of seven banks that are licensed by the FIC to operate as banks as defined under the Financial Institutions Act of 2001 (FIA). - There are four branches of foreign banks, of which three are chartered in the U.S. and one in Taiwan. - These four foreign-owned banks make up 80 percent of the market in Palau; the remainder is split amongst the three locally-chartered banks. - Locally-chartered banks are chartered in Palau and are licensed and subject to regulation and supervision by the FIC. - Palau law does not allow for the establishment of offshore banks and the FIC is the primary licensing authority for institutions that engage in banking activities in the country. - Local banks are unable to establish branches outside Palau. - Banks licensed in Palau are required to incorporate and the FIC has exclusive authority for the licensing of these institutions. - National Development Bank of Palau: - Solely engaged in business financing and mortgage lending and is not allowed to take deposits as per its enabling statute. - This bank is not licensed or regulated by the FIC, as it is exempted under the FIA. - Nonbank financial sector composition: - 12 insurance intermediaries (known as “insurance agents” in Palau). - 12 finance companies. - 14 money and value transfer services (MVTS). - Approximately 3 credit unions. - Licensing and oversight notes: - All locally-owned businesses must obtain a business license from the Division of Revenue and Taxation (DRT) and a business license from each state in which they operate. - Partly or wholly foreign-owned businesses must obtain a license from the Foreign Investment Board (FIB), in addition to the DRT and state licenses. - Insurance and MVTS specifics: - Insurers and insurance intermediaries are defined as “cash dealers” or “over-the-counter (OTC) exchange dealers” under Section 4(e)(1) of the MLPCA; OTC exchange dealers require licensing by the Minister of Justice (MOJ) under Section 15 of the MLPCA; “cash dealers” have no licensing or supervisory requirements under the MLPCA. - There is no insurance legislation for prudential supervision of insurers and insurance intermediaries. - MVTS have recently been brought under the purview of the FIC per recent amendments to the MLPCA. - “Money transmission services” fall under “financial institutions” or “credit institutions” in Section 4(k)(4) MLPCA or as “Alternative Remittance Systems (ARS)” under Section 8 of the Act. - If categorized as “ARS,” MVTS are required to be licensed by the FIC; if categorized as “financial institutions” or “credit institutions,” there is no licensing requirement under the MLPCA, but the FIC may conduct compliance audits under Section 14(b). - The FIC indicated it will categorize MVTS as ARS but has not yet identified all MVTS operating in Palau, except the three largest operators (including Western Union and Pinoy Express). - The three known MVTS provide international money transfer services for the foreign worker population and are used by Palauans to receive funds from relatives abroad or to remit funds to dependents or for medical care abroad. - Money transfer businesses are increasingly used for payments for purchases such as lumber and construction materials. - Credit unions and finance companies: - Credit unions are covered under Section 4(k)(1) of the MLPCA as “financial institution” or “credit institution.” - The FIA (Section 3(f)) requires the licensing of credit unions as financial institutions where the total assets are over $500,000. - The FIC has not licensed any credit unions as financial institutions under the FIA, since their total assets are below $500,000. - Most credit unions are incorporated as nonprofit corporations so they are tax-exempt (except for employee earnings) and do not require business licenses from the DRT (unless also engaging in business activities). - Finance companies are covered under Section 4(k)(2) of the MLPCA as “financial institutions” or “credit institutions” whose primary business activity includes lending; the FIC may conduct compliance audits under Section 14(b). - Securities and other activities: - There are no securities dealers in Palau although such activity is covered under the FIA and MLPCA as “cash dealers” or “OTC exchange dealers” and as “financial institutions.” - Tabled statistics (2008 structure highlights): - Commercial banks: 7 (Authorized/Registered and/or Supervised by: FIC) - Mortgage banks: 1 (None listed) - Securities dealers: 0 (FIC) - Insurance brokers: 12 (MOJ) - Finance companies: 12 - Money transmitters: 14 (FIC) - Credit Unions: 3 (None if assets under $500,000; FIC if assets over $500,000) ### AML/CFT compliance culture and capacity - Foreign banks in Palau comply with AML/CFT requirements of their home jurisdictions and provide training in Palau branches. - Smaller locally-chartered banks have a limited understanding of AML/CFT requirements but attempt to comply; some have employed foreigners experienced in AML/CFT compliance. - Nonbank financial institutions have very limited AML/CFT understanding, except for one or two international money remitters operating in Palau. ### Designated non-financial businesses and professions (DNFBP) - DNFBPs in Palau comprise company service providers (CSPs) and lawyers. - Legal profession: - The only legal service providers are Palau Bar Association attorneys. - Approximately 60 Palau Bar members, of which approximately half are National or State Government attorneys. - Admission to the Palau Bar requires passing the U.S. Oregon Bar Examination, the U.S. Multi State Examination and a Palau specific examination. - Approximately 10 off-island attorneys are Palau Bar members and appear occasionally. - Approximately 20 local Bar members engaged in private practice provide general legal services including criminal defense, civil litigation, estate planning, and company formation. - Attorneys have ethical rules forbidding active participation in criminal activity; anyone with a felony conviction cannot be a member. - Company service providers: - About 13 lawyers provide company formation services of domestic legal persons and would be categorized as CSPs under the FATF Recommendations. - CSPs in Palau do not provide other CSP services under the FATF definition. - Other DNFBP observations: - 124 licensed notaries under Title 11 PNC Section 702 provide witnessing and certification services but fall outside the FATF intended scope. - No trust service providers (TSPs) and no specific trust law for establishment of domestic trusts, though trusts are recognized as a type of corporation. - A few family trusts hold titles to land in Palau. - About three auditors provide accounting services; they fall outside the intended FATF scope since they do not engage in DNFBP activities as defined. - No licensed casinos; two internet casino licenses were granted but expired without operations commencing; no law allows licensing of land-based casinos. - Real estate: - All real estate property in Palau is owned by Palauan nationals; it is unconstitutional for non-Palauans to own land. - Typical transactions are private negotiations among Palauans and do not generally involve real estate agents. - The only Supreme Court decision on real estate found a 99 year lease tantamount to land ownership by non-Palauans and void; a Constitutional amendment to clarify or legalize 99 year leases was scheduled for a general election in November 2008. - Dealers in precious metals or precious stones: none that meet FATF categories; jewelry stores carry limited low-cost items with transactions below FATF thresholds. - Traditional clan/family forms of “Palauan Money” (beads, turtle shell plates) are not publicly sold or traded and have no corresponding publicly accepted monetary value. - DNFBP vulnerability assessment: - The DNFBP sector has low ML and FT vulnerabilities due to the limited scope of business activities and the small size of the sector. - Assessors did not identify other DNFBPs vulnerable to ML and FT. - Lawyers and auditors understand general compliance issues; other DNFBP sectors have very limited understanding of AML/CFT issues. ### Legal persons, commercial laws, and business registration - Types of legal persons: - The only type of legal persons that can be formed in Palau are corporations; additionally, sole proprietorships and partnerships exist. - Corporations are incorporated by not less than three private persons and are authorized to issue stock. - Corporations can be formed for-profit and not-for-profit; a nonprofit corporation can be a corporation, association, club, society, trust, league, or other organization not organized for profit. - Incorporation and filing requirements: - Corporations are formed under the Corporations Act (Title 12 PNC). - Under Section 103, a corporation seeking a charter must submit articles of incorporation and bylaws to the President for approval. - Corporation names must end with “Limited,” “Incorporated,” “Corporation” or abbreviations “Ltd.,” “Inc.,” or “Corp.” - Articles of association and charters, and subsequent amendments, must be filed with the Registrar of Corporations in the OAG. - The Registrar records names, citizenship and (mailing) address of incorporators, directors (at least three), initial officers (if non-Palauan owners), and the number of shares of each class of stock. - Corporations must file an annual report including any changes in officers. - Foreign investment and business licensing: - The FIB issues approval for businesses with any foreign ownership or foreign investment and issues Foreign Investment Approval Certificates. - Any person engaging in business in Palau must obtain from the DRT a license to engage in business and pay an annual fee. - There are approximately 1,700 business licenses issued by the DRT. - The DRT estimates about 700 to 800 legal entities control the 1,700 licenses. - Companies operating multiple businesses or in different locations must have a license for each location and/or business activity. ### AML/CFT Strategies and Priorities (overview introduction) - The document proceeds to outline an overview of strategy to prevent money laundering and terrorist financing and to set AML/CFT strategies and priorities. *Source: _cr0909 - 41. The judiciary is held in high regard by all sectors of Palauan society, including by politicians* ### 68. Palau has been a member of the APG since 2001. The MLPCA was signed into law by the ### Palau has been a member of the APG since 2001. ### Institutional framework and AML/CFT governance - The MLPCA was signed into law by the President on June 19, 2001. - Amendments to the MLPCA were passed into law on December 19, 2007. - Amendments to the FIA, of which a few pertain to the AML duties and responsibilities of the FIC (in particular Section 49), were signed into law on February 13, 2008. - Main priority of the authorities: implement the amendments to these laws as soon as possible. - By Executive Order No. 218 of November 10, 2003, the President established a Money Laundering Working Group (MLWG) as the coordinating group for Palau’s AML/CFT efforts. - MLWG membership: Chairman of the FIC Board, the Attorney General, the Executive Director of the FIC, the Chief of the Bureau of Revenue, Customs & Tax - Customs Division, the Director of the Bureau of Immigration, the Director of the Bureau of Public Safety, and a representative from the Office of the President. - The MLWG has not developed an overall AML/CFT strategy for Palau and meets irregularly, its agenda led by current issues. ### Financial Intelligence Unit (FIU), FIC, and resource issues - The 2001 MLPCA placed the FIU in the OAG; the FIU did not have a separate budget and utilized the limited resources of the OAG. - A PALP consultant recommended the FIU not be housed in or staffed by the OAG. - 2007 amendments allowed the President to decide whether the FIU be in the OAG or in the FIC. - By Executive Order No. 246 of February 12, 2008 the President ordered the transfer of the FIU from the OAG to the FIC. - No additional budget or resources have been allocated following the transfer. - Since February 2008, the FIC is in charge of the FIU and is looking into ways to set up and resource the FIU. - The FIC was established in 2001 and is in charge of licensing, supervising, and regulating Palau’s financial institutions under the FIA. - Under the MLPCA, the FIC is in charge of AML/CFT compliance of financial institutions and the licensing of money transmission providers. - There are no other (financial) supervisors in Palau. - The FIU is responsible for receiving, analyzing, and processing STRs, CTRs, and cross-border cash declarations and may disseminate these reports to other domestic authorities upon suspicion. - A law enforcement mentor, jointly funded by UNODC and PALP, is resident in Palau and expected to assist the Palau FIU, Customs, and CID of the Bureau of Public Safety. ### Monitoring, controls, and implementing measures - The MLPCA amendments brought MVTS under the purview of the FIC; the FIC is exploring implementing regulation needs and the number of MVTS operating in Palau. - The Ministry of Finance (MOF) is drafting regulations for the Cash Courier Disclosure Act of 2007 (CCDA) and providing training to Division of Customs officers regarding CCDA requirements. - No implementing regulations with respect to the MLPCA have been issued. - No AML/CFT examinations have taken place. - There remains a problem dedicating sufficient resources to the OAG, the FIC, and the FIU. ### Approach to risk - Palau has not undertaken a risks assessment nor do the authorities have an approach toward ML/FT risk. ### Progress since the last APG Mutual Evaluation - Palau was last assessed by the APG in March 2003 for compliance with the FATF 40 Recommendations. - To address APG recommendations: - The authorities established the MLWG. - The MLPCA was amended in December 2007. - The CCDA and the Counter-Terrorism Act of 2007 (CTA) were enacted. - Money transfer operators were included within the MLPCA with the 2007 amendments. - Despite legislative progress, implementation is lacking and the FIU has yet to become fully operational. ### Legal framework: criminalization of money laundering (MLPCA highlights) - Chapter 36 of Title 17 PNC (Money Laundering and Proceeds of Crime Act of 2001, MLPCA) enacted on June 19, 2001; amended in December 2007 to limit predicate offenses from “all crimes” to “all felonies.” - Section 3 of the MLPCA defines money laundering as: - (1) the conversion or transfer of property for the purpose of concealing or disguising the illegal origin of such property or assisting any person who is involved in the commission of a predicate offense to evade the legal consequences of his or her actions; or - (2) the concealment or disguise of the illegal nature, source, location, disposition, movement, or ownership of property by any person who knows that the property constitutes the proceeds of crime as defined herein; or - (3) the acquisition, possession, or control of property by any person who knows that the property constitutes the proceeds of crime as defined herein. - The offense covers conversion/transfer, concealment/disguise, and acquisition/possession/control of proceeds; uncertainty remained whether “control of proceeds” includes “use of” criminal proceeds due to lack of case law. - Section 4 (t) and (u) defines “proceeds of crime” to include any property or economic advantage derived from a crime; “property” includes assets, real property, personal property of every kind whether moveable or immovable, tangible or intangible, and legal documents or instruments evidencing an interest in such assets. - Section 3 (c) provides that a person need not be convicted of a predicate offense to prove the illicit origin of proceeds. - Section 3 (b) requires intent of “knowledge, intent, or purpose”; intent may be inferred from objective factual circumstances. - The MLPCA defines “person” as any natural or legal person; legal persons may be criminally sanctioned pursuant to Section 30 MLPCA. - Section 4 MLPCA: money laundering offense applies to all felonies committed in Palau or acts committed abroad that would have constituted a felony had they occurred in Palau (i.e., dual criminality required). ### Predicate offenses and scope - Palau adopted a threshold approach: all felonies are predicate offenses for money laundering (Section 4; Section 101 Criminal Code defines felony as punishable with imprisonment of more than one year). - FATF-designated predicate offenses that are felonies and therefore covered include (exact labels as in source): - Terrorism, including terrorist financing — Section 5 Counter-Terrorism Act of 2007 - Trafficking in human beings and migrant smuggling — Sections 3–8 of Anti-People Smuggling and Trafficking Act - Sexual exploitation, including sexual exploitation of children — Section 3603 (b) Criminal Code, Section 606 Child Abuse Act - Illicit trafficking in narcotic drugs and psychotropic substances — Section 3301 Controlled Substances Act - Corruption and bribery — Section 701 Criminal Code - Fraud — Sections 1903, 1904, 1906, 3707 Criminal Code - Counterfeiting currency — Section 1101 Criminal Code - Murder, grievous bodily injury — Sections 1701–1704 Criminal Code - Kidnapping, illegal restraint and hostage-taking — Sections 1401, 1801 Criminal Code - Robbery or theft — Sections 1902, 1907, 2701, 3007 Criminal Code - Smuggling — Sections 3704, 3705 Criminal Code - Forgery — Section 1501 Criminal Code - Not covered as predicate offenses under Palau law: participation in an organized criminal group and racketeering, illicit arms trafficking, illicit trafficking in stolen and other goods, counterfeiting and piracy of products, environmental crimes, extortion, piracy and insider trading and market manipulation. - Assessors note these categories are of great relevance given Palau’s economic dependence on tourism, agriculture and fishing and geographic location and should be covered as predicate offenses. ### Liability, ancillary offenses, and sanctions - Ancillary offenses: - Aiding and abetting, facilitating and counseling the commission of an offense criminalized under general Criminal Code provisions (Sections 102, 103, 104, 901). - Section 102: persons who “aid, abet, counsel, command, induce, or procure [...] or who causes” the commission of an offense are punishable as principals. - Section 103: persons who “receive, relieve, comforts or assists the offender in order to prevent his apprehension, trial or punishment” face punishment up to one-half of the maximum term or fine. - Section 104: attempts punished with imprisonment not exceeding one half of the maximum term for the completed offense. - Section 901: conspiracy punishable with imprisonment of not more than five years if conspiracy relates to a felony. - Liability of natural persons: - Section 3 (b) requires “knowledge, intent, or purpose”; authorities confirmed knowledge of illicit origin is required. - Liability of legal persons: - Section 30 MLPCA allows criminal sanctions against legal persons; sanctions include permanent ban or minimum 5-year ban from business activities, closure of business premises, dissolution, or requirement to publicize judgment. - Section 31 MLPCA: legal persons upon conviction may be subject to additional civil penalties if the act involved violation of reporting or customer identification or verification obligations under the MLPCA. - Sanctions for natural persons (Section 29 MLPCA): - If total value of proceeds laundered has a total value of less than $2,500: - fine with not more than double the amount laundered or imprisonment for not more than one year and one day, or both. - If total value of proceeds laundered exceeds $2,500: - the fine shall be not less than $5,000 or double the amount laundered, whichever is greater, or imprisonment for not more than 10 years, or both. - Sanctions for legal persons: - Legal persons on whose behalf or for whose benefit a money laundering offense has been committed by one of their agents or representatives may be fined in an amount equal to two times the fines specified for natural persons and without prejudice to the conviction of the natural person perpetrator. - Additional sanctions available if the entity’s agent or representative is convicted of three or more money laundering offenses within a five-year period (see Section 30 MLPCA for specifics). *IMF staff report text excerpt.* ### 109. The sanctions available for money laundering seem to be in line with the level of penalties ### _cr0909 - 109. The sanctions available for money laundering seem to be in line with the level of penalties ### Sanctions for Money Laundering — comparative and case outcomes - Sanctions available under Palauan law for money laundering are described as "in line with the level of penalties applicable to other felonies under Palauan law." - Comparative penalties (as stated in the source): - Bribery: imprisonment of 5 years - Counterfeiting of currency: 15 years - Forgery: 10 years - Embezzlement: 5 years - Fraud: 5 years - United States (money laundering): a fine of not more than $500,000 or twice the value of the property involved, or imprisonment for not more than 20 years - Palauan court outcome cited: - One money laundering conviction resulted in imprisonment for 10 years. - That convict was released based on a habeus corpus writ and the case is currently on appeal. - Assessment conclusion: "Overall, the sanctions for money laundering available for both natural and legal persons seem to be effective, proportionate, and dissuasive." ### Effectiveness — prosecutions, case details, and institutional actions - Statistics at the Office of the Attorney General (OAG): - Six cases of money laundering offenses were prosecuted. - One of those prosecutions was triggered by an STR. - Case breakdown by associated predicate crime: - Two cases involved prostitution - Two related to embezzlement - One related to bribery - One involved a crime as defined in the Foreign Investment Act - In all six cases, offenders were prosecuted for self-laundering. - Court outcomes for the six cases: - One case dismissed as part of a plea bargain in 2006 - One acquittal - Three cases still pending - One conviction for money laundering in 2007 (convict released based on habeus corpus; case on appeal) - Independent Prosecutor action: - Independent Prosecutor filed a charge regarding the failure of the Pacific Savings Bank involving money laundering. - Assessors welcome the creation of the independent prosecutor position and encourage provision of resources and support to investigate the Pacific Savings Bank failure. - Assessors' view on volume: - "Given the size of Palau, the number of prosecutions and cases tried before the courts seems to be appropriate." ### Recommendations and required legal amendments (Money Laundering) - Ensure the following acts and activities constitute predicate offenses to money laundering: - participation in an organized criminal group and racketeering - illicit arms trafficking - illicit trafficking in stolen and other goods - counterfeiting and piracy of products - environmental crimes - extortion - piracy - insider trading and market manipulation - Amend the money laundering offense to expressly include "knowingly using criminal proceeds." - Amend the definition of the term "proceeds of crime" to expressly cover direct as well as converted criminal proceeds. ### Compliance with Recommendations 1 & 2 — ratings and rationale - Rating summary: - R.1: PC - R.2: C - Factors underlying R.1 rating: - "Palau does not provide for any predicate offenses in the categories of participation in an organized criminal group and racketeering, illicit arms trafficking, illicit trafficking in stolen and other goods, counterfeiting and piracy of products, environmental crimes, extortion, piracy, and insider trading and market manipulation." - "The money laundering offense does not clearly extend to 'the use of criminal proceeds.'" - "The definition of 'proceeds of crime' does not expressly cover direct as well as converted proceeds." - Note: Rating key provided (Compliant, Largely compliant, Partially compliant, Non-compliant, Not applicable). ### Criminalization of Terrorist Financing — legal framework and scope - Legal basis: - Financing of terrorism criminalized in Sections 23–26 of the Counter-Terrorism Act of 2007 (CTA). - UN website indicates Palau acceded to the UN Convention for the Suppression of the Financing of Terrorism in November 2001; authorities could not provide required information to assessors. - Palau signed and ratified 10 out of 12 international conventions and protocols relating to the fight against terrorism per the cited website; signed the International Convention for the Suppression of Acts of Nuclear Terrorism; has neither signed nor ratified the Convention on the Physical Protection of Nuclear Material. - Text of financing offense (Section 24 CTA): criminalizes soliciting, providing or collecting property, providing financial or other services, organizing/directing others to provide funds or services, where done "with the intention that they should be used or in the knowledge that they are to be used, in full or in part" for: - (1) Terrorism - (2) for the benefit of persons who engage in Terrorism, or for the benefit of entities owned or controlled, directly or indirectly, by persons who engage in Terrorism - (3) for the benefit of persons or entities acting on behalf of or at the direction of any person referred to in (2) - Definitions: - Section 3: "terrorism" covers both "terrorism offenses" and "terrorist acts." - "Terrorism offenses" defined to include crimes established by CTA; PNC declared terrorism offenses by OEK; international terrorism conventions; crimes under foreign law that would be terrorism under Palau law. - Section 3 (q) lists conventions covered and indicates treaty offenses would fall within scope of "terrorism offenses" regardless of Palau's signing/ratification status. - Section 3 (mm) defines "terrorist act" with a list of conduct elements (1)–(8) that must be involved; assessors conclude Section 3 (mm) "meets the international standard" in practice despite definitional differences from FATF glossary. - Section 3 (nn) defines "terrorist organization" as "a group composed of two or more persons, whether organized or not, that engage in terrorism." - Coverage: - Section 24 criminalizes financing of terrorism and the financing of individual terrorists; scope explicitly includes natural and legal persons and persons/entities acting on behalf of individual terrorists. - Financing of terrorist organizations is not explicitly referenced in Section 24, but Section 24 (2) language could be used to prosecute financing of terrorist organizations; authorities confirmed they would prosecute financing of a terrorist organization through Section 24 (2). - Sections 3 (h), (nn), 5, and 6 (c) taken together are assessed as covering the FATF definition of terrorist organization in practice. ### Specific elements of the terrorism financing framework - Property definition (Section 3 (n)): - Defined as "real and personal property of every kind whatsoever." - Authorities argue it covers legitimate and illegitimate funds, corporeal and incorporeal property, and all assets representing financial value, including claims and interests; assessors agree language suggests broad interpretation but note absence of case law. - Use/attempt/participation: - Section 24(b): it is not necessary that the property was actually used to commit a terrorism offense or terrorist act for financing to constitute the offense. - Section 6(c): sanctions apply to attempted crimes and participation in attempted crimes. - Section 6(c): criminal liability extends to those who direct, conspire, participate as accomplices, organize or direct others to commit CTA crimes. - Predicate offense status: - All felonies are predicate offenses for money laundering; any crime punishable for a period of more than one year is a felony. - Section 6 CTA: sanctions for financing of terrorism are imprisonment of 10 years to life, depending on circumstances; therefore terrorism financing is a felony and a predicate offense for money laundering. - Jurisdiction (Section 4 CTA): - Palau criminal laws apply to conduct committed: (1) in Palau; (2) by a Palau citizen or national; (3) on board aircraft/ship registered under Palau law/operating under Palau flag/landing in Palau with alleged offender still on board/leased by a person with principal place of business in Palau or who is a resident of Palau; (4) against or on board a fixed platform located on Palau’s continental shelf. - Palau also claims jurisdiction over crimes directed against Palau citizens, the government of Palau, crimes committed by a resident of Palau, and crimes committed in a foreign country by a citizen of another country if the perpetrator is now located in Palau and may not be extradited. - Mental element: - Palau criminal law allows inference of intentional element from objective factual circumstances; Palau Supreme Court precedent on circumstantial evidence applies to financing of terrorism offense. - Liability of legal persons: - "Person" includes natural and legal persons and foreign governments/agencies (Section 3 CTA). - Section 8 CTA: legal persons and any foreign government "shall be liable in the same manner and to the same extent as any natural person for any terrorism offense"; applicable sanction is ten times the fine for a natural person. - Additional sanctions for legal persons include minimum five-year ban from conducting business in Palau, orders to close premises permanently, dissolution, or required publication of judgment; fines are available in addition to criminal liability. - Sanctions for financing of terrorism (Section 24 and related): - Financing pursuant to Section 24: imprisonment of 20 years to life and a maximum fine of $1,000,000 - If the act resulted in the death of a natural person: imprisonment of 10 years to life and a maximum fine of $1,000,000 - If defendant derived profits or proceeds, an additional fine of twice the gross profits or proceeds is available if that sum is higher than $1,000,000 - Section 9 CTA: additional civil penalties may be imposed upon proof by preponderance of the evidence; penalty may not exceed $25,000,000 - The court shall order any person convicted of a CTA crime to reimburse Palau for expenses incurred to investigate and prosecute the offense - Comparative U.S. penalty: financing of terrorism is sanctioned with imprisonment of up to 15 years and a fine; if an act results in death of a person, penalty is imprisonment of any terms of years or for life - Assessors noted an unexplained concern: "the imprisonment period is shorter in cases where an act results in the death of a person" (i.e., 10 years to life vs. 20 years to life where death does not occur). ### Effectiveness and experience (Terrorist Financing) - CTA enacted: April 2007 - Experience to date: - No investigations or prosecutions relating to terrorist financing have been conducted - No sanctions have been applied for terrorist financing - No convictions for terrorist financing have ever been obtained - Assessors' conclusion: "Overall, the assessors did not identify any particular vulnerability to terrorist financing." ### Recommendations and comments (Terrorist Financing) - Recommended textual/clarifying amendments: - Add a reference in Section 24 CTA to explicitly criminalize the financing of terrorist organizations for clarity, even though law seems to criminalize required aspects in practice. - Amend the definition of "property" to expressly cover legitimate as well as illegitimate funds, corporeal as well as incorporeal property, and all assets representing financial value, including claims and interests in such assets. - Consider revisiting the fact that the imprisonment period for financing of terrorism offenses is shorter in cases where an act results in the death of a person. ### Compliance with Special Recommendation II — rating and rationale - Rating: SR.II LC - Factors underlying rating: - "The terrorism financing offense does not clearly extend to legitimate funds." - "The lack of investigations, prosecutions, and convictions for terrorist financing make it difficult to assess the effectiveness of the legal framework." *Source: IMF mutual evaluation text as provided in the content unit.* ### 145. Sections 33 and 34 of the MLPCA provide for conviction based confiscation of property used ### _cr0909 - 145. Sections 33 and 34 of the MLPCA provide for conviction based confiscation of property used ### Conviction-based confiscation under the MLPCA - Confiscation is the “permanent deprivation of property by final order of the Supreme Court after all appeals are exhausted.” - Confiscation orders may be appealed within 30 days of issuance but the government may only enforce confiscation orders after all appeals are exhausted. - Section 33 permits the Supreme Court to order confiscation of the “property forming the subject of the offense, including income and other benefits there from.” - Section 34 permits confiscation of “the property over which a criminal organization has power of disposal” if it is established beyond a reasonable doubt that the convicted individual is a member of that criminal organization. - “Property” is defined as “assets, real property, or personal property of every kind, whether moveable or immovable, tangible or intangible, and legal documents or instruments evidencing an interest in such assets.” - The MLPCA does not define “property forming the subject of the offense,” though authorities view it as covering laundered property and instrumentalities of the money laundering offense. - The applicable standard to prove that property was laundered or constitutes proceeds/instrumentalities is “beyond a reasonable doubt.” - Section 33 allows confiscation of income and other benefits derived from the offense and authorizes confiscation against any person to whom the property belongs unless that person can establish (1) no connection between the property and the predicate or money laundering offense or (2) bona fide purchaser status for value, for services of corresponding value, or other legitimate grounds. - Section 34 is broader than Section 33 and may cover any property of a criminal organization if membership is proven beyond a reasonable doubt, regardless of whether the property is related to the money laundering offense. ### Confiscation scope for money laundering, predicate offenses, and corresponding-value property - Palauan law allows confiscation of: - property laundered, - proceeds from money laundering offenses (including investment yield and substitute assets), - instrumentalities used in the commission of a money laundering offense. - The MLPCA does not generally allow confiscation of instrumentalities merely intended for use in a money laundering offense. - Sections 33 and 34 do not allow confiscation of proceeds from, or instrumentalities used in or intended to be used in, the commission of a predicate offense when no money laundering charge is laid; Palauan law does not allow confiscation of such predicate-offense property. - Section 33 permits confiscation of an amount equal to the enrichment obtained by the convicted offender during a period of three years preceding the conviction (allowing, in practice, confiscation of property corresponding to the value of proceeds from the money laundering offense). - That provision would not cover property of corresponding value to the property laundered, proceeds from the predicate offense, or instrumentalities used for or intended to be used in the commission of the money laundering or predicate offense. ### Confiscation and forfeiture related to terrorism financing (CTA) - Section 7 CTA (criminal forfeiture) requires forfeiture to Palau of: - any property used or intended to be used in the commission of the offense, - property constituting the proceeds of or property derived from the proceeds of, directly or indirectly, from the offense, - any property used in any manner, wholly or partly, to commit or facilitate the offense. - The applicable standard for Section 7 is “preponderance of the evidence that any particular property is within one or more of the listed categories.” - Section 10 CTA (civil forfeiture) allows forfeiture upon application by the Attorney General and proof by a preponderance of the evidence that the property is owned, possessed, used or intended to be used in connection with a terrorist act, constitutes or is derived from proceeds of a terrorist act, or was used or intended to be used in whole or part to commit or facilitate a terrorist act. - The Attorney General must give written notice within 14 days to any person known to own, control or have an interest in the subject property in Section 10 proceedings. - Any person claiming an interest must be given an opportunity to be heard; upon proof of a bona fide interest and that the person is not a member of a terrorist group, the court shall order that such interest not be affected and shall declare its nature and extent. - Forfeiture orders under Section 10 CTA may be appealed within 30 days of issuance. - Section 7 (b) CTA allows the Supreme Court to confiscate property of equal value from the owner when subject property cannot be located, identified or recovered. - Palauan law allows confiscation of property intended to be used to finance terrorism as well as proceeds from, instrumentalities used or intended to be used in the commission of a terrorism financing offense. ### Provisional measures: seizing and freezing (MLPCA and CTA) - MLPCA allows seizing of property during investigations (Section 27) and freezing by Supreme Court order upon showing of probable cause (Section 28). - Section 27 empowers law enforcement to seize property connected with the offense under investigation and evidentiary items that may identify such property; authorities stated court order based on probable cause is required in practice prior to seizing property. - Seizing orders under Section 27 expire automatically after 3 months absent a conviction or an application for extension; the Attorney General may apply for renewal upon showing good cause and there is no limit on the number of renewals. - Freezing orders under Section 28 are valid for 3 months with possible unlimited extensions; initial freezing is ex parte and the affected party would be heard during extension proceedings. - Both freezing and seizing orders may be lifted by the Supreme Court upon motion by the OAG, the FIU, or the beneficial owner. Grounds for lifting include inability to cover basic living expenses, a bond by a third party, or new evidence defeating probable cause. - Section 28 reference to confiscation orders appears inconsistent with conviction-based confiscation and was regarded as a drafting mistake by the assessors. - Section 26 (1) CTA allows any Palau law enforcement officer or customs official to seize and detain any property the officer has probable cause to believe was derived from or intended for terrorism, financing of terrorism, or terrorist organizations. - Section 26 (b) CTA requires freezing, seizing, and detaining property of or intended for terrorist organizations when designated by the UN Security Council or by the Minister of Justice or where there is probable cause to believe the entity is a terrorist organization; the provision does not extend to property held by individual terrorists or persons who intend or finance terrorist organizations, individual terrorists, or terrorist acts. - Section 7 (d) CTA requires seizure, confiscation, and forfeiture to Palau of any weapons of mass destruction, plastic explosives, and nuclear material; the Minister of Justice shall provide for their destruction or other appropriate disposition. ### Ex parte applications and timing - Initial freezing and seizing orders under Sections 27 and 28 MLPCA are made ex parte; affected parties may be heard in extension proceedings. - Sections 27 and 28 do not explicitly state ex parte procedure, but the provisions’ language and authorities’ confirmation indicate ex parte initial measures. - Section 7 (e) CTA allows temporary restraining orders and seizure warrants to be entered upon application of the Attorney General without notice or opportunity for a hearing when no information or complaint has yet been filed, where there is probable cause that the property would be subject to forfeiture upon conviction and exigent circumstances exist that place life or health in danger. ### Identification, tracing, and investigation powers - Section 24 MLPCA authorizes, upon probable cause, FIU and OAG to: - monitor bank accounts, - access computer systems, networks, and servers, - place under surveillance or tap phone lines, facsimile machines, or electronic transmission or communication facilities, - inspect communications of notarial and private deeds, or of bank, financial, and commercial records. - Absent probable cause, these operations require a Supreme Court warrant. - All investigations and warrant applications are filed under seal and kept confidential until charges are brought; charges may remain under seal until all related investigations complete. - These measures are available as soon as there is sufficient information to trigger a criminal investigation. - Section 25 MLPCA provides no punishment for officials conducting undercover operations or controlled delivery within the scope of investigations. - Comparable identification and tracing measures are not available with respect to property relating to terrorist financing under the CTA. ### Protection of bona fide third parties - Section 33 (a) MLPCA permits confiscation against any person to whom the property belongs but protects third parties who can establish: - there is no connection between the property and the predicate or money laundering offense, or - they are a bona fide purchaser for value, for services of corresponding value, or have other legitimate grounds. - This protection aligns with Section 12 of the Palermo Convention. - Section 7 (f) CTA requires implementation of Section 7 without prejudice to the property rights of third parties acting in good faith. - In civil forfeiture under Section 10 CTA, a person proving a bona fide interest and non-membership of a terrorist group will have their interest preserved; if the interest was obtained after the property was used in a terrorist act, preservation is only if the person is a bona fide purchaser for value and without reason to suspect misuse. ### Power to void instruments and reverse conveyances - Section 35 MLPCA permits the Supreme Court to void any instrument determined to fraudulently convey property to prevent confiscation. - Section 7 (c) CTA declares void any instrument executed free of charge or for consideration inter vivos or causa mortis to safeguard property from confiscation; in nullification, the buyer is reimbursed only for the amount actually paid. - Section 10 (c) CTA allows the court to set aside conveyances or transfers of property seized, forfeited, or subject to seizure or forfeiture under Sections 7, 9, or 10, unless made for value to a person acting in good faith and without notice. - “Instrument” is not defined in either law; authorities indicated it covers any written action, whether contractual or otherwise. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0909.pdf* ### 188. If it can be established that a convicted money launderer is a member of a criminal ### _cr0909 - 188. If it can be established that a convicted money launderer is a member of a criminal ### Confiscation framework and effectiveness (Sections 188–191, 221) - Legal provisions: - Section 34 allows confiscation of “the property over which a criminal organization has power of disposal.” - With respect to money laundering, Palauan law provides only conviction-based confiscation and does not apply civil forfeiture. - With respect to terrorism financing, Section 10 CTA provides for civil forfeiture, whereas Section 7 provides for conviction-based confiscation. - Palauan law follows the concept of “reverse burden of proof” and based on Sections 28 and 33 MLPCA an offender may avoid confiscation by proving that property has a lawful origin. - Operational outcomes: - Palau has issued 2 freezing orders: - First freezing order: upon request by the United States involving an amount of $100,000; all assets frozen were later confiscated. - Second freezing order: domestic proceedings involving an amount of approximately $60,000; not all money frozen could be confiscated because one freezing order expired and was renewed a few days later. In the two days that the accounts were not frozen, the party investigated withdrew all funds and avoided confiscation. - Assessors could not establish the exact amounts lost due to expiration of the first freezing order; the amount seems to have been over or around $100,000. - Seizing orders are frequently used for evidentiary purposes. - No provisional measures or confiscation measures have ever been applied with respect to property believed to be proceeds of, or instrumentalities used for or intended for use in, the commission of a terrorist financing offense. ### Recommendations and proposed legal amendments for confiscation (Section 2.3.2) - Amend the definition of “property subject to the offense” to expressly include the laundered property. - Amend Section 33 MLPCA to expressly allow for the confiscation of all instrumentalities used or intended to be used in the commission of a money laundering offense. - Amend the law to allow for confiscation of all direct and indirect proceeds of, instrumentalities used or intended for use in the commission of a predicate offense as well as property of corresponding value to such proceeds or instrumentalities. - Amend the law to allow for the confiscation of property of corresponding value to property laundered and instrumentalities used in or intended to be used in the commission of a money laundering offense. - Amend the law to provide for freezing of property related to terrorism financing. - Amend the law to provide for measures to identify and trace property relating to terrorism financing. ### Compliance assessment with Recommendation 3 (Section 2.3.3) - Rating: R.3 — PC - Summary of factors underlying rating: - The law does not allow for the confiscation of proceeds of, instrumentalities used or intended for use in the commission of a predicate offense for money laundering. - The law does not allow for the confiscation of property of corresponding value to property laundered, instrumentalities intended for use in the commission of a money laundering offense, as well as proceeds of and instrumentalities used in or intended for use in the commission of any predicate offense. - No freezing measures are available for property related to terrorism financing. - No measures are in place to identify or trace property relating to terrorism financing. --- ### Freezing of funds used for terrorist financing — legal framework and analysis (Sections 192–220) - International standard summary: - Under Special Recommendation III, countries should have laws and procedures to freeze without delay funds and other assets of persons designated pursuant to UNSCR 1267 and 1373; provisional measures should prevent dealing, transfer, or disposal of property subject to confiscation; a specific authority should be designated to receive and disseminate UNSCR 1267 lists and requests under UNSCR 1373. - Domestic provisions: - Section 26(b) CTA: property of, or intended for, terrorist organizations shall be frozen, seized and detained where designated by the United Nations Security Council, or by the Minister of Justice pursuant to regulations promoted pursuant to the CTA, or where there is probable cause to believe the entity is a terrorist organization. - Section 13(l) CTA: duty of the Minister of Justice to implement CTA provisions, including ordering freezing of property, by administrative decision, of individuals and organizations designated by the United Nations Security Council acting under Chapter VII. - No administrative decisions pursuant to Section 13(l) CTA or regulations pursuant to Section 26(b) CTA have ever been issued. - At the time of assessment, no funds or assets in Palau had been linked with terrorism, terrorists or terrorist organizations. - Freezing under S/Res/1267 (c. III.1): - Minister of Justice is designated authority under Section 13(l) to order freezing of funds/property of persons designated pursuant to UNSCR 1267. - No specific procedures exist on how to issue, administer, and enforce such freezing orders. - The law does not require freezing to occur without delay and without prior notice to designated persons. - In practice, lists pursuant to Resolution 1267 are received by the Minister of State and forwarded to the Attorney General rather than the Ministry of Justice. - Both the Attorney General and the Minister of State believe that freezing accounts of persons designated pursuant to Resolution 1267 would require a court order; they contend that absent a court order, financial institutions could not be held liable for failure to freeze such funds or assets. - Therefore, absent a court order, holders of funds of persons or entities designated pursuant to Resolution 1267 are not required by law to freeze such funds without delay and without prior notice. - Freezing under S/Res/1373 (c. III.2): - Section 1 of the CTA references member states’ obligations under UNSCR 1373, but no other provision provides specific measures regarding the Resolution. - Sections 26(b) and 13(l) refer to Resolution 1267 but do not mention Resolution 1373; it is unclear who the designated authority would be for 1373. - No legal requirement exists to freeze funds/assets of persons/entities designated pursuant to Resolution 1373 without delay and without prior notice. - In practice, requests under Resolution 1373 are received by the Minister of State and forwarded to the Attorney General; in 2007 Palau reportedly received two or three requests from the United States. - No assets or funds of designated individuals or entities were found in Palau at the time of the mission; no Palauan designations pursuant to Resolution 1373 had been issued. - Authorities state that freezing under Resolution 1373 would require a Palauan court order; absent such order, financial institutions could not be prosecuted for failure to freeze assets. - Screening, communication, and guidance (c. III.5–c. III.6): - No administrative procedures are in place to ensure lists/requests under Resolutions 1267 and 1373 are immediately communicated to the financial sector. - Historically, lists/requests were forwarded from the Minister of State to the Attorney General (former head of the FIU) and then to financial institutions; since the FIU transferred to the FIC, no lists/requests have been received. - Circulation of lists/requests to financial institutions was sporadic; only some financial institutions recall receiving lists/updates; none of the DNFBPs recall receiving any lists. - No guidance, formal or informal, has been provided to financial institutions explaining obligations under Resolutions 1267 and 1373. - Financial institutions were instructed to crosscheck client databases with circulated lists and report back to the FIU within 10 days on matches. - Authorities state that identification of assets of a designated person would require a court order before any freezing action. - Freezing actions taken by other countries and enforcement of foreign orders (c. III.3): - Section 15 CTA: the MLA Act applies with respect to investigations/proceedings relating to terrorism. - Section 14 of the MLA Act: Attorney General may arrange enforcement of a foreign restraint order, defined as “a foreign court order made relating to a serious offense to restrain a person or persons from dealing with property.” - Section 10 MLA Act: Supreme Court is authorized to adopt, recognize, and enforce foreign court orders certified or under seal, with a rebuttable presumption of validity. - Therefore, the MLA Act would allow enforcement of foreign freezing orders in Palau. - Scope of “property” and practical reach (c. III.4): - CTA defines “property” as real and personal property of every kind whatsoever; authorities stated this would cover funds/assets wholly or jointly owned or controlled, directly or indirectly, by designated persons or derived from such funds/assets. - In absence of clear freezing procedures, assessors could not establish whether reporting entities would be requested to freeze all such property. - De-listing, unfreezing, access and review procedures (c. III.7–c. III.10): - No procedures in place for considering de-listing requests or for unfreezing funds/assets of de-listed persons/entities. - Section 13(l) CTA allows an individual/organization whose property was frozen under a Security Council designation to seek removal of their name within 30 days of publication of the list to the agency ordering the freezing; the agency’s decision may be appealed to the Supreme Court but shall not be stayed or vacated pending final decision. - Authorities view that no freezing action may be taken absent a Supreme Court order; thus Section 13(l)’s administrative freezing is difficult to see applying in practice. - No specific procedures exist to authorize access to funds/assets frozen pursuant to Resolution 1267 for basic expenses, fees, service charges, or extraordinary expenses. - No procedures are in place for a person/entity subject to freezing to challenge the measure in court. - Freezing, seizing and confiscation in other circumstances (c. III.11): - CTA allows conviction-based confiscation (Section 7) and civil forfeiture (Section 10) of terrorism-related funds. - Sections 7 and 26 CTA provide for seizing of terrorist-related funds. - Palauan law does not allow freezing of property related to terrorism outside situations defined in Sections 13(l) and 26(b) CTA. - Under Section 15 MLA Act, upon request by a foreign country the Attorney General may apply to the Supreme Court for warrant to use special investigative techniques (Section 24 MLPCA) to identify and trace property relating to terrorism. - Under Sections 7 and 10 CTA, the court has power to void actions intended to prejudice authorities’ ability to confiscate terrorism-related funds. - Protection of third parties (c. III.12): - Sections 7(f) and 10(b)(4) CTA provide protection of property rights of bona fide third parties in confiscation and forfeiture proceedings. - Obligations and enforcement (c. III.13, c. III.14, c. III.15): - Financial institutions are under no obligations with respect to SR III; no civil, administrative or criminal sanctions are available for failure to take freezing actions or to report that assets/funds of a designated person/entity are held. - Measures in the Best Practices Paper for SR III have not been implemented. - No procedures implemented to authorize access to funds/assets frozen pursuant to Resolution 1373. ### Recommendations and comments on freezing (Section 2.4.2) - Provide clear procedures for how the Ministry of Justice may issue, administer, and enforce freezing of funds/assets of persons designated pursuant to Resolution 1267. - Designate an authority responsible for receiving and issuing designations pursuant to Resolution 1373. - Put in place laws and procedures to ensure freezing of terrorist funds/assets of persons designated pursuant to Resolution 1373 without need for a specific court order; freezing should take place without delay and without prior notice to the designated person. - Put in place effective laws/procedures to examine and, where appropriate, give effect to freezing actions initiated under mechanisms of other jurisdictions. - Expressly provide that CTA’s definition of “property” includes funds/assets wholly or jointly owned or controlled, directly or indirectly, by designated persons/terrorists/financiers and any funds/assets derived from such property. - Ensure effective mechanisms to immediately communicate all freezing actions pursuant to Resolutions 1267 and 1373 to the financial sector. - Provide financial institutions and other persons/entities holding targeted funds/assets with clear instructions and guidance regarding obligations under the freezing mechanisms. - Set out effective, public procedures for considering de-listing requests. - Put in place procedures for timely unfreezing of funds/assets inadvertently affected by freezing measures and make them public. - Put in place clear procedures for access to funds in accordance with UNSCR 1452. - Put in place procedures to challenge any freezing measures. - Ensure effective monitoring of compliance with SR III obligations and provide sanctions for noncompliance by financial institutions or other entities holding targeted funds/assets. ### Compliance assessment with Special Recommendation III (Section 2.4.3) - Rating: SR.III — NC - Summary of factors underlying rating: - Although the Minister of Justice has power to freeze by administrative order funds/assets of persons designated pursuant to Resolution 1267, in practice this power has never been used and no procedures exist on how to issue, administer, and enforce such freezing actions. - No designated authority is responsible for receiving and issuing designations pursuant to UNSCR 1373. - No laws/procedures are in place to freeze without delay and prior notice funds/assets of persons designated pursuant to Resolution 1373. - No effective mechanisms to communicate freezing actions pursuant to Resolutions 1267 and 1373 to the financial sector. - Financial institutions and other entities were never provided clear instructions/guidance regarding obligations under freezing mechanisms. - No effective procedures for considering de-listing requests. - No procedures for timely unfreezing of funds/assets inadvertently affected by freezing measures. - No clear procedures for access to funds consistent with UNSCR 1452. - No procedures to challenge freezing measures are in place. - Financial institutions are under no obligation with respect to SR III and no civil, administrative, or criminal sanctions exist for failure to take freezing actions or to report holdings of assets/funds of designated persons/entities. *Source: IMF assessment text (excerpts covering Sections 188–225).* ### 226. There are three legislations that govern the functions of the FIU. The primary legislation is ### _cr0909 - 226. There are three legislations that govern the functions of the FIU. The primary legislation is ### Legal framework and governing statutes - Three legislations govern FIU functions: the MLPCA of 2001 (as amended in December 2007), the FIA, and the CTA. - The FIA governs the FIC and is noted as "more pertinent now" given Presidential Executive Order No. 246 transferred the FIU from the OAG to the FIC on February 12, 2008. - Relevant statutory provisions cited: - Section 16 of the MLPCA (creation and placement of FIU). - Section 17 of the MLPCA (FIU responsibilities). - Sections 5, 11, and 20 of the MLPCA (reporting obligations for CTRs and STRs). - Section 49 of the FIA (parallel STR requirements). - Section 25 of the CTA (NPO cash donation reporting). - Section 18 and Section 19 of the MLPCA (information access and foreign exchange). - Section 24 of the FIA (confidentiality and penalties). ### Establishment, relocation, and institutional placement - The MLCPA of 2001 established the FIU within the OAG in 2001, initially absorbed by existing OAG staff including two CID staff. - Section 16 as amended (December 2007) states: “(a) A Financial Intelligence Unit (“FIU”) shall be created within the Office of the Attorney General or the Financial Institutions Commission by Executive Order of the President.” - Executive Order No. 246 (February 12, 2008) transferred the FIU to the FIC based on a PALP consultant review highlighting conflict of interest with the Attorney General serving as FIU head and Chief Prosecutor. - The FIC is continuing essential FIU functions "but without additional resources at this stage." ### FIU responsibilities and law-enforcement powers - The MLPCA gives the FIU "significant law enforcement powers, including special investigation techniques, and freezing, seizure, and confiscation responsibilities." - Classification: The Palauan FIU can be classified as a "law-enforcement-styled FIU" despite current location within the financial supervisor. - Section 17 role: “(a) The FIU shall be responsible for receiving, analyzing, and processing reports required pursuant to this Act. All officials, employees, and agents of the national government or any other government shall keep confidential the information thus obtained, which may not be used for any purposes other than those provided for in this Act; (b) The FIU may, upon suspicion of money laundering, terrorist financing, or a predicate offense, disseminate such information to domestic authorities as it deems necessary.” ### Reporting obligations and potential duplication - Reporting entities required to submit CTRs and STRs: credit and financial institutions, financial intermediaries, over-the-counter exchange dealers, cash dealers, and alternative remittance systems (per Sections 5, 11, and 20 of the MLPCA). - Section 49 of the FIA requires STR reporting "prior to the completion of a suspicious transaction" and then for the FIU to decide whether the transaction should proceed. The MLPCA requires STR submission "immediately," which "would include within a certain period after completion of the transaction." - Concern: The FIA requirement "could undermine the utility of STR information" and risk "inadvertent tipping off." - Customs (under the CCDA) provides the FIU with STRs and cross-border currency declaration forms of $10,000 or more (or its equivalent in foreign currency). - NPOs must report any cash donation in an amount equal to or greater than $10,000 to the OAG and the FIU pursuant to Section 25 of the CTA — risk of double reporting given FIU transfer to the FIC. ### Guidance to reporting entities and reporting practice - U.S. chartered banks use U.S. government reporting forms for STRs and newly-introduced CTRs. - Up until January 2008, only two banks had submitted STRs to the Palau FIU. - Some U.S. chartered banks have been submitting to U.S. authorities but not to Palau, despite the MLPCA of 2001 legal requirement. - Lack of FIU-issued guidance, regulations, or standard forms has led to inconsistent reporting by banks. - Expectation: "It is anticipated that the newly-situated FIU will begin proper and effective implementation and enforcement of MLPCA reporting requirements by all banks." ### STR intake, analysis, and case handling procedures - The FIU had received 71 STRs to date (no standard operating procedure existed for analyzing them). - Current analysis practice: FIU head analyzes STRs based on known typologies and circumstances, possibly consulting two CID staff seconded to the OAG. - Documented STR processing workflow: 1. STR hand delivered – signed receipt by FIU staff 2. STR assessed by FIU Head 3. FIU Head decides to refer or not or to seek additional information 4. STR entered into FIU-in-a-Box Database 5. STR details disseminated by memorandum to the CID in the BPS or referred to CID staff based at the OAG. - Shortcomings noted: - No systematic pre-dissemination checks against STR database, criminal/intelligence databases at OAG, BPS, Immigration, Customs. - Absence of a formal checklist or typology indicators prior to referral. - Difficulty in keeping an audit trail of dissemination and follow-up decisions. ### Access to additional information and investigative powers - Section 16(d): FIU "shall analyze the reports on the basis of the information at its disposal and shall gather, in particular from organizations and government ministries and agencies involved in combating organized crime, any additional information that may help to establish the origin of the funds or the nature of the suspect transactions..." - Section 18: FIU "may also obtain from any public authority or from any natural or legal person information and record within the scope of investigations conducted following the report of a suspicion of illegal activities ... The FIU shall, upon request, be granted reasonable access to databases of all public authorities." - Section 24 on special investigative techniques requires either probable cause or a warrant from the Supreme Court; this pertains to law enforcement powers rather than routine financial intelligence gathering. - FIU inspection/obtaining of customer records under Section 13 is "subject to a court order." - There is no MLCPA provision permitting FIU to request additional information from reporting entities to clarify STR content prior to invoking Section 24 or investigations. - Practice: FIU has sought limited additional information from banks on a few occasions (e.g., nationality of individuals), but banks reported numerous court orders to access records in investigations. ### Dissemination practices and inter-agency sharing - Section 17(b): “The FIU may, upon suspicion of money laundering, terrorist financing, or a predicate offense, disseminate such information to domestic authorities as it deems necessary.” - FIU has referred 59 cases to the CID for follow-up or substantive investigation; 10 cases were handled directly by the two CID staff based at the OAG — technically 49 cases disseminated out of the OAG/FIU. - Practice: Actual STRs are not disseminated; instead FIU sends a memorandum to CID with details and explanation. - FIU does not refer STR reports to other law enforcement agencies such as the DRT nor Customs. - Confidentiality and dissemination provisions exist in both the MLPCA and FIA and "are not inconsistent." ### Operational independence, reporting lines, and staffing - Section 16 MLPCA "establishes the FIU and gives full operational independence and autonomy to the FIU." - In practice, FIU head and staff have undertaken dual operational roles, common in Palau. - MLPCA provides neither a clear nor distinct line of reporting for the FIU or its head; reporting and budget control follow host agency processes. - Historical practice: when FIU head was the Attorney General, both roles reported to the President and the OEK; Attorney General controlled OAG resources allocated to FIU. - Current location: FIU head is also the FIC Executive Commissioner; similar potential for budget control by host agency until a separate FIU budget is assigned. - Since establishment, "no FIU head has been removed." The former assistant attorney general departed at conclusion of a four-year contract (standard for U.S. citizens working in Palau government agencies). ### Confidentiality, data protection, and storage - Section 16(b): “(b) The FIU members shall be required to keep confidential any information obtained within the scope of their duties, even after cessation of those duties with the FIU. Such information may not be used for any purposes other than those provided for by this chapter.” - Confidentiality extended in Sections 19 and 13(d) (MLPCA) and Section 24 (FIA) with penalties for breaches. - STRs and CTRs storage: locked filing cabinet in the FIC office on the top floor of a commercial building; FIU-in-a-Box Database stored in FIC office. - Access: only three FIC staff have access to the database and STR files in the office. - STR information referred out is recorded and signed by recipient. - No reported cases of FIU information theft or inappropriate use. ### Publication, analysis of trends, and typologies - Section 16(f) requires FIU to submit an annual report to the President and the OEK "to provide an overall analysis and evaluation of reports received and of money laundering trends." - FIU published first annual report titled “Annual Report Concerning Money Laundering Trends” and submitted it on February 11, 2008 to the President and the OEK; report highlighted the 10 STRs received in 2007, subsequent investigation of STRs, and the filing of three cases of prosecution. - Gap: "There has been no comprehensive analysis of the STRs received nor cases investigated to identify Palau specific money laundering typologies, nor provide sanitized cases as feedback to reporting entities." ### International cooperation and Egmont principles - Palau considered Egmont Group membership in 2006 but decided not to proceed, believing it could not meet requirements. - Section 19 allows FIU to enter arrangements for exchange of financial intelligence with foreign FIUs or law enforcement "based on reciprocity" and subject to confidentiality. - Section 16 of the CTA authorizes FIU to disclose intelligence with jurisdictions signatory to terrorism conventions or UN members, any member of the Pacific Islands Forum, and the United States under the Compact of Free Association. - MLPCA requirements generally align with Egmont Group principles; CTA clause would enable spontaneous dissemination without prior agreement. - FIU has signed MOUs for exchange with Chinese Taipei, the Philippines, and Thailand; Palau has provided information to Chinese Taipei and the United States in response to requests. - Under the Compact for Free Association with the United States, an exchange mechanism "appears already" in place but "has not been fully explored" regarding STRs filed to U.S. authorities (FinCEN) but not to Palau FIU. ### Adequacy of resources and staffing constraints - FIU has "not been adequately resourced" for roles in MLPCA, FIA, and CTA. - Expected increase in CTR and STR reporting due to amendments to MLPCA and FIA, the recently enacted CCDA, and the CTA will increase challenges. - Palau "has never devoted any full-time resources to the FIU." - Historical staffing: Attorney General (FIU head), an assistant attorney-general, and two CID investigators — none full-time dedicated to FIU. - FIU previously relied on OAG financial resources which "were never increased" for FIU functions. - Transfer to FIC compounded resource problems. FIC staffing: three staff (the Executive Commissioner, one examiner, and one administrative staff) and a budget based on regulatory/supervisory role, not FIU. - FIC actions: developed a draft new organizational structure and a proposed supplemental budget for submission to the OEK for the remainder of the current fiscal year and indicated another substantive budget request for the following fiscal year. *Source: Excerpt from the provided IMF mission report text.* ### 277. While the integration of the prudential and AML/CFT roles at the FIC could enhance ### _cr0909 - 277. While the integration of the prudential and AML/CFT roles at the FIC could enhance ### Integrity of FIU Authorities (c. 30.2) - Section 16(b) and (c) requirements: - “(b) The FIU members shall be required to keep confidential any information obtained within the scope of their duties, even after cessation of those duties with the FIU. Such information may not be used for any purposes other than those provided for by this Act; (c) The FIU members may not concurrently hold or pursue any elective office in the Palau National Government or any State Government and may not hold any other private employment.” - Section 24 of the FIA: - “Members of the Commission and staff of the Commission shall execute an oath of secrecy in accordance with this Section. Upon a finding by a court of competent jurisdiction that this oath has been violated, the violator shall be dismissed from office. The violator shall be subject to a fine not exceeding $50,000 or imprisonment for a period not exceeding ten years.” - Police clearance and discipline: - No specific police clearance requirement for Palau nationals to work in the OAG and FIC; requirement exists for foreign nationals. - No recorded instances of former OAG-based FIU staff nor FIC staff being disciplined or dismissed for breaches of probity or confidentiality requirements. ### Training for FIU Staff (c. 30.3) - Ongoing technical assistance and training: - Law enforcement mentors from the UNODC, PALP, and Anti-Money Laundering Assistance Team (AMLAT) include the FIU in their program. - Australia’s AMLAT and AUSTRAC provided the FIU with a database for CTRs, STRs, and cross-border currency reports together with training. - Specific training events: - FIU attended two AMLAT seminars in Australia in 2006 focused on the AMLAT/AUSTRAC database and pacific FIU formation/upgrade. - FIU staff attended the APG Annual Typologies Workshop in Fiji in 2005. - FIU staff in the FIC are undertaking the UNODC Computer Based Training in AML/CFT. ### Statistics (applying R.32 to FIU) - STR reporting: - Total STRs received: 71 - Average reporting: “about 10 per annum since the MLPCA was introduced in 2001” (based on two banks reporting) - Breakdown of 71 STRs: - (a) Received: 71 - Disseminated to and investigated by the BPS-CID: 49 - Analyzed/investigated by OAG-CID staff: 10 - (b) Total Investigated: 59 - (c) Prosecutions based on STR: 1 - Single prosecution arising from an STR: predicate charge for breach of Palau’s foreign investment law; case pending trial. - CTRs and cross-border disclosures: - Approximately 100 CTRs received since January 2008; about half concern transactions by the government of Palau. - Five cross-border cash disclosures sent to the FIU, of which one was an STR. ### Effectiveness - Resourcing and structure: - FIU has been inadequately resourced to undertake its functions effectively. - Resourcing constraint compounded by transfer of the FIU to the FIC, which has even less resources compared to the OAG. - Recent amendments to the MLPCA and FIA and enactment of the CCDA and CTA have increased FIU intelligence demands. - FIC’s additional AML/CFT regulatory and supervisory functions will compete for limited FIC resources available for FIU functions. ### Recommendations and Comments - Staffing and budget: - Recruit an additional FIU staff member with appropriate financial analysis and/or financial investigation skills to undertake the FIU analysis functions. - Allocate a dedicated budget to the FIU which would be under the control of the FIU head to cover operational expenses. - Reporting guidance and information access: - Advise reporting entities formally in writing of their STR reporting obligations and provide guidance on reporting procedures. - Consider measures to enable the FIU to obtain additional information from reporting entities during the preliminary STR analysis stage without the need for a court order. - NPO reporting and forms: - The FIU and OAG to determine and designate whether the FIU or the OAG should be the primary recipient of NPO threshold reports, and agree on information-sharing arrangements in respect of such reports. - The FIU to specify and provide appropriate reporting forms and guidance to all designated reporting entities under Section 20 of the MLPCA, including U.S. chartered banks based in Palau. - Processes and dissemination: - Formalize and enhance the STR analysis and dissemination process by developing written standard operating procedures. - Consider disseminating STR reports to other relevant agencies such as the DRT and Customs, where appropriate and warranted. - Reporting and intelligence: - Include in the FIU Annual Report an analysis of the STR predicate crime groups, a breakdown per type of reporting entity, and if possible, an analysis of the techniques used in ML/FT in Palau. - Make the FIU Annual Report or a sanitized version of it publicly available. - Seek from the U.S. authorities (FinCEN) copies of all STRs filed by U.S. banks based in Palau to ensure that the FIU has access to all STRs filed by banks in Palau. ### Compliance with Recommendation 26 - Overall rating: R.26 — PC - Factors underlying rating: - No STR reporting guidance provided, nor any forms for CTR and STR reporting. - No provisions for the FIU to seek additional information from reporting entities except by court order. - No standard operating procedure or written procedure for STR analysis and dissemination. - STR analysis does not include all available and relevant intelligence. - A lack of resources undermines the effectiveness of the FIU’s analysis and dissemination work. - No publicly available FIU annual report nor statistics. ### Law enforcement, prosecution and other competent authorities — legal framework and responsibilities (R.27 & R.28) - Legal framework: - General responsibility for law enforcement vested in the Ministry of Justice (MOJ) per Section 105 of the Criminal Procedure Code (Title 2 PNC). - Section 4 CTA: MOJ has primary enforcement authority for the Act. - Section 13 CTA: MOJ instructed to take measures to implement anti-terrorism provisions. - Operational responsibilities: - Within MOJ, OAG tasked with prosecution; BPS tasked with protection of the public and enforcing laws (Executive Order 203). ### Designation of Authorities for ML/FT Investigations (c. 27.1) - CID of the BPS: - Responsible for investigating criminal cases including money laundering and financing of terrorism. - CID staffing: 18 staff (half dedicated to criminal investigations, half to drug enforcement). - Two CID staff assigned to the OAG; one had functioned as the investigator for the FIU when it was at the OAG. One other staff assigned to the Office of the Independent Prosecutor investigating Pacific Savings Bank failure. - CID handling of STRs and investigations: - Of 71 STRs reported in last six years: 49 sent to CID for follow-up/criminal investigation; 10 investigated by CID officers seconded to the OAG. - CID indicates it has investigated all STRs referred by the FIU; CID has never initiated ML or FT investigations not related to an STR. - Most investigated STRs relate to prostitution cases with deposit inconsistencies relative to work permits/contracts. - Attorney General prosecutions: - Attorney General responsible for prosecution of ML and FT cases, mutual legal assistance, and extradition. - Attorney General has prosecuted six money laundering cases: - One ended in a guilty conviction (on appeal). - One not guilty verdict. - One plea bargain. - Three pending trial. - Only one prosecution originated from an STR (foreign national using a Palauan as front); no FT cases. ### Ability to Postpone/Waive Arrest or Seizure (c. 27.2) - Section 25 MLPCA — undercover operations and controlled delivery: - Allows officials competent to investigate ML offenses, upon prior authorization of the Supreme Court, to perform acts that might be construed as elements of an offense for the sole purpose of obtaining evidence. - Officer supervising must send sworn affidavit to Supreme Court applying for court order, which may include allowing delay of, freezing, or seizure of money or other property until investigation completion. - CID has never used powers to delay freezing or seizure. - Delaying or waiving arrests: - MLPCA does not provide specific legislative powers; CID indicates not prohibited from such measures and would consult AG. - CTA Section 13(g): - Gives MOJ powers to prevent cross-border movement of terrorists and track movement of such persons; could be interpreted as enabling postponement/waiver of arrests, but no FT investigations have occurred. ### Use of Special Investigative Techniques (c. 27.3 — c. 27.5) - Section 24 MLPCA permits FIU or OAG, in course of an investigation, to: - (a) monitor bank accounts; - (b) access computer systems, networks, and servers; - (c) place under surveillance or tap telephone lines, facsimile machines, or electronic transmission or communication facilities; - (d) electronically record acts and behavior or conversations; - (e) inspect communications of notarial and private deeds or of bank, financial, and commercial records. - Conditions: - Such operations possible only when evidence exists constituting probable cause; otherwise a warrant from the Supreme Court is required. - Controlled delivery/undercover operations: - Section 25 MLPCA allows controlled delivery and undercover operations for ML investigations. - CTA: - Does not provide for any special investigative techniques for financing of terrorism. - Practical use: - Authorities have not employed these techniques due to lack of resources and equipment. - No dedicated units of financial investigators; CID has not done joint investigations with other countries but has cooperated on mutual legal assistance (mainly with the United States) involving freezing of bank accounts and extradition. ### Review of ML & FT Trends and Information Sharing (c. 27.6) - CID reviews information related to ML and FT. - Ongoing informal effort to share information among relevant agencies whenever possible. ### Ability to Compel Production of and Searches for Documents and Information (c. 28.1) - Section 13 MLPCA: - FIU and OAG, when having probable cause based on FIU investigation, may apply to the Supreme Court for an order allowing examination and obtaining of confidential information and identification records of a credit or financial institution. - Supreme Court will order production of confidential information and identification records when probable cause exists. - Section 27 MLPCA: - Empowers law enforcement to seize property connected with offense and evidentiary items. - CTA: - Does not provide OAG or CID specific powers to compel production or search for transaction records, identification data, account files, business correspondence, and other records for FT investigations. - Criminal Procedure Code (Chapter 18 PNC, Section 304): - Allows police to obtain search and seizure warrants via sworn affidavit of probable cause filed with the Supreme Court for stolen/illegal property, forged instruments, and property including documents/books/papers necessary as evidence. - Practice: - CID, through OAG, often compels production of banking records (not necessarily specifically for ML investigations); requested records would include transaction records, account files, business correspondence and other records. ### Power to Take Witnesses’ Statements (c. 28.2) - Police can take witnesses’ statements though not specifically mentioned in law. - If a witness refuses to give a statement, a judge can subpoena the witness to testify if deemed necessary. ### Adequacy of Resources to Law Enforcement and Other AML/CFT Investigative or Prosecutorial Agencies (c. 30.1) - OAG composition: - Attorney General, four assistant attorneys general, one trial counselor, two secretary/clerks and two investigators from the CID. - Attorney General, assistant attorneys general, and trial counselor are all U.S. nationals. - BPS and Customs staffing: - BPS total force: 170 staff (including 8 administrative); CID: 18 officers. - CID has seconded three staff with some expertise in financial investigations to the OAG (2) and Office of the Independent Prosecutor (1). - Customs has 35 officers, majority at field offices. - Resource adequacy and technical capacity: - OAG has many tasks and insufficient resources. - CID indicates 18 staff sufficient for current workload but additional staff with financial investigation skills would be beneficial. - Neither OAG nor CID has specific technical resources or expertise to perform financial investigations; CID only recently acquired wire-tapping equipment. - Customs: one K9 unit for drugs detection, no specific technical resources for cross-border cash transportations. ### Integrity of Competent Authorities (c. 30.2) - Government hiring: - Standard process based on Civil Service Regulation including qualifications and selection process. - CID hiring follows BPS procedures including background checks for prior convictions. - All CID officers have been with the BPS for at least five years; no CID officer with an accounting background. - FIU confidentiality and restrictions: - Section 16 MLPCA requires FIU members to keep confidential information obtained in scope of duties and prohibits concurrent elective office or other private employment. - Customs: - Conducts background checks before selecting a candidate. - Customs has a draft Code of Conduct pending MOF approval in April 2008; Code of Ethics requires high integrity from Customs Officers. - Foreign nationals: - All foreign nationals, including those in the OAG, must provide a police clearance from their home country before employment in Palau. *Source: IMF country report content unit _cr0909 - 277. While the integration of the prudential and AML/CFT roles at the FIC could enhance* ### 319. Two of the attorneys of the OAG and three police officers of the CID have attended regional ### _cr0909 - 319. Two of the attorneys of the OAG and three police officers of the CID have attended regional ### Training and capacity building - Two attorneys of the OAG and three police officers of the CID have attended regional AML/CFT trainings over the past 3 years. - BPS exposes staff to specialized training by bringing experts to Palau for training and workshops. - Some Customs officers have received training at courses and workshops conducted by the U.S. government, Australian government, Pacific Islands Forum Secretariat, and Taiwan Customs Service. - Judiciary training: - May 2007: sub-regional judicial workshop on money laundering and financing of terrorism hosted by the Judiciary of Palau; co-hosted by PALP and AMLAT; judges from Palau, Papua New Guinea, Solomon Islands, Tuvalu, Republic of the Marshall Islands, and Fiji attended. - December 2006: Judiciary conference for 25-year celebration invited PALP and AMLAT speakers; presentations on development and application of money laundering laws in the Pacific. ### Statistics (applying R.32) - Of the 71 STRs, 49 were forwarded by the FIU to the CID. - CID indicated it investigated all STRs and after investigation sent all cases back to the Attorney General for prosecution decision; CID did not have statistics on outcomes. - The Attorney General did not recall receiving these investigated STR-related cases from the CID. - According to authorities, of six money laundering prosecutions only one originated from an STR. - OAG did not have additional statistics nor an audit trail tracking STRs. - BPS does not keep statistics on investigations and seizures specific to predicate offences for ML. - United Nations Statistical Institute report on crime in Palau (1992–2005): - 2004: 616 felonies committed; 72 burglaries; 30 cases of embezzlement, fraud and forgery; 163 grand larceny cases. - 2005: 526 cases; 60 burglaries; 35 cases of embezzlement, fraud and forgery; 165 grand larceny cases. - Customs records on cross-border cash detection since 1999: about 90 occurrences up to enactment of the CCDA in August 2007. - Since November 2007, five declaration forms have been sent to the FIU. - In 2008 there have been three attempts to transport over $10,000 without filing a disclosure; in each case funds were seized and an investigation initiated; in two of the three a 5 percent administrative penalty was imposed and the remainder of the cash was returned upon conclusion of the investigation. ### Effectiveness of investigations and investigative powers - CID focuses mainly on investigating predicate offenses and less on money laundering. - CID will request bank records for most investigations, seemingly for evidentiary purposes for predicate offense investigations. - CID has not made use of any of the special powers provided to them by law. - CID has sufficient powers to seize records for money laundering investigations. - For financing of terrorism investigations and investigations into predicate offenses, CID must rely on general powers of the Criminal Procedure Code to seize physical property (documents, books, papers, tangible objects) for evidentiary purposes. - OAG has only limited resources to conduct investigations into ML/FT. - CID officers with expertise in financial investigations have been seconded to the OAG and the Independent Prosecutor. - Lack of skills to conduct ML and FT investigations persists despite technical assistance and training. - OAG and BPS do not keep comprehensive statistics on ML investigations and amounts of property frozen or seized; much of the statistics rely on memory of CID or OAG personnel. ### Recommendations and comments - The CID should focus its investigations not solely on the predicate offenses but also on the money laundering offenses which would consequently enhance expertise regarding money laundering and financial investigations. - The law enforcement agencies should make use of the range of powers provided to them by law. - The authorities should establish an audit trail for STRs between the FIU, BPS, and OAG to enable better insight into the effectiveness of the reporting duty. ### Compliance with Recommendations 27 & 28 (summary) - R.27: LC - The police focuses mainly on investigating the predicate offense and less on money laundering. - The police does not make use, in the course of investigations, of all the powers provided to it by law. - R.28: LC - The legislation does not provide for powers for authorities to compel, search, seize, and obtain records during terrorist financing investigations and investigation into underlying predicate offenses. ### Cross Border Declaration or Disclosure (SR.IX) — Legal framework and requirements - Cash Courier Disclosure Act of 2007 (CCDA) signed into law on August 22, 2007; amendment to Title 17, Chapter 39 of the PNC. - Purpose: detect physical cross-border transportation of currency and bearer negotiable instruments to prevent financing of terrorism and laundering of proceeds of crime. - Declaration requirement: - Declaration of currency or negotiable instruments of $10,000 or more (or equivalent in foreign currency) transported into or out of Palau. - Transportation includes physical transport by a natural person or in accompanying luggage or vehicle, shipment through containerized cargo, or mailing by a natural or legal person. - Note on conflict with MLPCA Section 6(a): - Section 6(a) MLPCA requires transfers to or from a foreign country of moneys or securities involving at least $5,000 to be made through a licensed financial institution; mission noted lack of clarity on relation to CCDA $10,000 threshold and that Customs recommended Congress remove Section 6(a) from the MLPCA. ### Mechanisms to monitor cross-border physical transportation (c. IX.1) - Section 3902 CCDA requires written, signed declaration to Customs when transporting $10,000 or more. - Travelers into Palau declare on embarkment form whether they carry more than $10,000; positive declarations trigger a more detailed declaration form. - Departing persons required to fill the declaration form; Customs lacks sufficient possibilities to check compliance for departures. - Customs arrangement with an airline to inform Customs when x-ray of luggage suggests large cash; cargo luggage x-ray screeners and hand luggage inspectors trained to identify bulk currency. - MOU between Customs and Bureau of Immigration for immigration officers to ask departing passengers about carrying more than $10,000; departure form redesigned to include this question. - Customs officer stationed at the post office performs spot-checks for packages containing cash; post office (part of U.S. Postal Service) requires sender declaration via USPS form; clerk collects forms for Customs. - Customs had records of about 90 detections since 1999; since CCDA enactment Customs sent four declaration forms for amounts over $10,000 to the FIU, and one STR. - Exemptions to declaration requirement: - Banks licensed by the FIC when carrying currency for their own domestic use or purpose. - Common carriers of passengers if passengers carry currency or negotiable instruments. - Common carriers of goods when currency or negotiable instruments are shipped through them. - Traveler checks issuers when traveler checks are delivered to selling agents. - Informal understanding with larger banks using couriers to inform Customs of incoming couriers and amount. - Exemption for common carriers means airline companies and couriers are not responsible to report cross-border cash transportations of passengers or customers. ### Requesting information on origin/use of currency (c. IX.2) - CCDA does not give explicit authority to request/obtain further information from couriers. - Customs uses general authority to request further information from couriers found with no or false declaration and reports never encountered non-cooperation. ### Restraint and seizure powers (c. IX.3) - Section 3905 CCDA: Customs can stop and search without warrant when suspecting undeclared currency or proceeds of criminal activity or related to FT. - Customs may seize currency or negotiable instrument where reasonable cause to believe proceeds of crime or related to FT, or when declaration not made as required. - Seizure period up to 14 calendar days pending investigation; OAG may apply to Supreme Court for additional 14 days extension for good cause. - OAG can apply for search warrant for persons, places, letters, parcels, packages, physical objects, or vehicles when false declaration suspected. - Practice: Customs has made no use of warrantless search powers for vessel or aircraft; on three occasions seized money when no declaration made; funds released after origin/use information provided and cross-checked; in two cases administrative penalty imposed; cases resolved within 14 days so no extension used. ### Retention and reporting of declaration information (c. IX.4–IX.5) - Customs retains originals of declarations above $10,000 and sends a copy to the FIU. - Section 3904(a): Customs must report facts to the Attorney General when suspicion of CCDA violation or proceeds of criminal activity or related to FT. - Section 3902(a): FIU is provided with a copy of the declaration form. - Section 3904(a): FIU to be notified by means of an STR within 48 hours when Customs has suspicion that currency is transported in violation of the CCDA or is proceeds of crime or related to FT. - Customs sent one STR to the FIU concerning three travelers carrying between $9,000 and $9,500 each to avoid reporting; investigation found money belonged to a travel agency; purpose was payment for hotel and group traveler expenses. ### Domestic and international cooperation (c. IX.6–IX.7) - Section 3904(b): Customs and the FIU may make information from CCDA reports available to another government agency upon written request stating particular information desired and criminal, tax or regulatory purpose. - Customs works with Bureau of Immigration; Immigration flags suspected cash-carrying travelers to Customs. - Section 3904(b) allows Customs and FIU to share information with a foreign government agency upon written request; no occasions yet where Customs has shared information. - Palau membership in Oceania Customs Organization: participates in annual meetings; shares information on money laundering schemes via Customs Regional Intelligence Network and monthly bulletin to members. - Annual Law Enforcement Tournament between Palau, Commonwealth of the Northern Marianas Island, and Guam Customs used to share information including on cross-border issues and money laundering. ### Sanctions for false declarations and for cross-border transport for ML/FT (c. IX.8–IX.9) - Section 3906: administrative and civil penalties for natural and legal persons. - Chief of the Division of Customs may assess an administrative penalty of 5 percent of the currency or negotiable instruments transported, mailed, or shipped for failure to file a declaration or for material omission or misstatement. - Corporate entities (other than the Republic of Palau) on whose behalf a declaration was not made can be fined equal to two times the fines specified for natural persons. - Two of the three occasions where funds were seized for failing to make a declaration resulted in a 5 percent administrative penalty. - Attorney General may bring a civil action; upon proof by a preponderance of the evidence person shall be subject to a civil penalty not to exceed twice the amount of currency or negotiable instruments carried or attempted to be carried. - Attorney General may prosecute for money laundering or financing of terrorism on the basis of MLPCA, Section 3 or the CTA, Section 24. ### Confiscation of currency related to ML/FT (c. IX.10) - Section 3905(d): Customs may seize funds transported cross-border where reasonable cause to believe currency is proceeds of crime or related to terrorist financing for a period of 14 days pending investigation; OAG may apply to Supreme Court for additional 14 days extension for good cause. - Sections 33 and 34 of the MLPCA provide for conviction-based confiscation of property used in a money laundering offense. - Section 26 (1) CTA provides any Palau law enforcement officer or customs official may seize and detain any property that the officer has probable cause to believe was derived from or intended for terrorism, financing of terrorism, or terrorist organizations. *Source: _cr0909 - 319.* ### Section 7 of the CTA provides that any person convicted of a terrorism offense shall be required to ### _cr0909 - Section 7 of the CTA provides that any person convicted of a terrorism offense shall be required to ### Confiscation, forfeiture and UN Security Council Resolutions - Section 7 of the CTA requires that any person convicted of a terrorism offense shall forfeit to Palau, irrespective of any other provision of law: - any property used or intended to be used in the commission of the offense, - property constituting the proceeds of or property derived from the proceeds of, directly or indirectly, from the offense, - any property used in any manner, wholly or partly, to commit or facilitate the commission of the offense. - Confiscation pursuant to UNSCRs (applying c. III.1-III.10 in SR III, c. IX.11): - Section 26(b) CTA: property of or intended for terrorist organizations shall be frozen, seized, and detained where the organization has been designated as a terrorist organization by the UN Security Council or by the Minister of Justice or where there is probable cause to believe that the entity involved is a terrorist organization. - The law does not require that funds or assets of persons or entities designated by Palau or any other jurisdiction pursuant to Resolution 1373 are to be frozen without delay and without prior notice to the designated persons involved. - For persons and entities designated pursuant to Resolution 1373, Customs could apply Section 26(a) CTA which provides that any Palau customs official may seize and detain any property that the officer has probable cause to believe was derived from or intended for terrorism, financing of terrorism, or terrorist organizations, including, without limitation to property being imported into or exported from Palau. - The CTA allows for: - conviction-based confiscation (Section 7), and - civil forfeiture (Section 10) of terrorism-related funds. ### Cross-border movement of precious metals and stones; notifications - To date, Palau has not discovered any large or unusual cross-border movement of gold, precious metals, or precious stones. - Authorities indicated that if such movements were discovered they would notify the customs authorities and/or the FIU of the country from which the items came, or to which the items are going, to establish source, destination, and purpose and take appropriate action. ### Safeguards for use and disclosure of information - Section 3904(c) provides that information made available by Customs or the FIU to other departments or agencies of the government of Palau or any foreign government shall be received in confidence and shall not be disclosed to any person except for official purposes relating to the investigation, proceeding, or matter in connection with which the information is sought. ### Customs practice and implementation of SR.IX best practices - Customs has implemented several Best Practices elements, including: - threshold set lower than the FATF threshold, - working with an airline to obtain advance access to lists of travelers for profiling, - reverse burden of proof in practice (restrain funds and have carrier demonstrate legitimate origin and destination), - procedures for dealing with couriers when large amounts of cash are detected. - Computerization / record-keeping: - Customs officers use a detailed excel file to record information on persons arriving with large sums of cash or monetary instruments over $10,000. - Effectiveness: - The CCDA gives Customs adequate powers to check for cross-border cash transportations and there is sufficient expertise within Customs to execute their powers under the CCDA adequately. - Although the law is recent, Customs has been using their powers effectively and within a short period have shown some results. ### Recommendations and comments (Section 2.7.2) - The exemption for banks, common carriers of passengers or goods, and traveler checks issuers does not fall within the criteria for SR IX. Palau should reconsider the exemption of the declaration duty for certain persons/companies. - The authorities should consider bringing the threshold mentioned in Section 6(a) MLPCA requiring that funds above $5,000 are transmitted through financial institutions in line with the threshold of the cross-border cash declaration duty. ### Compliance with Special Recommendation IX - SR.IX rating: LC - Noted factor: The exemption for banks, common carriers of passengers or goods, and traveler checks issuers does not fall within the criteria for SR IX. ### Preventive measures — financial institutions: risk assessment and institutional capacity - Legal framework components for the financial sector: - Money Laundering and Proceeds of Crime Act of 2001, as amended (MLPCA), - Financial Institutions Act of 2001, as amended (FIA). - No requirement in these acts to develop a formal risk-based approach for AML/CFT. - FIC responsibilities and resource constraints: - The FIC has supervisory responsibility over Palau’s financial institutions and since February 2008 also functions as the FIU. - The FIC is significantly understaffed and lacks an appropriate budget to adequately carry out its responsibilities. - Consequently the FIC has adopted a very informal risk approach, directing limited resources to areas of highest risk (generally locally-chartered banks). - A more formal risk approach may be developed once the FIC is appropriately staffed, funded, and reorganized to take into consideration its new FIU responsibilities. - Risk assessment: - The risk of ML and FT in Palau is minimal. - Typical ML transactions are generally limited to illegal proceeds from prostitution and marijuana sales. - There have been no known FT transactions or cases. - The foreign-owned bank branches are well regulated by their home country supervisors and any ML and FT activities that may occur would likely be confined to locally-chartered banks. ### Customer due diligence (CDD) — legal scope and requirements - Definitions and coverage: - FIA defines “financial institutions” as banks, securities brokers, and securities dealers. - MLPCA defines a “financial institution” or “credit institution” broadly, including activities (1) through (13) as listed in the source (acceptance of deposits; lending; financial leasing; money transmission services; issuing and administering means of payment; guarantees and commitments; trading in money market instruments, foreign exchange, financial futures and options, etc.; underwriting; money-brokering; portfolio management and advice; safekeeping and administration of securities; credit reference services; safe-custody services). - Prohibition of anonymous accounts: - MLPCA Section 7(h): credit and financial institutions and cash dealers shall not establish any business relationship with or complete any financial transaction for any anonymous person or entity or for any person or entity using a false or fictitious name. - Locally-chartered banks and foreign branches indicate that anonymous accounts are not maintained by these institutions. - When CDD is required: - MLPCA Section 7(a) requires verification of customers’ identity and address before opening ordinary accounts or passbooks; establishing business relations; taking stocks, bonds, or other securities into safekeeping; granting safe-deposit facilities; managing assets; or effecting or receiving payments on behalf of either natural or legal persons. - Section 7(g) requires identification and verification where the institution has doubts about the veracity or adequacy of previously obtained customer identification. - Occasional transactions: - Section 9(a) requires that “casual” customers of financial institutions be identified in the manner specified in Section 7 in the case of any transaction involving a sum of at least the equivalent of $10,000. - Section 9(a) does not address situations where the transaction is carried out in a single operation or in several operations that appeared to be linked; competent authorities indicate linked transactions may be addressed through regulations at a later date. ### Banks and market structure - Number and composition of banks: - Palau has seven banks licensed by the FIC. - The seven banks consist of three locally-chartered banks and four branches of foreign banks. - The four branch institutions comprise 80 percent of the banking market in Palau while the remainder is split among three locally-chartered banks. - Locally-chartered banks: Asia Pacific Commercial Bank, First Fidelity Bank, Inc., and Palau Construction Bank. - Four licensed foreign branches: Bank of Guam, Bank of Hawaii, Bank Pacific, and First Commercial Bank. - Legislative amendments and regulatory guidance: - MLPCA amended in December 2007 to accommodate several enhancements including CDD issues. - FIA amended in February 2008 and includes enhanced AML/CFT measures, reporting of suspicious transactions, compliance with AML/CFT standards, and regulatory and supervisory powers of the FIC. - The FIC had not issued regulations or guidance notes under the original FIA; during the mission’s on-site visit the FIC issued several administrative and prudential regulations. - AML/CFT regulations and guidance were to be developed later and were not expected before the end of 2008. ### Non-bank financial institutions — coverage, gaps and supervisory issues - Sector composition: - 12 insurance intermediaries (known as “insurance agents” in Palau), - 12 finance companies, - 14 MVTS, - approximately 3 credit unions. - Licensing and coverage inconsistencies: - The MLPCA covers the whole nonbank financial sector, but preventive measures do not apply equally across all nonbank sectors, creating an uneven playing field. - Insurance agents are defined as “cash dealers” or “OTC exchange dealers” under Section 4(e)(1) of the MLPCA and not as financial institutions; if categorized as “OTC exchange dealers” they are required to be licensed by the MOJ under Section 15; if categorized as “cash dealers” there is no licensing or supervisory requirement under the MLPCA. - Insurance agents have not been licensed as OTC exchange dealers and the FIC has not conducted compliance audits of insurance agents under the MLPCA. - No insurance legislation exists for supervision of insurers and insurance agents. - Under FATF standards, Palauan insurance agents need to be covered under the AML/CFT regime, since they provide life insurance products. - MVTS (money or value transfer services): - MVTS recently brought under the purview of the FIC via MLPCA amendments. - MVTS may be defined as “financial institutions” or “credit institutions” under Section 4(k)(4) or as “Alternative Remittance Systems (ARS)” under Section 8. - If categorized as ARS they are required to be licensed by the FIC; if categorized as financial institutions/credit institutions, no licensing requirement but FIC may conduct compliance audits under Section 14(b). - FIC has not yet identified MVTS except for the three largest operators (including Western Union and Pinoy Express) and has indicated it will categorize them as ARS. - At the time of the mission, MVTS in Palau were unsupervised for AML/CFT and posed a significant ML/FT risk given relative size of the sector. - The three known MVTS provide international money transfer services for the foreign worker population and are used by Palauans to receive funds from relatives abroad or remit funds to dependents, and for payments for purchases such as lumber and construction materials. - Credit unions: - Covered under Section 4(k)(1) of the MLPCA as “financial institutions” or “credit institutions.” - FIA (Section 3(f)) requires licensing of credit unions as financial institutions where total assets are over $500,000. - FIC has not licensed any credit unions as financial institutions under the FIA because their total assets are below $500,000. - Most credit unions have been incorporated as nonprofit corporations so they are tax-exempt (except for employee earnings) and do not require DRT business licenses. - Finance companies: - Covered under Section 4(k)(2) of the MLPCA as “financial institutions” or “credit institutions.” - FIC may conduct compliance audits under Section 14(b) of the MLPCA. - Securities: - There is no securities market in Palau. - There are no securities dealers in Palau although they are covered under the MLPCA and the FIA as “cash dealers” or “OTC exchange dealers” and as “financial institutions.” ### Implementation and supervisory practice - Coverage and awareness gaps: - In practice, credit unions and finance companies are largely unaware of the AML/CFT regime and their obligations. - No implementation of AML/CFT supervision pursuant to the MLPCA has commenced for these sectors; no government authority has visited them to inform them of obligations; they are unsupervised for AML/CFT. - Where financial institutions and credit institutions are mentioned in section 3 of the report, coverage of credit unions, finance companies, and securities brokers is to be inferred due to lack of separate implementation. - MVTS practice: - International or foreign-operation MVTS conduct some CDD and record-keeping elements per group policies and report overseas to their parent company AML/CFT compliance officer. - FIC intends to categorize MVTS as ARS; no implementation of provisions for MVTS under the MLPCA has been done; therefore no separate analysis of their compliance except under SRVI (ARS). - Insurance agents practice: - Since insurance agents are only covered under “cash dealers” and “OTC exchange dealers,” wherever cash dealers are mentioned in the report, coverage of insurance agents is to be inferred. - MOJ has not licensed insurance agents as OTC exchange dealers; authorities have not indicated whether they should be treated as “cash dealers” or “OTC exchange dealers.” - A section for insurance agents will be inserted under each FATF Recommendation in section 3 where provisions for OTC exchange dealers are made in the MLPCA. *Source: _cr0909 - Section 7 of the CTA provides that any person convicted of a terrorism offense shall be required to (IMF PDF).* ### 385. Because the threshold for identifying “casual” customers is $10,000, financial institutions are ### _cr0909 - 385. Because the threshold for identifying “casual” customers is $10,000, financial institutions are ### Identification thresholds and casual customers - The threshold for identifying “casual” customers is $10,000. - Occasional wire transfers above $1,000 in the circumstances of SR VII are not covered by the $10,000 casual-customer identification threshold. - There is no explicit requirement in the MLPCA to identify customers in circumstances where there is a suspicion of ML/FT. ### Identification measures and verification sources (c. 5.3) - Sections 7 (a), (b) and (c) of the MLPCA cover identification and verification requirements. - Section 7(a) requires verification of identity and address before opening ordinary accounts or passbooks, establishing business relations; taking stocks, bonds, or other securities into safekeeping; granting safe-deposit facilities; managing assets; or effecting or receiving payments on behalf of either natural or legal persons. - Section 7(b) requires a natural person’s identity and address be evidenced by presentation of either an original official identification document that is unexpired and bears a photograph or a reasonable alternative. - Section 7(c) deals with legal persons (detailed below). - Locally-chartered banks generally comply; some do not track expiration dates of identification documents once entered into data systems. - Foreign-owned branches indicated they follow home country requirements. ### Identification of legal persons or other arrangements (c. 5.4) - Section 7(d): natural or legal persons authorized to transact on behalf of third parties must produce KYC documents as required by Sections 7(b) and 7(c) for themselves and the beneficial owners. - Section 7(c) requires production of articles of incorporation or charter or equivalent, a document establishing address, and a notarized document setting forth directors and, where necessary, principal owners and beneficiaries. - Section 7 does not specifically address verifying provisions regulating the power to bind the legal person or arrangement. ### Identification of beneficial owners (c. 5.5; 5.5.1 & 5.5.2) - Section 10 requires that if a credit or financial institution is uncertain whether a customer is acting on his or her own behalf, it shall seek information by any legal and reasonable means to ascertain the true identity of the principal. - If good faith attempts to verify the identity of any beneficial owner have doubtful results, the banking relationship shall be terminated. - Section 7(c) does not require financial institutions to take reasonable measures to determine who are the natural persons that ultimately own or control the customer, including those who exercise ultimate effective control over a legal person or arrangement. - Section 7(d) requires agents acting for third parties to produce KYC documents for themselves and beneficial owners. ### Information on purpose and nature of business relationship (c. 5.6) - The MLPCA does not require financial institutions or any other institution to obtain information on the purpose and intended nature of a business relationship. - Foreign-owned branches indicate they obtain information on the purpose and intended nature of all business relationships. - Locally-chartered banks generally do not formally gather this information. ### Ongoing due diligence on business relationship (c. 5.7; 5.7.1 & 5.7.2) - The MLPCA contains no specific instruction requiring ongoing due diligence or scrutiny of transactions to ensure consistency with institution’s knowledge of the customer, business and risk profile, or source of funds. - The MLPCA does not specifically require keeping CDD data current via reviews for higher-risk customers or relationships. - Foreign-owned branches report they conduct ongoing due diligence throughout the course of a business relationship. ### Risk—Enhanced due diligence for higher risk customers (c. 5.8) - There is no specific instruction in the MLPCA to require enhanced due diligence for higher-risk categories of customer, business relationship, or transaction. - Some foreign branches apply enhanced due diligence as part of their AML/CFT programs. - Competent authorities indicate they are considering requiring enhanced due diligence in the future; there are no immediate initiatives. ### Risk—Application of simplified/reduced CDD measures when appropriate (c. 5.9 & c. 5.10) - Palau has not issued regulations or guidance regarding reduced or simplified CDD measures. - Authorities note some financial institutions may apply reduced CDD measures in some cases involving large private companies and some public companies. - Some foreign branches utilize reduced CDD measures where appropriate and approved by management. - Palau has not addressed reduced CDD measures relating to overseas residents and has not issued guidance permitting simplified or reduced CDD measures. ### Risk—Simplified/Reduced CDD Measures Not to Apply when Suspicions of ML/FT or other high risk scenarios exist (c. 5.11) - Simplified/reduced CDD measures are not addressed by Palau laws, including that simplified measures cannot be used whenever there is a suspicion of ML or FT or other higher-risk scenarios exist. - Authorities indicate some foreign-owned branches are utilizing reduced CDD measures. ### Risk-based application of CDD to be consistent with guidelines (c. 5.12) - Locally-chartered banks generally have not utilized risk-sensitive approaches to CDD. - Larger foreign branches follow home rules and apply risk-sensitive approaches. - The FIC has not reviewed foreign branches’ risk-sensitive approaches and has not issued guidelines regarding appropriate uses and limits on CDD application. ### Timing of verification of identity—General rule and exceptional circumstances (c. 5.13; c.5.14 & 5.14.1) - Section 7(a) requires verification of identity and address before opening accounts or establishing business relations. - Section 9(a) requires “casual” customers be identified per Section 7 for any transaction involving a sum of at least the equivalent of $10,000. - If the amount of the transaction is unknown at operation time, the customer shall be identified as soon as the threshold becomes known or is reached. - The MLPCA does not provide for completing verification of identity after establishing a business relationship. ### Failure to complete CDD before or after commencing the business relationship (c. 5.15 & 5.16) - If a financial institution cannot complete CDD before commencing the business relationship, it cannot open the account (Section 7(a)). - Section 7(i): if a prospective or existing customer is unwilling to provide required documentation or doubts about identity cannot be resolved, the institution shall not open the account and shall file a suspicious transaction report. - Section 9 reiterates identification of casual customers for transactions involving at least the equivalent of $10,000. - Section 7(i) applies similarly to existing customers unable or unwilling to provide documentation. ### Existing customers—CDD requirements (c. 5.17) - The MLPCA does not require applying CDD to existing customers on the basis of materiality and risk. - Section 7(f) notes institutions shall, to the extent not already done, verify existing customers’ identity and address. - Institutions indicated they have verified existing customers’ identity and address, including those predating the revised MLPCA. - Section 7(g) requires identification and verification where institutions have doubts about previously-obtained identification. ### Existing anonymous-account customers—CDD requirements (c. 5.18) - Anonymous accounts are prohibited by the MLPCA (Section 7(h)). - Section 7(h) prohibits establishing business relationships or completing transactions for anonymous persons or those using false or fictitious names. - Institutions indicated they had no anonymous accounts maintained prior to the revised MLPCA. ### Politically-exposed persons (PEPs) (c. 6.1–6.4; Additional Element c. 6.5 & 6.6) - There are no provisions in the MLPCA or the FIA addressing foreign or domestic PEPs. - To meet FATF criterion 6.1, institutions should be required to put in place risk-management systems to determine whether customers or beneficial owners are PEPs (this is not currently required). - No provisions require senior management approval to establish or continue PEP relationships. - No provisions require taking reasonable measures to establish source of wealth and source of funds for PEPs. - No provisions require enhanced ongoing monitoring of PEP relationships. - U.S.-supervised branches have PEP requirements and follow home-country rules. - Competent authorities could not provide assessors with information if Palau has signed, ratified, and fully implemented the United Nations Convention Against Corruption. ### Cross-border correspondent accounts and similar relationships (Rec. 7; c. 7.1–7.5) - Locally-chartered banks in Palau do not maintain cross-border correspondent banking relationships. - Foreign branches utilize cross-border arrangements through head offices and follow home-country AML/CFT safeguards. - No provisions in MLPCA or FIA require gathering information on respondent institution reputation, quality of supervision, or prior ML/TF investigations; U.S.-supervised branches follow home-country rules. - MLPCA/FIA do not require assessment of respondent institution’s AML/CFT controls; U.S.-bank branches follow home-country requirements. - No provisions require senior management approval before establishing new correspondent relationships for locally-chartered banks; U.S.-regulated branches require senior management approval and arrange relationships through head office. - Neither MLPCA nor FIA requires documenting AML/CFT responsibilities in correspondent account relationships. - Neither MLPCA nor FIA have provisions regarding due diligence on payable-through accounts; payable-through accounts are not currently being utilized. ### Misuse of new technology for ML/FT (c. 8.1) - The MLPCA and the FIA have limited provisions regarding new technologies and have not issued guidance or regulations to financial institutions. - Section 63(d) of the FIA requires banks providing computer access to maintain adequate security for Internet platforms. - Locally-chartered banks have little internal capacity to address new technologies; larger foreign-owned branches follow home-country requirements. - No provisions require institutions to have policies or measures to prevent misuse of technological developments in ML/TF schemes. ### Risk of non-face-to-face business relationships (c. 8.2 & 8.2.1) - Section 7(e) requires notarized identification from the customer’s local bank for non-face-to-face transactions. - If the local bank is located in, or a branch is located in, a Non-Cooperative Countries and Territories (NCCT) jurisdiction as defined by the FATF, the non-face-to-face transaction shall not be completed. - MLPCA does not require institutions to develop policies and procedures addressing specific risks of non-face-to-face relationships. - There is no NCCT list; competent authorities are considering issuing a list of noncompliant jurisdictions in lieu of an NCCT list. - Banks indicate no non-face-to-face transactions are conducted. ### Insurance agents and OTC exchange dealers - Insurers and insurance intermediaries classified as “cash dealers” are not required to conduct CDD on occasional customers under Section 9 of the MLPCA, in accordance with criterion 5.2(b). - OTC exchange dealers whose sole occupation is that of an OTC exchange dealer and who are not otherwise licensed by the FIC as a financial institution are required to conduct CDD under Section 15(b) of the MLPCA. - Section 15(b) requires verification of identity prior to any transaction involving a sum greater than the equivalent of $2,500 by presentation of an official original document of identification that is unexpired and bears a photograph, a copy of which is taken. - The MLPCA has no provision for OTC exchange dealers regarding identification of legal persons, beneficial owners, purpose and nature of the relationship, ongoing due diligence, or simplified/enhanced CDD. - Under criterion 5.9, simplified due diligence could be conducted for life insurance policies where the annual premium is less than $1,000 or a single premium of less than $2,500, if Palau were to include elements of risk-based CDD in its laws or regulations. *Source: _cr0909 - 385. Because the threshold for identifying “casual” customers is $10,000, financial institutions are* ### 421. Rec. 6 and 8: There are no provisions regarding PEPs for compliance with Rec. 6 or for non- ### _cr0909 - 421. Rec. 6 and 8: There are no provisions regarding PEPs for compliance with Rec. 6 or for non- ### Rec. 6 and 8 — Effectiveness - Full and proper implementation of preventive measures for financial institutions has not yet been accomplished. - Foreign branches in general conduct CDD, but based on the rules in their home country. - Locally-chartered banks in some cases might take a copy of the identification documents, but in general do not implement the requirements of the MLPCA. - Insurance agents, finance companies and credit unions have not implemented any of the CDD requirements. - The FIC lacks an appropriate budget and staff to carry out its responsibilities and is in the process of developing its organization and hiring suitable staff. - The FIC has not issued any AML/CFT regulations or guidance notes and has not yet conducted any AML/CFT compliance examinations to verify compliance with requirements. ### Recommendations and Comments (CDD, PEPs, OTC, technology) - Financial and other institutions should be required to undertake CDD for customers for occasional transactions that are carried out in several operations that appear to be linked. - Financial and other institutions should be required to undertake CDD for customers that carry out occasional transactions that are wire transfers of $1,000 or more. - Financial institutions should be required to undertake CDD where there is a suspicion of ML or FT. - Financial institutions should be required to obtain information on the provisions regulating the power to bind a legal person or arrangement. - Where customers are legal persons or arrangements, financial institutions should understand the ownership and control structure and should determine who are the natural persons that ultimately own or control the customer. - Financial and other institutions should be required to obtain information on the purpose and intended nature of the business relationship. - Ongoing due diligence should be required for all business relationships. - Palau should require financial and other institutions to perform enhanced due diligence for higher-risk categories of customers. - Financial and other institutions should be required to put into place appropriate risk-management systems to determine whether a customer is a PEP, including all the necessary measures to protect against possible misuse of account relationships. - Financial and other institutions should be required to take measures to know its cross-border respondent institutions, assess their AML/CFT controls, have an appropriate approval process and document respective AML/CFT responsibilities including safeguards for payable-through accounts. - Financial and other institutions should be required to have policies in place to prevent the misuse of technological development in money laundering or terrorist financing schemes. - OTC exchange dealers should be required to conduct CDD on occasional transactions, identification of legal persons, beneficial owners, obtaining information on the purpose and nature of the relationship, ongoing due diligence. - The classification of insurance agents as OTC exchange dealers or cash dealers should be clarified and appropriate supervision of the sector under the MLPCA should commence. - CDD should be required for all transactions under the MLPCA for the insurance sector, but Palau may apply simplified CDD for life insurance with single premiums under $2,500 or with annual premiums under $1,000. ### Compliance with Recommendations 5 to 8 — Ratings and key factors - R.5 — NC - Lack of effective implementation of the CDD measures. - Occasional transactions that appear to be linked are not addressed. - There is a threshold gap between $1,000 and $10,000 for identifying occasional transactions that are wire transfers. - No requirement to undertake CDD where there is a suspicion of ML or FT. - No requirement to obtain information on the provisions regulating the power to bind a legal person or arrangement. - No requirement to obtain the purpose and nature of business relationships or to conduct ongoing due diligence on the relationships. - High-risk categories of customers do not require enhanced due diligence. - Insurance agents classified as OTC exchange dealers are not required to conduct CDD for transactions under $2,500. - Insurance agents classified as OTC exchange dealers are not required to conduct CDD on occasional transactions, identify legal persons, beneficial owners, obtain information on the purpose and nature of the relationship, ongoing due diligence. - R.6 — NC - Neither the MLPCA nor the FIA addresses the issue of PEPs as defined by the FATF. - R.7 — NC - The MLPCA does not address the issue of cross-border correspondent banking relationships or payable-through accounts. - R.8 — NC - Neither the MLPCA nor the FIA require financial or other institutions to have policies in place needed to prevent the misuse of technological developments. - The MLPCA does not require OTC exchange dealers to have policies in place needed for non-face-to-face business or to prevent the misuse of technological developments. --- ### 3.3. Third Parties and Introduced Business (R.9) ### Description and Analysis — Legal Framework and Practice - There are no specific provisions in the MLPCA or the FIA that address the use of intermediaries or other third parties to perform elements of the CDD process. - There are no requirements to obtain CDD elements from third parties in the MLPCA or the FIA. However, Section 7(a) of the MLPCA requires credit and financial institutions and cash dealers to verify their customer’s identity and address before opening accounts. - There are no requirements in the MLPCA or the FIA regarding availability of identification data from third parties. - There are no requirements in the MLPCA or the FIA regarding regulation and supervision of third parties (applying R. 23, 24 & 29). - Neither the MLPCA nor the FIA address the adequacy of application of FATF Recommendations relating to third parties. - There are no requirements in the MLPCA or the FIA that address the issue of third party introducers; Section 7 indicates credit and financial institutions and cash dealers are required to verify customer identities before opening accounts. - There are no provisions in the MLPCA regarding introduced business for OTC exchange dealers. - Effectiveness: Locally-chartered banks do not utilize third-party introduced business. Some foreign branches that utilize introduced business indicate they require the client’s presence to open an account relationship. U.S.-regulated foreign branches follow home-country regulatory requirements for third-party introducers. ### Recommendations and Comments (Third parties) - It is recommended that Palau require financial institutions, credit institutions, cash dealers, and OTC exchange dealers that rely on third parties to perform the CDD process to take adequate steps to ensure that copies of identification data and other relevant documents will be made available from the third parties upon request. - Financial institutions should satisfy themselves that the third party is regulated and supervised appropriately. ### Compliance with Recommendation 9 - R.9 — NC - Neither the MLPCA nor the FIA address the issue of introduced business. --- ### 3.4. Financial Institution Secrecy or Confidentiality (R.4) ### Description and Analysis — Legal Framework - Palau does not have any bank secrecy laws that would inhibit the implementation of the FATF Recommendations. - Section 47 FIA states that present and past administrators, employees, and agents of a financial institution shall keep secret any nonpublic information that they obtain, unless when required by law to the FIC. - Section 26 of the MLPCA (Disallowance of bank secrecy) states that banking or professional secrecy may not be invoked as grounds for refusal to provide information referred to in Section 12 (record-keeping requirements) or required in connection with an investigation which relates to money laundering and is ordered by or carried out pursuant to an order of the Supreme Court. - The FIU must apply for a court order upon probable cause to examine contents of information and identification records of a credit or financial institution; authorities indicate court orders can be obtained in a timely manner and do not inhibit implementation of the FATF Recommendations. - Information sharing between competent authorities, domestically or internationally, and between financial institutions is not prohibited by Palauan law and is undertaken when necessary. Authorities indicate not to have any problems accessing information held by financial institutions. ### Recommendations and Comments - No recommendations or comments. ### Compliance with Recommendation 4 - R.4 — C --- ### 3.5. Record keeping and wire transfer rules (R.10 & SR.VII) ### Legal Framework — Record keeping - MLPCA Section 12 (record keeping by credit and financial institutions) provides: - (a) records of customer identification for five years after the account has been closed or the relations with the customer have ended; - (b) records of transactions conducted by customers that fall under Section 5 (report on the use of cash and bearer securities), and the reports provided for in Section 11 (special monitoring of certain transactions), for five years following execution of the transaction. - Prior to amendment, Section 11(b) required maintaining records of transactions for five years following execution. The amended Section 12(b) now only requires maintenance for 5 years of those transactions conducted by customers that fall under Section 5 and the reports provided in Section 11. - Palau has not yet issued any implementing regulations or financial institution guidance to clarify record-keeping requirements. ### Record keeping — Key findings - Section 12 does not specifically require that all customer transactions be maintained for at least 5 years, only those covered in Section 5 and 11. - Section 12 does not specify the need to maintain records in a sufficient manner to permit reconstruction of individual transactions to provide evidence for prosecution. - There are no specific provisions as to the extension of retention periods; competent authorities may, by court order, apply for such an extension. - Discussions with financial institutions indicated that they maintain all customer transactions for at least 5 years. - Section 12(a) does not address maintaining account files or business correspondence. - Section 12 does not specifically address the issue of timely availability, but requires that customer identification data and certain customer transactions be available to the authorities and maintained for 5 years. - Section 13 of the MLPCA provides for the FIU and the OAG, when they have probable cause based on an investigation by the FIU, to apply to the Supreme Court for an order allowing examination of general information and records referred to in Sections 7, 9, and 10 (identification records). Supreme Court will order production when probable cause exists. Authorities indicate court orders can be obtained in a timely manner. - An inconsistency may exist in Section 13: while Section 13(a) addresses credit or financial institutions, Section 13(b) addresses credit or financial institutions, cash dealers, or alternative remittance systems; authorities have focused on banks and not on other nonbank financial institutions, making the extent of future problems unclear. - No implementing regulations or guidance notes regarding record-keeping matters have been issued. FIC plans to develop AML/CFT regulations, but regulations likely not available until sometime in 2009. ### Wire transfer rules — Originator information and thresholds - MLPCA Section 6 (Requirements to effect domestic or international transfers of funds via credit or financial institutions) requires: - (a) any transfer to or from a foreign country of moneys or securities involving a sum of at least $5,000 or its equivalent shall be made by or through a credit or financial institution licensed under the laws of Palau; and - (b) all transfers are required to have and maintain through the payment chain, accurate and meaningful originator and recipient information, including but not limited to, name, address, and account number. - Authorities indicated subsection 6(b) refers only to transfers covered in subsection 6(a) (i.e., those of at least $5,000 to and from a foreign country). Therefore: - Transactions below the $5,000 threshold or domestic transactions are not covered by the requirements of criterion VII.1 to keep originator information with wire transfers of $1,000 or more. - Transfers between $1,000 and $5,000 to or from a foreign country are not covered by the MLPCA. - Currently, Palau does not conduct domestic wire transfers between its domestic financial institutions. - Section 7(a) MLPCA requires credit and financial institutions and cash dealers to verify customers’ identity and address before opening ordinary accounts or passbooks; establishing business relations; taking stocks, bonds, or other securities into safekeeping; granting safe-deposit facilities; managing assets; or effecting or receiving payments on behalf of either natural or legal persons. - There are no provisions in the MLPCA or the FIA requiring risk-based procedures for identifying and handling wire transfers that are not accompanied by complete originator information. - Locally-chartered banks do not have wire transfer capabilities; foreign branches have cross-border wire transfer facilities and follow home-country supervisory rules concerning those transactions. - No measures are in place to monitor compliance of financial institutions with rules and regulations implementing SR.VII. The FIC has limited staff and budget and has no AML/CFT examination program at this time. AML/CFT examinations have not yet been conducted; a few bank prudential on-site examinations have been conducted. - Implementing regulations for the amended MLPCA and the FIA are not expected until sometime in early 2009. ### Sanctions - Section 14(b) MLPCA allows the FIC to take remedial actions for noncompliance; however, Section 6 MLPCA is not mentioned. - Section 31 MLPCA allows for civil penalties of up to $50,000,000 for any persons failing to comply with Section 6. - Financial institution obligations for SR.VII can be enforced by the FIC through Section 63 of the FIA. Section 63 provides enforcement tools such as written warnings, written agreements, cease and desist orders, fines, suspensions, restrictions, and revocation of licenses in case a financial institution has violated the FIA or any other law applicable to financial institutions. _Excerpt from source document: _cr0909 - 421. Rec. 6 and 8: There are no provisions regarding PEPs for compliance with Rec. 6 or for non-face-to-face transactions or new technologies for OTC exchange dealers under the MLPCA._ ### 450. Palau requires that credit or financial institutions maintain accurate and meaningful originator ### _cr0909 - 450. Palau requires that credit or financial institutions maintain accurate and meaningful originator ### Wire transfer originator and recipient information (SR.VII / Rec.10) - Palau requires credit or financial institutions to maintain accurate and meaningful originator and recipient information on any transfer to or from a foreign country of at least $5,000. - MLPCA Section 6(b) provides that all transfers are required to have and maintain through the payment chain, accurate and meaningful originator and recipient information, including but not limited to, name, address, and account number. - Transfers between $1,000 and $5,000 are not required to maintain originator information on transfers. - Additional element noted: Countries may require that all outgoing cross-border wire transfers contain information (c.VII.9). - Later repetition in the text: transfers below $5,000 are not required to maintain originator information on transfers. ### Insurance agents, OTC exchange dealers, and record keeping (Rec.10) - Insurers and insurance intermediaries classified as “cash dealers” are not required to keep records under Section 12 of the MLPCA or any other Section that requires record keeping, and therefore would not meet the requirements of FATF Rec. 10. - Insurers and insurance intermediaries classified as “OTC exchange dealers” whose sole occupation is that of an OTC exchange dealer and who are not otherwise licensed by the FIC as a financial institution: - Are required to keep records under Section 15(c) of the MLPCA. - Under Section 15(c) they must record in chronological order all transactions, their nature and amount, indicating the customer’s complete name, and maintain such information in a register, numbers and signed by the competent administrative officer of the business, for five years after the last transaction is recorded. - This requirement seems sufficient to meet the requirements of criterion 10.1.1. - There are no provisions in the MLPCA regarding enhanced or simplified CDD for insurance agents; under criterion 5.9 simplified due diligence could be conducted for life insurance policies where the annual premium is less than $1,000 or a single premium of less than $2,500. - There is no requirement to maintain records of the identification data obtained under Section 15(a) for transactions over $2,500 unless the transaction is unusual or unjustifiably complex for at least five years following the termination of a business relationship, nor any mention of a requirement to maintain records of account files and business correspondence for five years following termination pursuant to criterion 10.2. - OTC exchange dealers are not required to ensure that all customer and transaction records and information are available on a timely basis to domestic competent authorities. ### Effectiveness (Rec.10 / SR.VII) - Although institutions keep records for other purposes, there seems to be little implementation of this requirement by financial and other institutions (except to the extent that the home-country requirements of the foreign branches have requirements regarding Rec. 10 and SR VII). ### Recommendations and comments (3.5.2) - Financial institutions should be required to maintain all necessary records on transactions for at least five years. - Records should be required to be maintained in a sufficient manner to permit reconstruction of individual transactions. - Financial institutions should be required to maintain not only identification data, but account files and business correspondence for at least five years following the termination of an account or business relationship. - Clarify that financial institutions need to ensure that all customer and transaction records and information be made available on a timely basis. - Authorities should address the discrepancy between the institutions listed in Section 13(a) and Section 13(b) MLPCA. - The MLPCA should be amended to clarify that all wire transfers of $1,000 or more include originator information including name, account number, and address. - For cross-border wire transfers of $1,000 or more, ordering financial institutions should be required to include full originator information in the message or payment form accompanying the wire transfer. - Financial institutions should be required to include, at a minimum, the originator’s account information within the message or payment form for domestic wire transfers of $1,000 or more. - Beneficiary financial institutions should be required to adopt effective risk-based procedures for identifying and handling wire transfers that are not accompanied by complete originator information. - Palau should have measures in place to effectively monitor compliance of financial institutions’ wire transfer rules that implement SRVII. - The classification of insurance agents as OTC exchange dealers or cash dealers should be clarified and appropriate supervision of the sector under the MLPCA should commence. - Include provisions under the MLPCA for OTC exchange dealers to obtain and verify CDD for transactions under $2,500 and require OTC exchange dealers to keep records for five years after the termination of the business relationship. - Include a provision in the MLPCA to require OTC exchange dealers to ensure that all customer and transaction records and information are available on a timely basis to domestic competent authorities. ### Compliance with Recommendation 10 and Special Recommendation VII (3.5.3) - R.10 — NC - Financial institutions are not required to maintain all necessary records on transactions for at least five years. - There is no requirement to maintain records sufficiently to permit reconstruction of individual transactions. - Record-keeping requirements do not require maintenance of account files and business correspondence for at least five years. - It should be made clear in the law that financial institutions must ensure all customer and transaction records are available on a timely basis. - Insurance dealers classified as “cash dealers” are not required to keep records under the MLPCA. - Insurance dealers classified as “OTC exchange dealers” are not required to obtain CDD information for transactions under $2,500 unless unusual or unjustifiably complex, keep account files and business correspondence pursuant to criterion 10.2, or ensure records are available on a timely basis to domestic competent authorities. - SR.VII — NC - There are no wire transfer requirements for domestic institutions in the MLPCA. - There is a gap in MLPCA Section 6 requirements resulting in foreign wire transfers between $1,000 and $5,000 not being covered by wire transfer requirements. - There are no risk-based procedures for identifying and handling wire transfers without complete originator information. - There are no measures to effectively monitor supervised financial institutions’ compliance with wire transfer rules. ### Monitoring of Transactions and Relationships (R.11 & R.21) - Legal framework: - Section 11 (special monitoring of certain transactions) and Section 12 (record keeping by credit and financial institutions) of the MLPCA address paying special attention to transactions. - Requirements of Section 11 became effective in December 2007; no regulations or guidance notes have yet been issued regarding transaction monitoring and requirements of Section 12. - Special attention to complex, unusual, large transactions (c.11.1 / c.11.2 / c.11.3): - Section 11(b) requires credit and financial institutions, cash dealers, and alternative remittance systems to pay special attention to all complex, unusually-large transactions, or unusual patterns of transactions, that have no apparent economic or lawful purpose. - Section 11(b) requires examination as far as possible of background and purpose, origin and destination of the money, and identity of transacting parties; findings must be set forth in writing and retained pursuant to Section 12. - Section 12 provides that credit and financial institutions (but does not mention cash dealers and alternative remittance systems) shall maintain records of transactions falling under Section 5 and Section 11 for five years following execution of the transaction; the MLPCA should be amended to clarify and make these requirements consistent and to require findings be available for auditors. - Special attention to countries not sufficiently applying FATF Recommendations (c.21.1 / 21.1.1 / 21.2 / 21.3): - Section 11(b) requires special attention to transactions involving persons in jurisdictions without adequate AML/CFT systems by credit and financial institutions, cash dealers, and alternative remittance systems. - There are no measures to ensure financial institutions, cash dealers, or alternative remittance systems are advised of concerns about weaknesses in the AML/CFT systems of other countries. - There are no specific provisions for the application of counter-measures in Palau. - Insurance agents: - OTC exchange dealers (sole occupation OTC exchange dealers, not licensed by FIC as financial institutions) must conduct CDD under Section 15(b) for transactions conducted in conditions of unusual or unjustified complexity but are not required to examine background and purpose as far as possible or to document findings in writing, hence not compliant with criterion 11.3; they are not covered for compliance with FATF Recommendation 21. - Effectiveness: - Little, if any, implementation of requirements by financial and other institutions, except where home-country requirements of foreign branches apply. - Locally-chartered banks are generally aware of the new AML law but are not familiar with details and have not yet implemented new requirements; foreign-owned branches are aware and some have begun implementation. ### Recommendations and comments (3.6.2) - Palau should issue regulations or guidance notes clarifying requirements regarding special monitoring of certain transactions. - Palau should develop procedures to identify and disseminate information to financial institutions, cash dealers or alternative remittance systems about weaknesses in the AML/CFT systems of other countries. - Palau should be able to apply counter-measures to countries that continue not to apply or insufficiently apply FATF Recommendations and conduct transactions with Palau. - Amend the MLPCA to make requirements consistent for credit and financial institutions and cash dealers or alternative remittance systems. - Amend the MLPCA to require OTC exchange dealers to examine background and purpose of unusual or unjustified complexity and to document findings in writing. - Include OTC exchange dealers under Section 11 of the MLPCA (special monitoring of certain transactions). ### Compliance with Recommendations 11 & 21 (3.6.3) - R.11 — NC - Section 11 requirements have just recently passed and are not fully implemented. - No regulations or guidance notes and no AML/CFT examination process in place; no AML/CFT examinations have been conducted to ensure compliance. - Insurance agents classified as OTC exchange dealers are not required to examine background and purpose of transactions or to document findings in writing. - R.21 — NC - Financial institutions, cash dealers, or alternative remittance systems are not provided information regarding concerns about weaknesses in the AML/CFT systems of other countries. - Palau has no plan or procedure to apply counter-measures to countries not following FATF Recommendations. - No regulations or guidance notes and no AML/CFT examination process in place; no AML/CFT examinations conducted. - Insurance agents classified as OTC exchange dealers are not covered for compliance with FATF Rec. 21. ### Suspicious Transaction Reporting (R.13-14, 19, 25 & SR.IV) - Legal framework: - Requirements to report suspicious transactions are included in Section 11 and 20 of the MLPCA and Section 49 of the FIA. - Section 11 and 20 of the MLPCA became effective in December 2007; Section 49 of the FIA became effective in February 2008. - No regulations or guidance notes have yet been issued to financial institutions regarding these new requirements. - Prior to these enhancements, the reporting requirement applied to transactions over $10,000 conducted in a manner that appeared to have an unlawful purpose. - Requirement to make STRs on ML and FT to FIU (c.13.1 & IV.1): - Section 11(a): where a credit or financial institution, cash dealer, or alternative remittance system has reasonable grounds to suspect a transaction involves funds derived from, related to, or proceeds of a crime, it shall immediately provide information as to the origin and designation of the money, the purpose of the transaction, and the identity of transacting parties to the FIU as required in Section 20. - Section 20(a): credit and financial institutions, financial intermediaries, over-the-counter exchange dealers (as defined in Section 15), cash dealers, alternative remittance systems, or other natural or legal persons subject to Sections 5-11, shall be required to report to the FIU transactions referred to in Section 11. - Section 20 requires reporting even if it was not feasible to defer execution or if suspicion became clear only after completion of a transaction; persons must also report without delay any information that might confirm or invalidate the suspicion of a violation of Section 3. - Section 11(a) refers to suspicious transactions involving funds derived from crime; Section 4 defines proceeds of crime and Section 101 of Palau’s Criminal Code defines a felony as punishable by imprisonment for a period of more than one year. - With respect to predicate crimes for money laundering, only 12 of the 20 predicates that are required under the FATF standard are covered by Palau’s laws. - Conflict between MLPCA and FIA reporting duties: - Section 49 of the FIA establishes a reporting duty for suspicious transactions for financial institutions that conflicts with Section 11 of the MLPCA. - MLPCA Section 11 requires immediate reporting to the FIU, whereas FIA Section 49 states financial institutions (in the FIA only banks and securities dealers) shall not carry out a transaction that appears to have an unlawful purpose or when it suspects it to be related to a serious criminal activity until it reports the transaction to the FIC and the FIU. - The effect of the FIA is that financial institutions cannot proceed with a transaction unless they first report it; banks have not had experience dealing with these conflicting requirements. *Source: _cr0909 - 450.* ### 474. Section 20 of the MLPCA defers to Section 11 regarding identifying those transactions that ### _cr0909 - 474. Section 20 of the MLPCA defers to Section 11 regarding identifying those transactions that ### Reporting obligations for suspicious transactions (STRs) and terrorist financing (FT) - Section 11 describes reportable transactions as a transaction involving funds that are derived from, related to, or are the proceeds of a crime. - The financing of terrorism is criminalized in Section 24 CTA with imprisonment of 10 years up to life; transactions that involve funds that are the proceeds of terrorist financing should be reported, but: - Under the MLPCA, there is no adequate requirement to report funds (licit and illicit) that are suspected to be linked or related to, or to be used for terrorism, terrorist acts, by terrorist organizations, or those who finance terrorism. - Section 49 FIA’s reporting duty is broader than the MLPCA but covers a more limited set of institutions; financial institutions (as defined in the FIA) must report transactions that appear to have an unlawful purpose or when there is a suspicion that it is related to a serious criminal activity, which would include funds suspected to be linked or related to, or to be used for terrorism. - No Reporting Threshold for STRs (c. 13.3): - Sections 11 and 20 MLPCA require the reporting of suspicious transactions without a threshold. - There are no specific requirements to report attempted transactions. - Making of ML and FT STRs Regardless of Possible Involvement of Tax Matters (c. 13.4, c. IV.2): - Sections 11 and 20 require reporting without exception to tax matters. - Additional Element - Reporting of All Criminal Acts (c. 13.5): - The Criminal Code, Section 101, defines crimes as felonies punishable by imprisonment for a period of more than one year; not all criminal acts are included in the suspicious transaction reporting duty because of this definition. ### Protections for reporters, tipping-off, confidentiality, and transaction stoppage - Protection for Making STRs (c. 14.1): - Section 22 MLPCA (exemption from liability for bona fide reporting of suspicions) provides: - (a) no cause of action, suit, or other judicial proceeding for breach of banking or professional secrecy may be instituted against a person who in good faith has carried out a transaction later determined to be a suspect transaction or money laundering offense or has transmitted information or submitted a report; - (b) no civil or criminal action may be brought, nor any professional sanction taken, against any person who, in good faith, transmits information or submits reports, even if the investigation or judicial decision do not give rise to a charge for any offense; - (c) no civil or criminal action may be brought against any person by reason of any material or nonmaterial loss or economic or noneconomic damage of any kind resulting from the freezing of a transaction or the reporting of suspicious transactions or possible violations or other wrongdoing as contemplated by this Act. - Section 23 MLPCA (exemption from liability arising out of the execution of transactions) provides limited immunity unless the Supreme Court determines probable cause of conspiracy, and applies when a transaction is carried out at the request of the FIU or the OAG. - Section 49(c) FIA provides exemption from liability when a financial institution provides information to or requested by the FIU or FIC in good faith; "Financial institution" in Section 49 includes administrators, employees, and shareholders. - Prohibition Against Tipping-Off (c. 14.2): - FIA Section 49(b) prohibits disclosure that information has been transmitted to or requested by the FIC, the FIU or other authorities, that an investigation is being carried out, or that instructions not to execute a transaction are being carried out, except to a court or other person authorized by law. "Financial institution" includes administrators, employees, and shareholders. - The MLPCA does not give a clear prohibition for tipping off; however, Section 32(a)(1) allows for a penalty of not more than two years’ imprisonment or a fine not to exceed $10,000 for persons and directors or employees of organizations who knowingly disclose required reports or actions specified in Sections 11, 13, 20, and 25. - Section 21 MLPCA allows the FIU or the Attorney General to request the Supreme Court to stop execution of a transaction for a period not to exceed 72 hours. Section 21(c) prescribes that “all parties to the transaction” must be notified to extend the stoppage; it is unclear whether this includes the ordering party and beneficiary, which could constitute tipping off. - Additional Element—Confidentiality of Reporting Staff (c. 14.3): - No law or regulation ensures that the names and personal details of staff of financial institutions that make STRs are kept confidential by the FIU. ### Currency transaction reports (CTRs) and databases (c. 19.x) - Consideration of Reporting of Currency Transactions Above a Threshold (c. 19.1): - Section 5 of the MLPCA requires credit and financial institutions to keep regular reports of all transactions made in cash or bearer securities of at least $10,000, or its equivalent in foreign cash or bearer securities, with accurate and meaningful originator and recipient information including, but not limited to, name, address and account number. - The $10,000 threshold may be met either through a single transaction or a series of contemporaneous transactions that in the aggregate are at least $10,000. - Credit and financial institutions are required to provide within 15 days from the date of the transaction, or as otherwise provided by regulation by the FIC, all such reports to the FIU and FIC offices in the form and manner as set forth by the FIU or the FIC. - The FIC has not issued any regulations or guidance notes for the reporting of large cash transactions. - This reporting requirement became effective in December 2007 and around 100 CTR reports have been received since January 2008. - Additional Element—Computerized Database for Currency Transactions Above a Threshold and Access by Competent Authorities (c. 19.2): - The FIC has a CTR database for recording and storage of CTRs. - Additional Element—Proper Use of Reports of Currency Transactions Above a Threshold (c. 19.3): - Information in the CTR database is limited to the FIC. ### Guidance, feedback, and sectoral coverage (STR/CTR forms, insurance, OTC exchange dealers) - Guidelines for Financial Institutions with respect to STR and other reporting (c. 25.1): - The FIC has recently assumed FIU responsibilities and has not yet established or issued any guidelines nor any STR or CTR forms to financial or other institutions to assist them in implementing and complying with AML/CFT requirements. - Feedback to Financial Institutions with respect to STR and other reporting (c. 25.2): - MLPCA Section 16(e) provides that the FIU shall confirm in writing receipt of any reports and of money laundering trends. - No feedback has been provided to any of the banks that have filed STRs over the past year. - The FIC has recently assumed FIU responsibilities and indicates that they are beginning to provide feedback on reported STRs. - Insurance agents and OTC exchange dealers: - Rec. 13: Insurers and insurance intermediaries classified as “OTC exchange dealers” are required to obtain customer identification for unusual or unjustifiably complex transactions under Section 15(b) of the MLPCA and to report suspicious transactions to the FIU under Section 20 of the MLPCA. - There are no specific requirements to report attempted transactions in accordance with criterion 13.3. - There is no sufficient requirement to file STRs with the FIU where there is a suspicion of FT pursuant to criterion 13.2. - No insurance agent has filed any STR with the FIU and they are largely unaware of ML/FT risks in the insurance sector and of their obligations under the MLPCA. - Rec. 14: OTC exchange dealers and their directors, officers and employees are legally protected under Section 22 of the MLPCA when they report suspicious transactions to the FIU in good faith. - OTC exchange dealers are not subject to the provisions of the FIA or other clear tipping-off provisions under the MLPCA, except for the penalty under Section 32(a)(1) (not more than two years’ imprisonment or a fine not to exceed $10,000) for specified unauthorized disclosures. - Rec. 19: Insurers and insurance intermediaries classified as OTC exchange dealers are not required to file CTRs with the FIU. - Rec. 25: No guidance has been issued by the FIC or the MOJ to insurance agents. No STRs have been filed by insurance agents to date. ### Effectiveness, implementation, and observed practice - Only two of the seven banks have reported the 71 STRs to the Palau FIU in the past. - There has been little outreach or guidance for financial or other institutions provided by the FIC or FIU to guide these institutions in implementing the reporting duty. - The U.S.- and Taiwan-owned bank branches have detailed AML/CFT written policies and communicate requirements to staff on a regular basis; locally-chartered banks are small and generally do not maintain detailed written policies and procedures. - Foreign branches maintain AML/CFT compliance officers at head offices; locally-chartered banks generally do not have formally identified compliance officers and have very limited staff (3–4 individuals). ### Key recommendations and required legal/operational clarifications - Palau should ensure that there is a clear reporting duty in the MLPCA for all reporting entities to report transactions that are suspected to be linked or related to, or to be used for terrorism, terrorist acts, by terrorist organizations, or those who finance terrorism. - The reporting of suspicious transactions should include the reporting of attempted transactions. - Although there is a penalty in the MLPCA that can be used to sanction tipping-off, the MLPCA should provide for a clear prohibition for tipping off. - Palau needs to clarify and ensure that Section 21 MLPCA does not inadvertently cause a transaction to be tipped off; Section 21(c) prescribes that “all parties to the transaction” must be notified to extend a stoppage and it is not clear whether this includes the ordering party and beneficiary. - It is recommended that Palau issue as soon as possible guidelines as well as forms to report STRs and CTRs to assist financial institutions and DNFBPs to implement and comply with their respective AML/CFT requirements. - The competent authorities, including the FIU and the FIC, should provide financial institutions and DNFBPs that are required to report suspicious transactions with adequate and appropriate feedback. - The classification of insurance agents as OTC exchange dealers or cash dealers should be clarified and appropriate supervision of the sector under the MLPCA should commence. - Include a requirement for OTC exchange dealers to file STRs on attempted transactions and suspicions of FT in the MLPCA. - Consolidate issues (reporting duty and tipping off) currently addressed in different sections or laws into one new AML/CFT law. ### Compliance ratings and factors underlying ratings (R.13, R.14, R.19, R.25, SR.IV) - R.13 — PC - Deficiencies in the list of predicate offences impact the scope of the requirements to report STRs. - The reporting of suspicious transactions related to terrorism is not sufficiently covered in the MLPCA. - There is no requirement to report attempted transactions. - There is no adequate implementation of the reporting duty by financial and other institutions. - Insurance agents classified as “OTC exchange dealers” are not required to report attempted transactions or to file STRs where there is a suspicion of FT. - R.14 — LC - Section 21 of the MLPCA could constitute tipping off by the authorities. - There is no explicit tipping-off prohibition in the MLPCA. - R.19 — C - R.25 — NC - Palau has not provided its financial institutions or DNFBPs with guidelines or STR/CTR forms to assist them in implementing and complying with their respective AML/CFT requirements. - The competent authorities have not provided feedback to financial institutions or DNFBPs regarding the reporting of suspicious transactions. - No guidance has been issued to OTC exchange dealers. - SR.IV — PC - The reporting of suspicious transactions related to terrorism is not sufficiently covered in the MLPCA. ### Internal controls, compliance, audit, and training (R.15 & R.22) - Legal framework: - MLPCA Section 14 (internal anti-money laundering programs at credit and financial institutions and compliance requirements) provides for written policies, internal audit arrangements, designation of compliance officers, training and centralization of information. - Establish and Maintain Internal Controls to Prevent ML and FT (c. 15.1, 15.1.1 & 15.1.2): - Section 14(a) requires credit and financial institutions to develop written policies and procedures including: - (1) Centralization of information on the identity of customers, principals, beneficiaries, authorized agents, and beneficial owners, and regarding suspicious transactions; - (2) Designation of compliance officers, at central management level, in each branch and at each agency or local office; - (3) Ongoing training for officials or employees; - (4) Internal audit arrangements to check compliance with and effectiveness of the measures taken to implement this Act. - Section 14(a) does not address timely access to CDD and transaction records by the compliance officer and other appropriate staff. - Recommendation: Palau should clarify in Section 14(a)(1) that the focus is not solely on centralization of information, but on record retention, detection of unusual and suspicious transactions, and reporting obligations; record retention should be specifically included in Section 14(a)(1). - Independent Audit of Internal Controls to Prevent ML and FT (c. 15.2): - Section 14(a) covers audit function but does not address the need to provide the audit function with independence, adequate resources, and to test compliance. - The four foreign branches have an independent internal audit function housed in their head offices; internal audits are randomly conducted. - Locally-chartered banks generally do not have an independent audit function; audit functions are the responsibility of the branch manager or other employees. - Ongoing Employee Training on AML/CFT Matters (c. 15.3): - Section 14(a) requires that credit and financial institutions develop ongoing training for officials or employees. - Section 14(a) does not specifically require that training include information on current money laundering and financing of terrorism techniques, new developments, methods and trends, and a clear explanation of all aspects of AML/CFT laws and obligations, in particular requirements concerning CDD and suspicious transaction reporting. *Source: Excerpt from the provided IMF assessment text.* ### 503. The foreign branches provide ongoing training on AML/CFT techniques, obligations, ### _cr0909 - 503. The foreign branches provide ongoing training on AML/CFT techniques, obligations, ### Training, AML/CFT Practices, and Employee Screening - Foreign branches provide ongoing training on AML/CFT techniques, obligations, methods, and trends. - Most foreign branches have training programs on site delivered by main office compliance personnel. - On-line training and in some cases testing is required by foreign branches. - The FIC has offered training to some banks using the UNODC interactive training program. - Local banks provide training on: - basic account opening, - suspicious transaction reporting, and - record-keeping requirements. - Employee screening: - There are no laws or regulations that require employee screening. - Foreign branches screen all hires; generally, credit and police checks are conducted on prospective employees. - U.S. branches will submit new hires to an FBI check. - Locally-chartered banks generally have screening procedures including credit and police checks, although some locally-chartered banks hire based upon personal knowledge of the applicant and do not conduct any formal screening. ### Independence of Compliance Function - Small local banks generally do not have the capacity and staff to have an independent compliance function. - In small local banks, branch managers usually perform the compliance function as part of their responsibilities and report to the board of directors. - Larger foreign branches maintain an independent compliance function, generally reporting to the board of directors. ### Application of AML/CFT Measures to Foreign Branches & Subsidiaries (c. 22.1, 22.1.1 & 22.1.2) - Currently, there are no Palau licensed banks approved to have foreign branches or subsidiaries. - Competent authorities indicated that they do not expect to approve any foreign branches at this time. - FIC Regulation 12-2003 sets out application requirements for bank offices and requires the express written approval of the FIC through its Executive Commissioner. - There are no provisions in the FIA or MLPCA that require financial institutions to ensure that their foreign branches and subsidiaries observe AML/CFT measures consistent with home-country requirements and the FATF Recommendations, to the extent that local (i.e., host country) laws and regulations permit. - FIA 53(c) states that if there is a conflict between the provisions of the FIA and the national laws and regulations of a foreign bank’s home jurisdiction, the conflicting national laws and regulations of the foreign bank’s home jurisdiction shall prevail. - The report notes this position is inconsistent with criterion 22.1.2 but currently should not be a problem since most foreign bank branches in Palau are U.S. regulated. ### Notification to Home-Country Supervisor (c. 22.2) and Group-Level CDD (c. 22.3) - There are no provisions in the FIA or the MLPCA that require financial institutions to inform their home-country supervisor when a foreign branch or subsidiary is unable to observe appropriate AML/CFT measures because this is prohibited by local (i.e., host country) laws, regulations, or other measures. - There are no requirements for financial institutions subject to the Core Principles to apply consistent CDD measures at the group level, taking into account the activity of the customer with the various branches and majority owned-subsidiaries. ### Insurance Agents (Rec. 15 and Rec. 22) - Rec. 15: - Insurance agents classified as “cash dealers” or as “OTC exchange dealers” are not required to develop compliance programs for AML/CFT under Section 14 of the MLPCA or any other Section of the Act. - In practice, compliance programs of insurance agents do not include an AML/CFT component and thus are not compliant with the requirements of FATF Rec. 15. - Rec. 22: - Insurance agents in Palau are either branches of Guam or Philippine insurance companies or have agency relationships with several insurers to sell their products for commissions. - Rec. 22 is therefore not applicable. ### Recommendations and Comments (3.8.2) - Palau should consider enhancing the MLPCA Section 14 AML/CFT policy requirements to include the need for timely access to customer identification data by the compliance officer or other appropriate staff. - Palau should clarify in Section 14(a)(1) MLPCA that the focus is not solely on centralization of information, but on record retention, the detection of unusual and suspicious transactions, and the reporting obligations. - Section 14(c) MLPCA should be enhanced to specifically include information on current money laundering and financing of terrorism techniques, new developments, methods and trends; and a clear explanation of all aspects of AML/CFT laws and obligations, and in particular, requirements concerning CDD and suspicious transaction reporting. - The MLPCA should be amended to ensure that insurance agents either classified as “cash dealers” or as “OTC exchange dealers” are required to develop compliance programs for AML/CFT. - It is recommended that financial and other institutions be required to put in place screening procedures to ensure high standards when hiring employees. - While Palau has a moratorium on licensing new banks and foreign branches, it is recommended that the MLPCA be enhanced to ensure that, if future foreign branches and subsidiaries are approved, that they observe AML/CFT measures consistent with home-country requirements and FATF Recommendations to the extent that local laws and regulations permit. ### Compliance with Recommendations 15 & 22 (3.8.3) - R.15 — PC - The MLPCA does not include the need for timely access to customer identification data. - Training requirements do not include the need for training on current money laundering and financing of terrorism techniques, new developments, methods, and trends. - There are no financial institution requirements for employee screening. - Cash dealers and OTC exchange dealers are not required to develop compliance programs for AML/CFT under Section 14 of the MLPCA or any other section of the Act. - R.22 — NC - There are no requirements in the MLPCA or the FIA that require financial institutions to ensure that their foreign branches observe AML/CFT measures consistent with home-country requirements and FATF recommendations as required by Recommendation 22. ### Shell Banks (R.18) — Description, Analysis, and Recommendations - Legal framework and practices: - Palau does not approve the establishment of shell banks; however, there are no specific prohibitions regarding shell banks in the FIA. - When the FIA came into force in June 2001, existing financial institutions were grandfathered (Section 30a FIA). - New banks are required to be licensed by the FIC pursuant to the banking act; Palau in the past has moved to dissolve corporations that used the word “bank” but were unlicensed by the FIC. - FIA Section 3 states no person shall engage in the business of a bank, securities broker, or securities dealer without an effective license issued by the FIC; Section 3 does not specifically address shell banks. - Prohibition of establishment (c. 18.1): - Palau does not approve the establishment nor accept the continued operation of shell banks. - Licensing requirements of Section 32 FIA do not specifically require a meaningful mind and management present in Palau, although Section 39 FIA states a bank organized in Palau must have a manager in Palau who has authority to engage the financial responsibility of the bank. - Correspondent banking with shell banks (c. 18.2): - There are no laws, regulations or guidance notes in Palau that prohibit financial institutions from entering into correspondent banking relationship with shell banks. - Foreign-branch banks licensed in Palau indicate their home office does not allow correspondent relationships with shell banks. - Locally-chartered banks do not have cross-border correspondent relationships. - Requirement to satisfy respondent financial institutions (c. 18.3): - There are no laws, regulations, or guidance notes that require financial institutions to satisfy themselves that respondent financial institutions in a foreign country do not permit their accounts to be used by shell banks. - Locally-chartered financial institutions do not have cross-border correspondent facilities. - Foreign branches licensed in Palau are regulated by their home country supervisors in the United States and Taiwan and correspondent accounts are closely monitored. - Recommendations (3.9.2): - Palau should enhance the MLPCA to prohibit financial institutions from entering into correspondent banking relationships with shell banks. - Financial institutions should be required to satisfy themselves that respondent financial institutions in a foreign country do not permit their accounts to be used by shell banks. - Palau should consider an enhancement to the MLPCA to prohibit the establishment of shell banks. - Compliance with Recommendation 18 (3.9.3) - R.18 — PC - There is no requirement for banks to have a meaningful mind and management in Palau nor an explicit prohibition against shell banks. - Palau does not prohibit financial institutions from entering into correspondent banking relationships with shell banks. - Financial institutions are not required to satisfy themselves that respondent financial institutions in a foreign country do not permit their accounts to be used by shell banks. ### The Supervisory and Oversight System — FIC Role, Powers, and Capacity (R. 17, 23, 25 & 29) - FIC structure and responsibilities: - The FIC is headed by an Executive Commissioner and staffed with one examiner in training and one support person. - Examination responsibilities include all financial institutions which covers banks, securities brokers, and securities dealers as defined by the FIA. - The FIC has also been recently given FIU responsibilities when it was transferred from the OAG. - Regulation and supervision (c. 23.1): - The financial institutions sector is supervised by the FIC. - Section 49 of the FIA requires the FIC shall regularly examine all financial institutions (limited by FIA definitions), AML/CFT procedures, and reporting standards. - Such examinations may be on-site or off-site in the sole discretion of the FIC. - Section 14(b) of the MLPCA requires the FIC to conduct random compliance audits in credit and financial institutions to assess compliance with the MLPCA. - Both MLPCA and FIA have recently been amended to enhance AML/CFT coverage and supervision issues. - The FIC does not currently have the capacity to assure the effective implementation of an effective AML/CFT supervisory program due to a lack of expertise, human resources, and an adequate budget. - The FIC has not yet conducted any AML/CFT examinations to ensure effective implementation of requirements and FATF Recommendations. - Designation of competent authority (c. 23.2): - The FIC has been given the responsibility to inspect financial institutions to ensure compliance with AML/CFT requirements. - Section 49 of the FIA provides supervisory powers; Section 14(b) of the MLPCA requires random compliance audits; Section 61(b) provides for audits whether financial institutions observe other applicable laws. - Fit-and-proper and licensing (c. 23.3 & 23.3.1): - The FIC is responsible to license and conduct fit-and-proper tests for bank applicants. - When FIA came into force in June 2001, existing institutions were grandfathered; institutions were required to deliver documents to FIC (corporate charter, certificate of good standing, foreign investment approval, business license) per Section 30a FIA. - Section 44 of the FIA requires persons elected or appointed as administrators of a financial institution must be of good repute and meet criteria established by regulation of the Commission. - Section 40 (amended FIA) requires approval from the FIC of any changes in ownership of over 20 percent or a change in controlling interest. - The FIC has recently issued new prudential regulations including a new regulation addressing a “fit and proper test” for licensing. - New fit and proper criteria include: competency, removal or suspension, offenses or breaches, censures, convictions, fraud, bankruptcy, political office, and judgments. - Currently there is a moratorium on bank licenses and no applications are being accepted. - Application of prudential regulations to AML/CFT (c. 23.4): - Local banks licensed in Palau generally are not subject to the Core Principles; they are small and have limited operations and services. - Foreign-owned branches are subject to the Core Principles and they are applied in a similar manner for AML/CFT purposes. - MVTS/ARS licensing and supervision (c. 23.5 & c. 23.6): - The MLPCA covers MVTS either under “financial institution” (Section 3(k)(4)) or as ARS (Section 8). - The FIC has indicated it will categorize MVTS as ARS, but has not yet taken action to license ARS that operate in Palau. - The FIC has not issued regulations for licensing and regulating ARS, nor initiated contact with ARS to inform them of duties under the MLPCA. - Money or currency changing services are only provided by the banks and are subject to FIC supervision. - Licensing and AML/CFT supervision of other financial institutions (c. 23.7): - Non-prudentially supervised financial institutions include credit unions, finance companies, insurance agents, and MVTS. - Activities of credit unions, finance companies, and insurance agents are covered by the MLPCA, but there is no licensing requirement for supervisory purposes. - Although FIC has powers under Section 14(b) to conduct random compliance audits, it has not done so due to lack of resources. - Guidelines for financial institutions (c. 25.1): - The FIC has not issued any guidelines to financial institutions to assist in implementing and complying with AML/CFT requirements. - Competent authorities indicated regulations and guidelines will be developed and are expected to be issued by 2009. - Powers to monitor and inspect (c. 29.1–29.3.1): - The FIC has adequate powers to monitor and ensure compliance by financial institutions with AML/CFT requirements (Section 49 FIA, Section 14(b) MLPCA). - FIC has authority to contract for compliance audits for AML/CFT under Section 22(a) and Section 49 of the FIA. - FIC has authority to conduct inspections, on-site and off-site, to ensure AML/CFT compliance (FIA Sections 49, 61, MLPCA Section 14(b), FIA Section 79(a)). - The FIC has not yet designed an AML/CFT examination program nor conducted any AML/CFT inspections. - Section 62 FIA requires financial institutions produce all books, minutes, accounts, cash, securities and investments, documents, and vouchers for inspection; FIC does not require a court order to compel production under Section 62. - Section 13(a) MLPCA makes clear the FIU would need a court order during its investigations to access information held by financial institutions, but the FIU or FIC may review records as part of a compliance audit. - Powers of enforcement and sanction (c. 29.4): - Section 14(b) of MLPCA and Section 49 of the FIA prescribe that the FIC conduct examinations to assess AML/CFT compliance. - Section 14(b) states any credit or financial institution that fails to comply with the requirements of Sections 5,7,8,9,10,11,12,13,14, or 20 are subject to remedial provisions, including fines, as provided for in regulations promulgated pursuant to the MLPCA. - Any credit or financial institution that repeatedly fails to comply with the requirements of Sections 5,7,8,9,10,11,12,13,14, or 20 may have a fine imposed, or their license suspended or revoked, by the FIC after a hearing by the FIC Board. *Italic: IMF source document content.* ### 534. Further, the MLPCA in Sections 29 (Money laundering penalties), Section 30 (Penalties ### _cr0909 - 534. ### Sanctions framework (MLPCA & FIA) - MLPCA Sections referenced: Section 29 (Money laundering penalties), Section 30 (Penalties applicable to corporate entities), Section 31 (Civil penalties), Section 32 (Penalties for other offenses). - Amended FIA referenced: Section 63 (Infractions, penalties, remedial measures). - Sanctions described: - Section 29: conviction for money laundering can result in fines and imprisonment for up to 10 years. - Section 30: for corporate entities on whose behalf or for whose benefit an offense was committed — fines, temporary or permanent banning of business activities, and requirement to publicize judgments in the press. - Section 31: civil penalties for persons failing to comply with various MLPCA sections not to exceed $50,000. - Section 32: persons, directors or employees of financial organizations who knowingly violate various MLPCA sections can face fines, imprisonment, and permanent bans from the occupation enabling the offense. - Section 63 FIA: specific remedial measures and penalties on financial institutions and/or the financial institution’s administrator or employees for violations of the FIA, any rule, regulation, or order issued by the FIC, or any other law applicable to financial institutions. - Practical status: - FIC has sanctioning powers under Section 14(b) MLPCA and Section 63 FIA but has not promulgated required regulations (Section 14(b) regulations not promulgated). - The FIC has not issued any regulations nor applied any sanctions for noncompliance with AML/CFT requirements. ### Availability of Effective, Proportionate & DISSUASIVE Sanctions (c. 17.1) - Legal availability: - Section 14(b) MLPCA provides remedial provisions, including fines, as provided for in regulations (regulations not promulgated). - FIC powers include fines and suspension or revocation of bank licenses for repeated noncompliance. - Sections 29–32 of MLPCA provide criminal, civil, and administrative sanctions described above. - Section 31 civil penalties cap: $50,000. - Observed gap: FIC has not issued regulations nor applied sanctions for AML/CFT noncompliance. ### Designation of Authority to Impose Sanctions (c. 17.2) - OAG (Office of the Attorney General) is the primary entity that applies sanctions under the MLPCA. - FIC provided sanctioning powers regarding compliance failures in financial institutions under Section 14(b) MLPCA and Section 63 FIA. - Section 63 FIA permits the FIC to apply FIA sanctions where a financial institution “refused to comply with any other law applicable to financial institutions,” potentially covering refusals to comply with the MLPCA. ### Ability to Sanction Directors & Senior Management (c. 17.3) - Section 63 FIA permits: - Imposition of fines on the financial institution or corporation, or on its administrators or principal shareholders (Section 63(b)(4)). - Suspension temporarily or dismissal of administrators from positions in a financial institution or corporation (Section 63(b)(5)). - Section 31 MLPCA includes penalties for persons convicted for failure to comply with Sections 5,6,7,8,9,10,12,14,15, or 20 of the MLPCA. ### Range of Sanctions—Scope and Proportionality (c. 17.4) - FIC under Section 14(b) has a broad range including remedial provisions, fines, and suspension or revocation of bank licenses. - Sections 29–32 MLPCA provide disciplinary and financial sanctions for various ML/FT violations. - Section 63 FIA permits: written warnings, written agreements, cease and desist orders, fines, suspensions and dismissals, restrictions on operations of financial institutions, and license revocation. ### Adequacy of Resources for Competent Authorities (c. 30.1) - FIC staffing and budget: - FIC comprised of: Executive Commissioner, one examiner in training, and an administrative officer. - Budget averaged around $115,000 over the last three years. - Observed deficiencies: - Understaffed, lacks sufficient technical expertise, underfunded. - FIC recently assumed FIU responsibilities transferred from the OAG without additional staff or financial resources. - Operational independence appears sufficient, but lack of funding and staffing may compromise independence in practice. ### Integrity of Competent Authorities (c. 30.2) - Staff requirements and governance: - FIC employees required to sign confidentiality agreements and take an oath of secrecy. - Commission members subject to Code of Ethics; Board members and employees governed by by-laws enforcing the Code of Ethics. - Code of Ethics provisions: regulates transactions by national and state public employees, officials and elected officials, and persons making campaign contributions; prohibits personal gain through governmental transactions; prohibits conflict of interest; restricts incompatible outside employment; prohibits solicitation of gifts; severely restricts campaign contribution sizes, limiting contributions to Palauan citizens. ### Training for Competent Authorities (c. 30.3) - Training status: - Executive Commissioner has received some AML/CFT training including ML/FT typologies and a mutual evaluation course. - UNODC provided an interactive AML/CFT training module in which FIC staff participate. - No other formal AML/CFT training program for FIC staff. ### Statistics (applying R.32) - FIC has not developed an AML/CFT compliance examination program and has not conducted any AML/CFT examinations. - No statistics regarding AML/CFT compliance matters are maintained in Palau. ### Insurance Agents & Supervision (Rec. 17, 23, 25, 29) - Classification under MLPCA: - Insurance agents covered as either “cash dealers” or as “OTC exchange dealers” in Section 4(e)(1). - If classified as “OTC exchange dealers,” licensing required by Minister of Justice under Section 15 MLPCA. - If classified as “cash dealers,” no licensing or supervisory requirements under the MLPCA. - Supervision status and gaps: - No insurance legislation for prudential supervision of insurers and insurance intermediaries. - MOJ has not licensed insurance agents as OTC exchange dealers. - FIC has not conducted compliance audits under the MLPCA. - Authorities have not indicated whether insurance agents should be treated as “cash dealers” or “OTC exchange dealers.” - No insurance agents have been sanctioned under the MLPCA. - Insurance agents largely unsupervised for AML/CFT compliance; unaware of ML/FT risks and obligations. - Palau does not have an insurance association; insurance agents are members of the Chamber of Commerce. - No guidance issued to OTC exchange dealers on AML/CFT; insurance agents have not filed any STRs with the FIU and have not received feedback. - MOJ’s compliance with FATF Rec. 30 is unknown due to inability of assessors to meet appropriate representatives. - Section 15(a) requirement: - OTC exchange dealers must submit a declaration of activity to the MOJ, including proof of lawful origin of capital, before commencing business in Palau; reason for submission to MOJ unclear given FIC’s financial institution remit. ### Effectiveness - Despite sufficient formal powers, the FIC has never performed an AML/CFT inspection and has never used its sanctioning powers. - Under-resourcing combined with additional tasks undermines the FIC’s ability to focus on AML/CFT supervision. ### MVTS / ARS overview (SR.VI) - Providers: - MVTS provided by licensed foreign banks (access to SWIFT accounts) and by alternative remittance systems (ARS). - FIC licensed authority for ARS under Section 8(a) MLPCA; FIC has not yet identified ARS except for the three largest operators, including Western Union. - DRT has issued business licenses to 14 providers of MVTS. - Inconsistencies and thresholds: - Definitions: Section 3(k)(4) covers “money transmission services”; Section 8 covers “ARS.” - Record-keeping thresholds differ: - Section 5: financial institutions must keep reports of cash/bearer securities transactions of at least $10,000 or equivalent. - Section 8: ARS required to keep regular reports of transactions in excess of $1,000 or equivalent. - Section 6(a): international transfers of money or securities of at least $5,000 must be made through a financial or credit institution licensed under Palauan law. - Licensing/regulation status: - ARS brought under MLPCA with FIC as licensing authority under Section 8(a), but FIC has not identified most ARS and no regulations have been issued. ### Application of FATF Recommendations to ARS (selected findings) - Rec. 4: No bank secrecy laws inhibiting FATF Recommendations; Section 26 MLPCA disallows banking/professional secrecy as grounds to refuse information in Section 12 or Supreme Court-ordered investigations. - Rec. 5: Section 8(b) requires ARS to keep reports of transactions in excess of $1,000 with accurate originator and recipient information; Section 8(c) requires ARS to file a CTR within 15 days with the FIU. - FIU has not issued CTR/STR form templates. - Gaps: no prohibition on fictitious names (criterion 5.1); no requirements for verification of customer identification (criterion 5.3); no beneficial owner identification (criterion 5.5); no enhanced CDD for high-risk customers (criterion 5.8); no provisions for simplified CDD (criteria 5.9-5.12). - Rec. 7: ARS are not banks and do not have correspondent banking relationships; they maintain accounts with foreign banks for international transfers and are subject to Section 6 when conducting such transactions. - Rec. 10: ARS are not required to keep records of all transactions for five years as required under criteria 10.1 and 10.2; Section 12 requires customer identification records for five years after relationship ends and transaction records (Section 5, STRs, unusual transactions) for five years following the transaction. No explicit requirement to ensure timely availability of records to domestic competent authorities (criterion 10.3). - Rec. 11: Section 8(b) and 11(b) require ARS to pay special attention to complex, unusually large, and unusual transactions, examine background and purpose, set findings in writing, and provide findings to the FIU upon completion; but Section 12 refers only to financial and credit institutions and does not mention ARS—MLPCA should be amended for clarity and auditor access. - Rec. 13: Section 11 requires immediate STR filing with FIU where suspicion exists; STR must include origin/destination, purpose, and identity of sender and receiver per Section 20. FIU has not issued STR/CTR forms. - Gaps: no adequate requirement to report funds suspected to be linked to terrorism; Section 20(a) excludes attempted transactions from STR requirement (contrary to criterion 13.3); no prohibition on STRs involving tax matters (criterion 13.4). - Rec. 14: Section 22 protects persons who file STRs in good faith from criminal and civil liability (criterion 14.1). - No explicit prohibition on tipping off as required under criterion 14.2. - Section 32(a)(1) allows penalty up to two years’ imprisonment or a fine not to exceed $10,000 for persons/directors/employees who knowingly disclose to the owner/principal a report they are required to make or action taken on it (Sections 11, 13, 20, 25). ### Recommendations and Comments (3.10.2) - Provide adequate funding to the FIC to ensure proper staffing for AML/CFT supervisory function. - Once properly staffed, FIC should develop and execute an effective AML/CFT supervisory program. - FIC staff should receive appropriate AML/CFT training on an ongoing basis. - FIC should issue guidelines and provide appropriate feedback to assist financial institutions in applying AML/CFT requirements. - Determine whether insurance agents should be classified as “cash dealers” or “OTC exchange dealers” and designate the AML/CFT supervisor accordingly (FIC under Section 14(b) or MOJ under Section 15(b) of the MLPCA). - The designated supervisor should commence awareness-raising for insurance agents and a supervisory program that includes off-site and on-site supervision. - FIC should promulgate regulations providing for remedial provisions as required by Section 14(b) MLPCA. ### Compliance with Recommendations 17, 23, 25 & 29 (3.10.3) - R.17 — LC - FIC has not issued regulations providing for remedial provisions. - FIC has sanctioning powers but has not used them for AML/CFT purposes. - R.23 — NC - FIC not properly funded and staffed and has not supervised financial institutions to ensure effective implementation of AML/CFT requirements. - No designated supervisor for cash dealers and OTC exchange dealers. - Although FIC indicated it will categorize MVTS as ARS, no implementation of the MLPCA has commenced. - R.25 — NC - Palau does not provide guidelines to financial institutions to assist implementation and compliance with AML/CFT requirements. - R.29 — PC - Palau meets requirements regarding supervisory powers to monitor and inspect financial institutions; however, it has not utilized these powers to ensure compliance. *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0909.pdf* ### 560. Rec. 21: In accordance with criteria 21.1-2, ARS are required to pay special attention to ### _cr0909 - 560. Rec. 21: In accordance with criteria 21.1-2, ARS are required to pay special attention to ### Rec. 21 obligations and gaps for ARS (Alternative Remittance Systems) - ARS are required to pay special attention to: - transactions with persons in jurisdictions that do not have adequate systems in place to prevent or deter ML or FT; - transactions that are complex, unusually large, or have unusual patterns that have no apparent economic or lawful purpose; - to examine as far as possible the background and purpose of the transactions, the origin and destination of money, the identity of the sender and receiver. - All findings must be recorded in writing and kept in accordance with Section 12 of the Act. - There are no provisions in the MLPCA, other legislation, or regulations that would allow Palau to apply appropriate counter-measures to jurisdictions that do not have adequate systems in place to deter ML or FT, in accordance with criterion 21.3. - No regulations or guidance have been in place to enable ARS to identify those jurisdictions. ### Operational practices and ML/FT risks in ARS - Two of the three known ARS are subsidiaries of foreign money remitters reporting to head offices in Sydney, Australia and the Philippines. - Both have computerized systems requiring entry of CDD identification (customer name, address and ID number), but verification of customer CDD is not always performed because the system only requires the ID number. - Transaction and product limits: - One ARS indicated a limit of $3,500 per transaction and a daily limit of $7,500 per customer. - The other ARS offers a pre-paid remittance card with a maximum limit of $2,500 that can be delivered to the receiver’s home address in the Philippines. - The card functions as both an ATM and a Visa for point-of-sale use. - Only one card can be issued to a person at any time, but there is no limit to the number of cards that a sender can purchase for different receivers. This poses a ML risk for structuring purposes. - Compliance and reporting: - Compliance functions operate largely from group compliance units at head offices. - Low awareness of ML and FT, Palau AML/CFT laws and MLPCA obligations, including licensing by the FIC. - No STRs have been filed with the FIU, although there have been a few attempted transactions that were not completed or denied where ARS suspected ML. - Assessors did not meet with the other known ARS; others have not been identified by the FIC, although the DTR indicated it has issued 11 other business licenses to MVTS. ### Supervision, lists, and sanctions - Monitoring of Value Transfer Service Operators (c. VI.3): - The FIC has been legally designated as the ARS supervisor under the MLPCA for licensing and supervision but is yet to identify the MVTS. - No implementation of MLPCA requirements for ARS has been implemented; consequently, MVTS that are not banks are largely unsupervised for AML/CFT compliance under the MLPCA. - List of Agents (c. VI.4): - No requirement for ARS to maintain a current list of agents to be made available to designated competent authorities. - Section 8(a) requires that all persons and their agents are licensed by the FIC; the FIC will know all agents after the licensing process. - Sanctions (applying c. 17.1-17.4 in R.17)(c. VI.5): - Sanctions under Section 29–31 apply to ARS and sufficiently meet the requirements under Rec. 17. - Additional Element—Applying Best Practices Paper for SR VI (c. VI.6): - Not specifically applied—no regulations or guidance issued to ARS. ### Effectiveness assessment and immediate action points - Palau has begun formalizing monitoring of informal ARS through proposed licensing and supervision by the FIC under the MLPCA. - Recommended immediate actions for FIC: - Identify the ARS operating in Palau. - Raise ARS awareness about obligations under the MLPCA and invite/process ARS license applications. - Commence a program of ongoing supervision of ARS. ### Recommendations and prescribed legal/regulatory amendments (3.11.2) - Amend the MLPCA or issue regulations to provide for: - Prohibition of the use of fictitious name as required under criterion 5.1. - Verification of customer identification as required under criterion 5.3. - Identification and verification of beneficial owners in accordance with criterion 5.5. - Performance of enhanced due diligence on high-risk customers as required under criterion 5.8. - Allowance to perform simplified CDD as permitted under criterion 5.9-5.12. - Amend the MLPCA or issue regulations that include provisions satisfying FATF Recs. 6, 8, 9, 15, and 22. - Amend Section 12 of the MLPCA or issue regulations to require ARS keep all necessary records on transactions for five years following the transaction and account files and business correspondence as required under Rec. 10. - Include a provision in the MLPCA or issue regulations to require ARS to ensure customer and transaction records and information are available on a timely basis to domestic competent authorities. - The FIU should issue STR and CTR form templates to ARS. - Amend the MLPCA or issue regulations to require ARS to file STRs if they suspect funds are linked or related to, or to be used for terrorism, terrorist acts or by terrorist organizations or those who finance terrorism. - Amend the MLPCA or issue regulations to require ARS to file STRs for attempted transactions in accordance with criterion 13.3. - Amend the MLPCA or issue regulations to explicitly prohibit ARS from disclosing (“tipping-off”) that a STR or related information is being filed with the FIU, as required under criterion 14.2. - Amend the MLPCA or issue regulations to allow Palau to apply appropriate counter-measures to jurisdictions that do not have adequate systems to deter ML or FT, in accordance with criterion 21.3; issue guidance to ARS to enable identification of those jurisdictions. ### Compliance with Special Recommendation VI (SR.VI) — Rating and factors - SR.VI: NC - Underlying factors: - ARS have not been licensed nor identified. - No regulations issued for ARS. - ARS are not required to conduct full CDD on transactions as required in Rec. 5. - No provisions for compliance with FATF Recs. 6, 8, 9, 15, and 22. - ARS are not required to keep all necessary records of all transactions for five years after the transaction is completed nor records of account files and business correspondence. - No requirement for ARS to file STRs for attempted transactions. - Reporting of suspicious transactions related to terrorism is not sufficiently covered in the MLPCA. - No explicit requirement to prohibit ARS from disclosing (“tipping-off”) that a STR or related information is being filed with the FIU. - No requirement to apply appropriate counter measures to jurisdictions lacking adequate systems, per criterion 21.3. --- ### DNFBPs — overview and key points (beginning of Section 4) - Composition and scope: - DNFBPs in Palau comprise company service providers (CSPs) and lawyers. - DNFBP sector has low ML and FT vulnerabilities due to limited scope of business activities and small size. - There are 124 licensed notaries under Title 11 PNC Section 702, but they fall outside intended scope of the FATF standard (basic witnessing/certification services only). - No trust service providers (TSPs) and no specific trust law for domestic trusts; trusts are recognized as a type of corporation. - Approximately three auditors provide accounting services but fall outside the intended scope of the FATF standard. - Palau Bar Association: approximately 60 members (about half are National or State Government Attorneys); approximately 10 off-island attorneys appear occasionally; approximately 20 local Bar members in private practice. - About 13 attorneys provide company formation services; CSPs do not provide other FATF-defined CSP services. - No licensed casinos in Palau; two internet casino licenses expired without operations commencing. - Real estate transactions do not typically involve real estate agents; all real estate property is owned by Palauan nationals; constitutional prohibition on non-Palauan land ownership. - No dealers in precious metals or precious stones that meet FATF categorization; limited local trade in traditional “Palauan Money” not publicly sold or traded. ### Legal framework applicability to DNFBPs and casinos - Only casinos are covered under the MLPCA under Section 4(e)(3) as “cash dealer” or “OTC exchange dealer.” Licensing and supervisory obligations differ by classification. - Trustees or managers of unit trusts are covered as “cash dealer” or “OTC exchange dealer” (MLPCA Section 3(e)(4)). - CDD Measures for DNFBPs (c. 12.1, R. 6 & 8-11 to DNFBP): - Rec. 5: CSPs and lawyers are not covered under the MLPCA and do not obtain CDD identification documentation in practice; do not satisfy FATF Rec. 12 requirements. - Casinos (where applicable): - Casinos classified as “OTC exchange dealers” and not otherwise licensed by the FIC must verify identity for transactions greater than the equivalent of $2,500 using an unexpired photographic official ID and keep a copy (Section 15(b)). - Casinos classified as “cash dealers” are not required to conduct CDD on occasional customers under Section 5, per criterion 5.2.b. - Record-keeping: - Casinos classified as “cash dealers” are not required to keep records under Section 12 or any other Section that requires record keeping, thus not meeting FATF Rec. 10. - OTC exchange dealers must record transactions, nature and amount, indicate customer’s complete name, maintain register signed by competent administrative officer for five years after last transaction is recorded (Section 15(c)). This only partially meets criterion 10.1.1 because there is no requirement to maintain customer identification documentation for at least five years and no requirement to obtain customer information for transactions under $2,500 unless unusual or unjustifiably complex. - No requirement to maintain identification data obtained under Section 15(a) for five years following termination of business relationship or to maintain account files and business correspondence for five years pursuant to criterion 10.2. - OTC exchange dealers are not required to ensure that all customer and transaction records are available on a timely basis to domestic competent authorities. - OTC exchange dealers must verify identity for transactions in unusual or unjustified complexity (Section 15(b)) but are not required to examine background and purpose and document findings in writing pursuant to criterion 11.2, hence not compliant with criterion 11.3. ### DNFBP recommendations (4.1.2) - Broaden AML/CFT coverage to explicitly include DNFBPs operating in Palau (at minimum, lawyers and CSPs when engaging in FATF-defined DNFBP activities). - Include CDD and record-keeping requirements for lawyers and CSP activities in AML/CFT legislation or regulations. - Require OTC exchange dealers to obtain and verify CDD identification without a threshold and subject them to the full requirements of FATF Rec. 5-6, 8-11. - Provide training to lawyers and CSPs on CDD and record-keeping obligations once AML/CFT laws are amended to include them. ### Compliance with Recommendation 12 (4.1.3) - R.12: NC - Underlying factor: None of the DNFBPs operating in Palau (lawyers and CSPs) are covered by AML/CFT legislation. --- *Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0909.pdf* ### 593. Section 20 also states that the persons referred to in this Section shall be required to report the ### _cr0909 - 593. Section 20 also states that the persons referred to in this Section shall be required to report the ### Suspicious Transaction Reporting and DNFBPs (Sections 593–595; 4.2) - Findings: - Section 20 requires persons referred to therein to report transactions carried out even if it was not feasible to defer their execution or if it became clear only after completion of a transaction that it involved a money laundering offense or terrorist financing. - Any natural or legal person referred to in this subsection must report without delay any information that might confirm or invalidate the suspicion of a violation of Section 3 (criminalization of money laundering). - Casinos classified as “OTC exchange dealers” are not covered for compliance with FATF Recommendation 21. - In practice, no DNFBP has reported any suspicious transaction with the FIU. They do not monitor for suspicious transactions and are largely unaware of the AML/CFT legislation. - Recommendations and comments (4.2.2): - Broaden the list of persons covered by the AML/CFT laws to explicitly include the DNFBPs operating in Palau. At a minimum, the AML/CFT legislation should apply to lawyers and CSPs when they engage in the activities identified in definition of DNFBPs in the FATF Recommendations. - Include the requirements for suspicious transaction monitoring and reporting measures for lawyers and CSP activities in the AML/CFT legislation or regulations issued by the respective regulators, in accordance with the requirements of FATF Rec. 16. - Provide training to lawyers and CSPs on their obligations for monitoring for and reporting of suspicious transactions measures when the AML/CFT laws are amended to include them. - Compliance: - R.16 NC - None of the DNFBPs operating in Palau, that is, lawyers and CSPs, are covered by the AML or the CFT Law. ### Regulation, Supervision, and Monitoring of Casinos and DNFBPs (Sections 596–598; 4.3) - Findings (Legal framework and monitoring): - Although casinos are covered under the MLPCA as a “cash dealer” or an “OTC exchange dealer,” there are no licensed casinos in Palau. - The FIB issued two internet casino licenses, but these 7-year concessions expired without the licensees commencing operations. - There is no law that would allow for the licensing of land-based casinos. - There is no designated AML/CFT supervisor of casinos. - Other DNFBPs (lawyers and CSPs) are licensed by the Bar Association, which has about 60 members, does not have sanctioning powers and has never expelled a member, and there is no AML/CFT oversight by the association. - No guidance has been issued to the DNFBPs in Palau regarding AML/CFT preventive measures. - Recommendations and comments (4.3.2): - Broaden the list of persons covered by the AML/CFT laws to explicitly include the DNFBPs operating in Palau. At a minimum, the AML/CFT legislation should apply to lawyers and CSPs when they engage in the activities identified in the definition of DNFBPs in the FATF Recommendations. - A supervisory and control authority should be designated for each DNFBP sector. All DNFBPs subject to the AML/CFT legislation should be subject to oversight for compliance with AML/CFT requirements. - Consider amending the AML/CFT legislation to require that the designated regulators for the respective DNFBPs issue AML/CFT regulations to DNFBPs that cover the requirements under FATF Recommendations 12, 16, and 24. - Agencies assigned oversight responsibility should have adequate legal authority, resources and, capacity to monitor and enforce compliance with AML/CFT requirements. - Conduct AML/CFT awareness-raising training of all operating DNFBPs, that is, lawyers and CSPs. - Compliance: - R.24 NC - None of the DNFBPs operating in Palau, that is, lawyers and CSPs, are covered by the AML or the CFT Law. - R.25 NC - No guidance has been issued. ### Other Non-Financial Businesses and Professions; Modern-Secure Transaction Techniques (Sections 599–601; 4.4) - Findings: - Gambling activities, such as operators of gambling houses, bingo parlors, and lotteries, are included in the category of “cash dealer” or “OTC exchange dealer” in Section 4(e)(3) of the MLPCA, but no specific regulations have been issued for other categories of nonfinancial businesses and professions. - There are no gambling houses, bingo parlors, or lotteries operating in Palau and the assessors did not identify other nonfinancial businesses and professions that should be subject to AML/CFT measures. - The mission was informed that there is a very high cash usage in the Palauan economy, although no statistics were provided. - Authorities support increasing the use of modern means such as credit and ATM cards, but have not issued guidance to banks on thresholds for cash transactions (except Section 6(a) of the MLPCA requiring international transfers of money or securities involving a sum of at least $5,000 or its equivalent to be made through a credit or financial institution licensed under the laws of Palau). - There are ATMs in the commercial center of Koror and one at the international airport, but banks are not expanding their network in Palau in terms of anticipated establishment of branches. - Recommendation and comment (4.4.2): - Continue to encourage the use of secure transfer systems when conducting financial transactions, such as ATMs and credit cards in order to reduce reliance on cash transactions and consider issuing guidance to banks on thresholds for cash transactions. - Compliance: - R.20 LC - There is still very high cash usage in the Palauan economy. ### Legal Persons—Access to Beneficial Ownership and Control Information (Sections 602–613; 5.1) - Legal framework and institutional facts: - Corporations are regulated by the Corporations Act (Title 12 PNC) and the accompanying Corporation Regulations. - The Registrar of Corporations, who is also the Attorney General, holds all documents required for corporations, including articles of incorporation and bylaws. - Corporations are required to file annual statements with the Registrar of Corporations. - The Foreign Investment Board (FIB) must approve all legal entities that are not 100 percent Palauan owned before they are licensed to conduct business in Palau in accordance with the Foreign Investment Act of 1994. - The DRT issues business licenses to Sole Proprietors, Partnerships, Corporations, and foreign Limited Liability Companies. There are approximately 1,700 current business licenses issued controlled by about 700–800 corporations or persons. - Measures and access: - The President, by way of the Registrar, grants charters of incorporation. Articles of association must include details of incorporators, shareholders and directors, management and shareholding provisions. - There are no specific obligations regarding obtaining information on the ultimate beneficial owners of the corporation, nor measures ensuring transparency or preventing unlawful use of legal persons. - The Registrar does not conduct examinations or checks to determine if data given on registration forms is accurate with respect to beneficial owners or shareholders. Annual statements are checked for filing, but not for accuracy; the Registrar indicated lack of resources and legal reason to check accuracy. - The Corporation Regulations allow interested parties to request copies of corporation documents from the Registrar. The Registrar can charge a fee for copying of $20 plus $1 per page. The records can be accessed in a timely manner. - Annual statements are only available to ‘officers of Republic,’ officers or stockholders of the corporations, and bona fide creditors; other persons can be permitted access if the Registrar is satisfied of a lawful and proper purpose. - The FIB requests copies of passports and police clearances for foreign owners, (principal) shareholders and investors, but does not request information on previous addresses. - Financial institutions can request, at a payment, a copy of the corporation paperwork as filed at Registrar of Corporations. The FIB provides financial institutions access to information on foreign investors; FIB requires that the foreign-owned corporation keeps a deposit in a joint account with the FIB. - Effectiveness: - Information on corporations and their ownership and control structure is easily and in a timely manner accessible for government agencies and the public, but information might not always be accurate or current because changes are only reported with the annual statement and no check for accuracy is performed. - Recommendations and comments (5.1.2): - There should be measures preventing the unlawful use of corporations. - There should be measures and mechanisms to ensure that information on the beneficial owners and control structure of corporations is available in an adequate and accurate manner. - The Registrar of Corporations should implement measures to ensure that the information on corporations and their beneficial ownership and control structure is adequate, accurate and current. - Compliance: - R.33 PC - Besides the basic registration requirements, there are no additional obligations regarding obtaining information on the ultimate beneficial owners and control structure of corporations, nor does the law provide for any measures on ensuring transparency or preventing unlawful use of legal persons. - Information on corporations and their beneficial ownership and control structure might not always be adequate, accurate and current. ### Legal Arrangements—Access to Beneficial Ownership and Control Information (Sections 614–622; 5.2) - Legal framework and findings: - There are no specific laws regarding legal arrangements such as trusts in Palau; trusts are recognized as a type of corporation in accordance with the Corporation Regulations (Section 2.10). - The Registrar of Corporations may grant charters of incorporation to nonprofit corporations, which can include trusts. There are a few family trusts in Palau that generally hold titles to land for a family. - Trustees or managers of unit trusts are covered as “cash dealers” or “OTC exchange dealers” in the MLPCA, Section 3(e)(4); Section 3(w) MLPCA defines “unit trust.” - Trusts, being nonprofit corporations, do not have to apply for a license from the FIB nor obtain a business license from the DRT. - As with corporations, there are no specific obligations regarding obtaining information on the ultimate beneficial owners of trusts, nor measures ensuring transparency or preventing unlawful use. - Initial filings for nonprofit corporations (including trusts) include a statement of purposes and objectives and the number, names, citizenship, and residence addresses of initial officers and directors. Annual statements contain the identity of persons who own, control, and direct individual corporations. - The Registrar does not check accuracy of registration data for trusts. - Public and competent authorities can view records at the Registrar of Corporations. - Effectiveness: - Information on trusts (nonprofit corporations) is easily accessible for government agencies and the public, but may not always be adequate, accurate or current because changes are only reported with annual statements and no accuracy checks are performed. - Recommendations and comments (5.2.2): - There should be measures preventing the unlawful use of legal arrangements. - There should be measures and mechanisms to ensure that information on the beneficial owners and control structure of trusts is available in an adequate and accurate manner. - The Registrar of Corporations should implement measures to ensure that the information on trusts is adequate, accurate and current. - Compliance: - R.34 PC - Besides the basic registration requirements, there are no additional obligations regarding obtaining information on the ultimate beneficial owners and control structure of trusts, nor does the law provide for any measures on ensuring transparency or preventing unlawful use of legal arrangements. - Information on trusts might not always be adequate, accurate and current. ### Non-Profit Organizations (Sections 623–627; 5.3) - Findings: - The NPO sector comprises a bulk of small, locally-based and locally-operating NPOs with a few large, internationally-recognized NPOs such as the Red Cross and the Nature Conservancy. - The Registrar of Corporations provided a comprehensive list of NPOs registered in Palau. There are currently 156 NPOs operating in Palau. - NPOs cover arts, cultural and ethnic groups, community development, education, environment, legal aid, religious groups, professional associations, social welfare, sports, tourism, and women’s groups. - The MLPCA does not include NPOs under its list of designated entities and therefore NPOs are not directly subject to any of the AML requirements under the MLPCA. However, the Corporations Act, the CTA, and the Tax Code have requirements in relation to NPO operations. - NPOs are subject indirectly to AML requirements through foreign banks applying enhanced CDD to NPO customers and the usual STR and CTR reporting requirements. - The Corporations Act and Corporation Regulations govern registration and operation of NPOs; Section 2.10 defines NPOs as a corporation, association, club, society, trust, league, or other such organization not organized for profit and other organizations considered nonprofit for purposes of the Foreign Investment Act. _Italic: Source — content unit from the provided PDF chapter/section._ ### 628. Under Tax Code, Title 40 PNC 1002(w), donations to certain categories of NPOs are tax ### _cr0909 - 628. Under Tax Code, Title 40 PNC 1002(w), donations to certain categories of NPOs are tax ### Tax incentives and categories of NPOs - Under Tax Code, Title 40 PNC 1002(w), donations to certain categories of NPOs are tax deductible to a maximum of 10 percent of taxable income. - Categories specified: (1) educational, (2) scientific, (3) religious, (4) promotion of sports, (5) welfare of elderly, (6) protection of animals, or (7) charitable. - The favorable taxation treatment provides a strong incentive for NPOs in Palau to register and obtain the Certificate of NPO from the Registrar of Corporations. ### Legal requirements related to ML/FT (CTA Section 25) - Section 25 of the CTA addresses prevention of terrorism financing through NPOs and requires that no legal entity be granted charitable or NPO status if there are reasonable grounds to believe that any assets may be diverted to a terrorist or terrorist organization. - Section 25 further requires NPOs to submit STRs to the FIU and OAG if there is any suspicion of ML and FT. - Any donations above $10,000 must also be reported as CTRs. - It is not clear whether the reference to reporting to the OAG was based on the previous situation of the FIU being based at the OAG. ### Penalties and enforcement provisions - Penalties for violations include: - a fine of no more than $10,000; - temporary ban on the activities of the organization for a maximum of two years; - dissolution of the NPO. - Section 124 of the Corporations Act: the Registrar of Corporations can order the production of papers, accounts, and records; refusal is punishable by a fine and, in the case of an individual, imprisonment of up to 90 days. - The Registrar of Corporations has revoked the registration of some NPOs because of a failure to provide annual statements. ### Gaps, overlaps, and coordination issues in law - STR, CTR, and record-keeping obligations are specified under the CTA but not in the MLPCA, even though the scope of STR reporting and record keeping in the CTA includes money laundering. - NPOs are required to submit CTRs and STRs to the OAG and the FIU. - The laws relating to NPOs are not sufficiently coordinated. ### Registration, supervision, and public availability of information - Registration: - Palau requires any entity that wants to operate as an NPO to register with the Registrar of Corporations pursuant to Sections 1.3, 2.10, and 21.11 of the Corporation Regulations. - Filing fee for registration: $250. - Minimum registration requirements include: the charter; at least three persons resident in Palau; location and mailing address; purpose of NPO; period of registration; details of directors and officers; clear statement of nonprofit objective; and that no assets nor revenue shall be distributed to members except for actual services rendered. - There is no fit and proper test requirement for NPO registration. - Annual reporting and meetings: - All NPOs are required, and with a few exceptions, to submit annual reports, although not always on time. - There is no requirement for an annual meeting and audited statements. Section 5.5 requires NPOs to submit an annual report of activities including a financial statement. Larger NPOs are known to have annual meetings and officer elections. - Public access: - Initial filing includes a statement of purposes and objectives. - The annual statement contains identity of persons who own, control, and direct individual NPOs and a brief statement of expenses and revenue. - Both categories of information are available to the public upon written request to the Registrar of Corporations and payment of $20 and $1 for every page. - The list of registered NPOs is not available to the public. - Records of NPOs registered at the Registrar of Corporations are freely and readily available to other government agencies, and also to the public. ### Record-keeping requirements - Section 2.21 of the Corporation Regulations requires every corporation to keep correct and complete books, but there is no specification that these records must be kept for at least five years. - Section 25 of the CTA requires NPOs to maintain records of donations of $5,000 and above for a period of three years and that they be made available to the FIU on request. This requirement is less than the five years specified by FATF. - Recommendation: amend the requirement for record keeping to at least five years after the completion of any financial transaction, including records of donors and expenditure. ### Supervision, monitoring, audits, and outreach - There is no supervision and monitoring of NPOs except for the requirement to meet annual reporting obligations. - No focus on NPOs that are internationally connected or account for a significant percentage of financial resources. - The DRT does not undertake audits or reviews of the actual NPOs; it only reviews and audits taxpayers claiming taxation deductions. - The Attorney General advised there are no known cases of NPO abuse (fraud, false solicitation, or others). - Registrar of Corporations and the OAG do not have the resources to undertake outreach to the NPO sector. There is a plan to undertake outreach to advise of STR and CTR reporting obligations. - No additional measures taken in respect of NPOs; MLWG coordinates broader implementation concerns and existing law enforcement arrangements with the BPS and the OAG. - The Registrar of Corporations provides an updated list of NPOs registered in Palau to the DRT on a monthly basis; this report is copied to the Bureau of Immigration, Division of Labour, FIB, Office of Planning and Statistics, and the Office of the President. ### Information access during investigations and international cooperation - Information is easily accessible from the Registrar of Corporations; Palau would draw on CID staff and existing arrangements in any investigation. - The Attorney General and the OAG is the primary operational office for mutual legal assistance and is also the same office as the Registrar of Corporations because the Attorney General performs both functions. This cross-over could facilitate a speedy response. - No designated agency responsible for NPO matters in relation to AML/CFT although it is implied that the FIU is the primary agency. - Effectiveness assessment: Palau has a satisfactory registration process and adequate information to identify potential abuse, but no active monitoring (even spot checking) of NPO activities; lack of oversight could expose the sector to potential abuse despite community visibility in a small jurisdiction. ### Recommendations and action items (from the assessment) - Undertake a review of laws affecting NPOs to ensure relevancy and consistency. - Review the information available on NPOs at the Registrar of Corporations to identify NPOs with international funding or which account for a significant size of the sector. - Commence an audit or spot checking program targeted at higher-risk NPOs identified from the review. - Amend the requirement for record keeping to at least five years after the completion of any financial transaction, including records of donors and expenditure. - Designate an agency as the responsible agency for NPOs, not only in respect to registration but for broader AML/CFT matters including as a coordination point for information sharing. ### Compliance with FATF Special Recommendation VIII (summary) - SR.VIII rating: PC - Summary of factors underlying rating: - No review of laws nor the NPO sector. - No fit and proper test for NPO registration. - No audited statements required. - No active monitoring nor supervision. - No outreach nor awareness raising. - No designated contact point. *Source: IMF staff assessment content provided in the supplied PDF excerpt.* ### 675. The Attorney General, through the Ministry of State, may request foreign countries to provide ### _cr0909 - 675. The Attorney General, through the Ministry of State, may request foreign countries to provide ### Legal framework for mutual legal assistance (MLA) - The Attorney General, through the Ministry of State, may request foreign countries to provide mutual legal assistance with respect to serious offenses and indicating the nature of the request and the nature of the criminal matter. - Section 5 (b) MLA Act: the Attorney General may grant, refuse, or postpone the provision of mutual legal assistance. - Section 5 (b)(2) MLA Act: a request may be refused if granting it would likely prejudice the sovereignty, security or other essential public interest of Palau. - Section 5 (b)(3) MLA Act: the Attorney General may, upon consultation with the competent authority in the requesting state, postpone grant of the request if it would immediately be likely to prejudice the conduct of an investigation or proceeding in Palau. - Section 5 (c) MLA Act: the President or his designee may refuse any request from a country that does not afford substantially reciprocal privileges to Palau or upon determination that refusal is in the public interest of the Palau public. - Section 9 and Section 13 MLA Act specify kinds of assistance Palau may provide to foreign countries. - Section 8 (a) MLA Act lists required information for a request; Section 8 (b) permits granting requests notwithstanding non-compliance with subsection (a) after consultation if necessary. ### Operational practice for requesting and receiving assistance - In practice, the Attorney General stated he inquires through informal channels what requirements are in place in another country and what information should be included in a request before sending it through the Ministry of State (paragraph 675). - Requests received from foreign countries are forwarded from the Minister of State to the Attorney General; the Minister of State also informs the President of receipt of the request (paragraph 676). - The Attorney General stated that no request has ever been refused on any grounds (paragraph 677). - The Attorney General stated that in practice, the grant of a request has never been postponed based on Section 5 (b)(3) MLA Act (paragraph 678). - The Attorney General stated that in practice countries would inquire informally what information should be contained in an MLA request; in response, countries would be provided with Section 8 (a) MLA Act (paragraph 688). ### Court powers and types of assistance - Section 9 MLA Act: - The Supreme Court may issue a search warrant or evidence-gathering order for serious offenses if the country shows probable cause that the evidence sought may be found in Palau or held by a person located in Palau (paragraph 681). - A statement by the requesting state that the conduct investigated relates to a serious offense under its laws is prima facie evidence of that fact (paragraph 681). - Unlike extradition requests, no copy of the offense on which the request is based has to be provided (paragraph 681). - Evidence-gathering orders may require any person named to: 1. make a record from data or make a copy of a record; 2. attend the court to testify; or 3. produce anything, including documents or copies thereof (paragraph 682). - Attorney General stated evidence-gathering orders would also extend to financial records held at financial institutions or other natural or legal persons, although this has never been applied in practice (paragraph 682). - Persons named may refuse on grounds of Palauan law, a privilege recognized by a law in the requesting state, or if answering would be an offense under the requesting state’s law; refusal based on a foreign state’s law is referred to the Attorney General, who requests a written statement from the foreign state on whether grounds for refusal are well founded (paragraph 683). - Search warrants may be issued upon request and documents seized may be sent to a foreign state after the Attorney General is satisfied the foreign state will comply with terms and conditions (paragraph 684). - The Supreme Court may adopt, recognize and enforce foreign court orders that are certified or issued under seal, with a rebuttable presumption of validity (paragraph 684). - Section 13 MLA Act (restraining orders): - Attorney General may apply to the Supreme Court for a restraining order against property in Palau provided that: - The property is not clan, lineage, or family land; - The property does not involve any interest held by a legitimate bona fide purchaser or owner without notice of an illegal interest in the property; - Criminal proceedings have commenced in the requesting state with respect to a serious offense; and - There is probable cause to believe that the property relates to that offense or belongs to the defendant or his conspirators (paragraph 685). - Section 13 (b) MLA Act: the Court may issue such an order as if the serious offense had been committed in Palau; general provisions of the MLPCA also apply for identification, freezing, seizure, confiscation, and recognition of instrumentalities or proceeds (paragraph 686). - Section 14 MLA Act (enforcement of foreign confiscation orders): - “Foreign confiscation order” defined as “an order made by a court of a foreign State, for the confiscation or forfeiture of property in connection with or recovery of the proceeds of a serious offense.” - Attorney General confirmed that for enforcement of foreign confiscation orders, no conviction would be required and that civil forfeiture orders could be executed in Palau, even though Palauan law does not allow for civil forfeiture in money laundering cases (paragraph 687). ### Limitations, discretion, and practical constraints - All requests must be accompanied by assurance from the requesting state that it will cover all costs associated with the request before a request may be granted (paragraph 678; paragraph 693). - Dual criminality requirement: - The MLA Act defines “serious offense” as a criminal offense under Palau’s laws punishable with imprisonment of more than one year and any act or omission constituting an offense against a law of a foreign state which, had it occurred in Palau, would have constituted a criminal offense punishable by imprisonment for more than one year (paragraph 707). - It does not appear that absent dual criminality, Palau may lawfully provide mutual legal assistance, even with respect to noncoercive measures (paragraph 708). - Dual criminality is required in all cases, including terrorism and terrorist financing (paragraph 709). - Attorneys are not covered by the MLPCA; attorneys may invoke professional secrecy to prevent provision of information for MLA purposes (paragraph 697). - It is not explicitly mentioned nor prohibited whether powers of the FIU and OAG to apply to the Supreme Court for orders to examine and obtain financial institution records (Section 13 MLPCA) or to seize property (Section 27 MLPCA) are available in response to MLA requests; authorities indicated they will request records or take witness statements for MLA (paragraphs 698 and 700). - Palau has not considered mechanisms for determining the best venue for prosecutions in cases subject to prosecution in more than one country (paragraphs 699 and 706). ### Timeliness, efficiency, and scope of assistance - The MLA Act does not provide clear timeframes for handling MLA requests; authorities stated that in practice requests are dealt with within about a week, but no documentation was provided to substantiate this (paragraph 690). - Palau has never refused or postponed the granting of any mutual legal assistance requests in practice (paragraphs 691 and 692). - Any MLA request must relate to the commission of a serious offense; the requesting state is not required to have commenced judicial proceedings—MLA may be granted before any case has been filed or indictments made (paragraph 693). - There are no clear and efficient processes in place for execution of MLA requests in a timely way and without undue delay; only one request has ever been received, so no documentation exists to demonstrate efficiency in practice (paragraph 695). - The MLA Act does not indicate that a request may be refused on the sole ground that the offense involves fiscal matters; however, unlike the Extradition Act, the MLA Act does not expressly state extraditable offenses include those relating to taxes, customs, or revenue matters (paragraph 696). ### International cooperation on terrorism (SR V) - Section 15 CTA: the Attorney General may make or grant MLA requests with respect to any investigation or proceeding relating to terrorism, or a terrorist organization; such assistance shall be carried out pursuant to Chapter 13 (a) of the MLPCA, the MLA Act or any MOU (paragraph 701). - The MLA Act does not differentiate between requests regarding money laundering, predicate offenses, or terrorist offenses; its scope extends to all “serious offenses,” so provisions in 36.1-6 apply to terrorist crimes and terrorist financing (paragraph 702). - The CTA does not provide the OAG or CID with specific powers to compel production of, or search persons or premises for, transaction records, identification data, account files, business correspondence, and other records held by financial institutions and other businesses or persons for investigation into the financing of terrorism (paragraph 703). - Section 16 CTA encourages sharing and disclosure of intelligence information relating to terrorism, transnational organized crime, illicit drugs, money laundering, illegal arms trafficking, and movement of potentially deadly materials, and to provide early warning to competent law enforcement authorities of Pacific Islands Forum members, State Parties to the international terrorism convention, the United States pursuant to the Compact of Free Association, and any UN member state (paragraph 704). - Restrictions imposed by the granting Palauan agency on use or disclosure of provided information are binding on the receiving agency; confidentiality requirements from a requesting state shall be observed except to the extent necessary to give effect to the request (paragraph 705). - Palau has not considered mechanisms for determining the best venue for prosecutions of defendants in terrorist or terrorist financing cases that are subject to prosecutions in more than one country (paragraph 706). ### Enforcement of foreign confiscation and restraining orders (timeliness and conditions) - Section 14 MLA Act: Attorney General may apply to the Supreme Court for entry and enforcement of a foreign confiscation or restraining order. - “Foreign Confiscation Order” defined as a foreign court order for confiscation or forfeiture of property in connection with or recovery of proceeds of a serious offense. - “Foreign Restraint Order” defined as a foreign court order relating to a serious offense and restraining a person or persons from dealing with property (paragraph 710). - The Supreme Court must enforce the order if it can be established that: - the order is in force in the foreign state at the time of entry and is not subject to appeal; and - the person subject of the order did not appear in the confiscation proceedings in the foreign state if the person was given sufficient notice of the proceedings or if the person had absconded or died before commencement of the proceedings (paragraph 710). - A statement contained in the foreign request that the above elements are met constitutes prima facie evidence of those facts (paragraph 711). - Amendments to a foreign restraining or confiscation order must be entered and enforced in the same way as the order itself to be effective in Palau (paragraph 712). *Source: IMF Mutual Legal Assistance and Asset Forfeiture framework assessment (text provided).* ### 713. The Supreme Court, upon application by the Attorney General, rescinds entered confiscation ### _cr0909 - 713. The Supreme Court, upon application by the Attorney General, rescinds entered confiscation ### Enforcement and rescission of confiscation and restraining orders - The Supreme Court, upon application by the Attorney General, rescinds entered confiscation orders if it appears that the order has been satisfied or has ceased to have effect, and rescinds foreign restraining orders if it appears that the order has ceased to have effect. - It is the responsibility of the person affected to bring to the court’s attention that a confiscation order has been satisfied or has ceased to have effect. - Foreign confiscation orders may be enforced in Palau, whether or not they are conviction based (see criterion 36.2). ### Freezing, seizure, and confiscation orders based on foreign requests (Section 13 MLA Act) - Upon request by a foreign state the Attorney General may apply to the Supreme Court for a restraining order against property located in Palau, provided that: - The property is not clan, lineage, or family land; - The property does not involve any interest held by a legitimate bona fide purchaser or owner without notice of an illegal interest in the property; - Criminal proceedings have commenced in the requesting state with respect to a serious offense; and - There is probable cause to believe that the property relates to that offense or belongs to the defendant or his conspirators. - Section 13(b) MLA Act allows the Court to issue such an order as if the serious offense had been committed in Palau; therefore, general provisions of the MLPCA (section 2.3.1) also apply to foreign requests to identify, freeze, seize, and confiscate: - Property laundered; - Proceeds from instrumentalities used in or intended for use in the commission of any money laundering, terrorism financing, or any predicate offense; and - Assets of corresponding value. ### Foreign identification requests (Article 15 MLA Act and Section 33 Extradition Act) - Article 15 MLA Act: upon request by a foreign state, the Attorney General may authorize assistance in locating property believed to be the proceeds of crime through application of the MLPCA. - In practice, all powers pursuant to MLPCA may be used for and are applicable with respect to mutual legal assistance. - Measures discussed under criterion 3.4 of Recommendation 3 apply with respect to foreign requests to trace or identify property. - Section 33 Extradition Act: where an extradition country requests assistance with the location or seizure of property suspected to be evidence or tainted and related to an extraditable offense, the MLPCA shall apply, provided the Minister of Justice or his designee has authorized assistance under the MLA Act. ### Coordination of seizure and confiscation actions (c. 38.3) - Palau has not entered into bilateral or multilateral arrangements with other countries to coordinate seizing and confiscation actions, apart from one MOU for Mutual Legal Assistance with the United States limited in scope to a specific case. ### International cooperation under SR V (c. 38.1-38.3 in R. 38, c. V.3) - Definitions of “foreign restraint order” and “foreign confiscation order” relate to all serious offense and therefore include terrorist or terrorist financing offenses. - Foreign identification requests may be granted if the request relates to a serious offense pursuant to Article 13 MLA Act or to an extraditable offense pursuant to Article 33 Extradition Act. - Requests for freezing, seizing, or confiscating proceeds or instrumentalities used in or intended for use in the commission of any terrorism financing predicate offense are subject to the provisions discussed under criterion 3.1 of Recommendation 3 pursuant to Section 13 MLA Act. ### Asset Forfeiture Fund (c. 38.4) - Section 19 of the MLA Act: any proceeds of drug-related crime confiscated in a foreign state pursuant to a request by Palau or confiscated in Palau pursuant to a foreign restraining or confiscation order under Section 14(a), and subject to any sharing agreement, shall be deposited in designated accounts. - The accounts benefit the Palau National Olympic Committee, the Drug Abuse Prevention and Control, and the Palau Retirement Fund. - Other than for drug-related crimes there is no designated asset forfeiture fund. - Section 36 of the MLPCA: confiscated property and proceeds shall accrue and be forfeit to the Republic of Palau, and be delivered to the general fund of the Republic after the auction sale of such property. ### Sharing of confiscated assets (c. 38.5) - Section 16 MLA Act: the Attorney General may enter into asset-sharing agreements with the competent authority of a foreign state. - Agreements may relate to proceeds of money laundering and other crimes and provide for sharing of assets realized in Palau based on a foreign request or those realized in a foreign state due to action taken by the Attorney General. ### Additional elements regarding recognition of foreign orders (R. 38) - Foreign confiscation orders may be enforced in Palau, whether or not they are conviction based (as discussed under criterion 36.2). - Section 16 CTA refers only to proceeds of drug offenses and does not extend to proceeds from terrorist or terrorist financing offenses. - Pursuant to Section 14 MLA Act, the Attorney General may enter into asset-sharing agreements with respect to confiscated proceeds of terrorist financing or terrorist offenses. ### Statistics (applying R.32) - Palau has received and granted one request for mutual legal assistance from the United States, involving the location and subsequent confiscation of funds. - Palau has made one request for mutual legal assistance to New Zealand, involving the gathering of personal bank records. ### Recommendations and comments (6.3.2) - The Criminal Code should be amended to include all categories of predicate offenses as listed in the international standard so as to be able to provide the widest possible range of mutual legal assistance, both with respect to money laundering and terrorism financing. - The MLPCA should be amended to allow for the confiscation of proceeds of, instrumentalities used or intended for use in the commission of a predicate offense for money laundering based on a request by a foreign country. - The MLPCA should be amended to allow for the confiscation of property of corresponding value to property laundered, instrumentalities intended for use in the commission of a money laundering offense, as well as proceeds of and instrumentalities used in or intended for use in the commission of any predicate offense and based on a request by a foreign country. - A clear and efficient process for the execution of mutual legal assistance requests in a timely way and without undue delay should be put in place. - Palau should allow for the provision of mutual legal assistance even absent dual criminality if the request relates to noncoercive measures. - Palau should consider devising and applying mechanisms for determining the best venue for prosecutions of defendants in cases that are subject to prosecutions in more than one country. - Palau should consider whether it would be beneficial to enter into formal agreements with other countries to coordinate seizing and confiscation actions. - The law should be amended to allow for the identification, tracing, and the freezing of property related to terrorism financing. - All the DNFBPs should be covered by the MLPCA to allow for mutual legal assistance with respect to information held by these entities. ### Compliance ratings and key factors (6.3.3) - R.36: PC - Due to the dual criminality requirement, Palau’s ability to provide mutual legal assistance may be limited in cases involving any of the predicate offenses not covered by the MLPCA. - The law does not allow for the confiscation of property of corresponding value to property laundered, instrumentalities intended for use in the commission of a money laundering offense. - The MLA Act does not provide for a clear and efficient process for the execution of mutual legal assistance requests in a timely way and without undue delay. - Palau has not considered devising and applying mechanisms for determining the best venue for prosecution of defendants in cases that are subject to prosecutions in more than one country. - Not all the DNFBPs are covered by the MLPCA and, therefore, mutual legal assistance may be avoided by invoking legal professional secrecy. - R.37: LC - Absent dual criminality, Palau may not provide mutual legal assistance even with respect to noncoercive measures. - R.38: PC - Due to the dual criminality requirement, Palau’s ability to provide mutual legal assistance may be limited in cases involving any of the predicate offenses not covered by the MLPCA. - The law does not allow for the confiscation of proceeds of, instrumentalities used or intended for use in the commission of a predicate offense for money laundering. - The law does not allow for the confiscation of property of corresponding value to property laundered, instrumentalities intended for use in the commission of a money laundering offense, as well as proceeds of and instrumentalities used in or intended for use in the commission of any predicate offense. - Apart from one MOU for Mutual Legal Assistance with the United States, which is limited in scope to a specific case, Palau has not entered into any bilateral or multilateral arrangements with other countries to coordinate seizing and confiscation actions. - SR.V: PC - No freezing measures are available for property related to terrorism financing. - No measures are in place to identify or trace property relating to terrorism financing. - Palau has not considered devising and applying mechanisms for determining the best venue for prosecutions of defendants in terrorist or terrorist financing cases that are subject to prosecutions in more than one country. ### Extradition framework (beginning of section 6.4) - The Extradition and Transfer Act (Extradition Act) came into force on June 19, 2001 and provides for the extradition of persons to other countries as well as the seizure of any assets in connection with extraditions. - Dual criminality requirement for extradition (Sections 5 and 6) - Section 5: Palau may extradite individuals for an act or omission in the requesting country if the act or omission would constitute a criminal offense punishable with imprisonment for more than one year under the laws of both the requesting country and Palau. - The Extradition Act requires that an offense is a criminal offense and punishable with imprisonment of more than one year in both the requesting and the requested country. - Section 5(b): terminology and categorization are not dispositive; the totality of acts or omissions alleged shall be considered in determining constituent elements of the offense. Where there is no statutory penalty, the level of penalty that can be imposed shall be taken into account. - Authorities stated that to determine whether an offense is extraditable, a copy of the foreign law defining the offense for which extradition is sought would be requested. - Money laundering: under Palauan law, sanctions for money laundering are imprisonment of not more than one year and one day or of not more than 10 years for the aggravated offense. - Provided that the act or omission is a criminal offense punishable with imprisonment of more than one year under the law of the requesting country, money laundering is an extraditable offense pursuant to Section 5. - Section 6: extradition requests may not be granted if they relate to: - The commission of a political offense; - Conduct prosecuted due to race, religion, nationality, political opinion or affiliation, gender, or status; - Offenses arising under a foreign state’s military laws if the conduct is not criminalized in Palau; - An offense for which a person has already been convicted in Palau; - An offense that is not prosecutable due to the statute of limitations, due to amnesty, immunity of the offender or any other reason under the requesting state’s laws; - Cases in which the offender has been acquitted, pardoned, or duly punished for the offense, either in Palau or the requesting state; - Cases in which judgment was entered in the person’s absence, and the requesting country’s law does not entitle the person to raise any defenses upon his or her return; - Cases in which prosecutions for the offense are pending in Palau; - Offenses that were not committed in the requesting state and Palau has no jurisdiction over the offense; - Offenses that were committed, wholly or partially, in Palau and the Attorney General confirms that prosecution will be instituted; - Offenses punishable by death in the requesting state and no sufficient assurances are given that the death penalty will not be imposed; - Cases in which the person will likely be tried by an illegitimate court; - Cases in which the person is likely to be subjected to torture or cruel and inhumane treatment or punishment, including inhumane prison conditions; - If the requesting government is authoritarian in nature or nondemocratic in form. - Section 9: extradition requests may only be granted if all of the following conditions are met: - The requesting country has issued an arrest warrant for the extraditable offense; - The person named in the warrant is physically present or about to enter Palau in the foreseeable future; - The requesting country is an extradition country; - The requesting country has produced all supporting documents; - None of the extradition objections listed above or any other laws would preclude the extradition; and - No other valid and legally-justifiable cause exists to preclude surrender of that person. - Procedures and practice - The Minister of Justice is the designated authority to process extradition requests, but in practice, requests are handled by the AGO on behalf of the Minister of Justice. - Section 9: upon receipt of an extradition request the Minister shall notify the president, review and consider the request, determine whether the request meets the Act’s requirements, promptly communicate the outcome to the requesting country, and identify in writing any deficiencies. - Section 8: the Minister must determine whether all formal requirements are met, including whether the request relates to an extraditable offense and was made by an extradition country. - If the requesting country is not an extradition country, the Minister may designate it as such pursuant to Section 30 for purposes of a particular request. - Palau has entered into three extradition treaties: one with the United States, one with the Marshall Islands, and one with the Federated States of Micronesia. - Upon determination that formal requirements are met, the Minister may impose conditions on the requesting country and may apply to the Supreme Court for warrants of arrest (Section 13), provisional arrest (Section 16), surrender (Section 21), and for re-extradition (Section 23). - A hearing is held before a Palauan judge to determine whether the requirements of the Extradition Act have been met; the Minister appears in the hearing on behalf of the requesting country. - If the Minister receives two or more extradition requests for the same person, the Minister has discretion to decide the order in which to consider the requests. - Section 11 describes in detail the documents that shall accompany an extradition request. - Extradition of nationals (Section 7) - Section 7(a): Palau has an obligation to extradite persons who are not Palauan citizens or nationals or of Palauan ancestry if the request relates to an extraditable offense, all other requirements have been satisfied and no valid objections would preclude extradition. - Section 7(b): Palau is not bound to extradite its own citizens or nationals, but may grant extradition if deemed proper; it is in the discretion of the court. If Palau denies extradition solely on the basis of citizenship or nationality, it shall submit the case to competent authorities for prosecution. - If the offense is punishable by death, no citizen of Palau or person of Palau ancestry shall be extradited to the requesting country. - In the past, Palau has twice extradited its own citizens and has never refused any request for extradition of Palauan nationals. - Cooperation for prosecution of nationals - If Palau denies extradition based on nationality, the case must be submitted to Palauan competent authorities for prosecution (Section 7(b)). - Section 5 MLA Act: the Attorney General through the Minister of State may request competent authorities of a foreign state for mutual legal assistance in any investigation or proceeding in Palau relating to a serious offense. *Extracted from the supplied document content.* ### 748. Section 7 MLA Act specifies the types of assistance Palau may request, including the taking ### _cr0909 - 748. Section 7 MLA Act specifies the types of assistance Palau may request, including the taking ### Mutual Legal Assistance (MLA) — Scope of Assistance (Section 7 MLA Act) - Types of assistance Palau may request include: - the taking of evidence or documents or other real evidence, - the obtaining and executing of search warrants or other lawful instruments authorizing a search for, and seizure of, relevant evidence, - the location or restraint of any property believed to be the proceeds of crime and located in the requested state, - the confiscation of property subject of a Palauan confiscation order, - the transmission of any confiscated property or any proceeds realized therefrom to Palau, - the transfer of a person who consents to assist in relevant investigations or proceedings, - the provision of any other form of assistance that involves the exercise of coercive powers over a person or property. ### Extradition — Legal Framework and Procedural Efficiency - Section 7 (b) Extradition Act: extradition of a Palauan citizen may be refused on this basis; Palau may cooperate with other countries on procedural and evidentiary aspects to ensure efficiency of prosecution under Palauan law. - Section 21 Extradition Act — procedural timing: - A judge shall hold a hearing within 60 days to determine surrender where extradition proceedings have been instituted and the person has not waived extradition or voluntarily consented pursuant to Section 20. - Within seven days of the surrender determination hearing, the judge shall issue a surrender warrant or deny the application for extradition and surrender. - If surrendered, the Minister shall immediately inform the requesting state of the length of time the person has been held in custody since issuance of the surrender warrant and of the requesting country’s obligation to expeditiously arrange for execution of the surrender warrant. - Where a person is in custody pursuant to a surrender warrant but has not been surrendered within 60 days of the date the surrender warrant was issued, the person may apply to a judge for rescission of the surrender warrant and release from custody and a hearing shall be held on the application. - Other procedural provisions: - Section 9: Minister to promptly communicate determination of extradition requests and ask requesting country to cure formal deficiencies immediately. - Section 16: person arrested under an arrest warrant or provisional arrest warrants shall be brought before the judge without unnecessary delay. ### Simplified Extradition Procedures (Section 8 and Section 20 Extradition Act) - Section 8 Extradition Act: Minister may receive extradition requests directly from foreign states or Interpol. - Extradition cannot be based only upon warrants of arrest or judgments; supporting documents as provided in Section 11 are required. - Section 20 Extradition Act — waiver/consent: - If a person waives extradition and voluntarily consents to surrender for criminal prosecution or punishment for any extraditable offense or non-extraditable offense for which charged or convicted, and the judge is satisfied that the consent is voluntary and informed, the judge shall, without undue delay, issue a surrender warrant for the person. - In such cases, no surrender determination hearing pursuant to Section 21 is required and a surrender warrant may be issued immediately. ### Extradition Related to Terrorism and Terrorism Financing - Terrorism financing (Section 24 CTA) is punishable with imprisonment of 20 years to life or 10 years to life and, provided the dual criminality requirement is met, is an extraditable offense pursuant to Section 5 Extradition Act. - Section 14 CTA: terrorism offenses expressly declared extraditable; extradition for terrorism offenses shall be carried out pursuant to and in accordance with the Extradition Act. - All Extradition Act provisions and procedures (R 39.1-4) apply with respect to extradition requests for terrorism financing offenses. ### Statistics on Extradition (applying R.32) - Palau has received three extradition requests from the United States: - one involved a Chinese citizen, - two involved Palauan citizens. - All requests were granted. - Palau has never refused any request for extradition. - Palau has made a request to New Zealand for extradition of a U.S. citizen purportedly involved in the Pacific Savings Bank case; the request is pending. ### Recommendations (Section 6.4.2) - To allow for the extradition of individuals involved in money laundering in all cases, the Criminal Code should be amended to include all categories of predicate offenses as listed in the international standard. ### Ratings Summary (Compliance with Recommendations 37 & 39, and SR V) - R.39 — LC - Due to the dual criminality requirement, Palau’s ability to allow for extradition may be limited in cases involving any of the predicate offenses not covered by the MLPCA. - R.37 — LC - Palau may not provide mutual legal assistance relating to noncoercive measures absent dual criminality. - SR.V — PC - See other sections. ### Other Forms of International Cooperation (R.40 & SR.V) — Legal Framework and Practice - FIC (Section 8 FIA) is the official agency for information on status of financial institutions licensed in Palau; authorized to cooperate and exchange information with foreign agencies to the extent set forth in the FIA and Palau laws. - FIC has limited contacts and experience; drafting an information exchange agreement with supervisors in the Federated States of Micronesia; information sharing to include bank-branch information, bank-examination information, and fit-and-proper information. - FIU (Section 19 MLPCA) and CTA (Section 16) provide for exchange of financial intelligence on reciprocal and spontaneous bases: - FIU has signed MOUs with Chinese Taipei, the Philippines, and Thailand. - Palau has provided information to Chinese Taipei and the United States in response to requests. - Section 16 CTA authorizes sharing and disclosure of intelligence relating to terrorism, transnational organized crime, illicit drugs, money laundering, illegal arms-trafficking, illegal movement of nuclear/chemical/biological materials, and providing early warning to specified categories of foreign States and the United States. - Section 3904(b) allows Customs and the FIU to make CCDA information available to an agency of a foreign government if requested. - The FIU and FIC have limited experience but no legal prohibition to provide assistance in a timely, constructive, and effective manner. ### Specific Information-Exchange Features (R.40 criteria) - Spontaneous exchange: Section 16 CTA allows spontaneous provision of information on money laundering and predicate offenses by designated Palau authorities. - Making inquiries on behalf of foreign counterparts: Section 19(c) MLPCA allows FIU to comply with requests if within scope of MOU and not in conflict with Palau law. - FIU may search its own database or other databases to which it has access on behalf of foreign FIUs (no prohibition in MLPCA). - BPS has regularly conducted simple inquiries and provides information upon requests from U.S. law enforcement agencies; BPS considers itself authorized to conduct investigations on behalf of foreign counterparts. - Confidentiality and safeguards: - Section 3904(c): information made available to foreign governments shall be received in confidence and not disclosed but for official purposes. - Section 19(b) MLPCA: FIU exchanges governed by confidentiality requirements similar to MLPCA. - Exchange with non-counterparts: - CCDA allows Customs and FIU to exchange information with any agency of a foreign government. - MLPCA allows FIU to enter MOUs with other law enforcement agencies as well as FIUs. - Provision of information to FIU by other competent authorities pursuant to request from foreign FIU: - Nothing in MLPCA prevents FIU from acting as conduit; to date no such requests through the FIU have occurred. ### Statistics on International Cooperation (applying R.32) - Limited experience with international information exchange; most pertains to mutual legal assistance by OAG and BPS. - Authorities do not keep statistics on these types of information exchanges. ### Recommendations and Comments (Section 6.5.2) - Palau authorities have only limited experience with providing international cooperation to foreign counterparts. - A majority of requests seem to be initiated by foreign counterparts. ### Compliance Ratings (Section 6.5.3) - R.40 — C - SR.V — PC (see other sections) ### Resources, Statistics, and Institutional Capacity (Section 7.1) - FIU and FIC have significant human and financial resource deficiencies. - Palau authorities are receiving ample assistance from international donors, yet techniques learned do not always seem to be applied in practice with respect to initiating money laundering investigations. - Authorities should establish an audit trail for STRs between the FIU, BPS, and OAG to enable better insight into the effectiveness of the reporting duty. - Because there are few cases, there has been no tradition of keeping statistics and much information is in the memory of persons involved; authorities should develop systems to keep better statistics on: - STRs, - ML/FT investigations, prosecutions and convictions, - number of cases and amounts of property frozen, seized and confiscated, - mutual legal assistance, and - extradition requests. - Rating implications: - R.30 — PC - Palau has significant problems with respect to adequate financial and human resources for the FIU and FIC. - Customs and the BPS should have more technical resources for money laundering investigations and cross-border cash activities. - BPS should apply techniques learned during trainings by initiating more money laundering investigations. - R.32 — NC - Palau does not regularly review the effectiveness of its AML/CFT system. - There are no comprehensive statistics on STRs, ML investigations, amounts frozen, seized, confiscated, mutual legal assistance, and extradition requests. ### General Framework for the AML/CFT System (Section 7.2) - Amendments to the MLPCA passed on December 1, 2007 and signed into law December 19, 2007; introduced into the Senate in January 2005. The legislative process has taken a long time; several matters of the international standards are not addressed in the law (e.g., DNFBPs, PEPs, and ongoing due diligence). - MLPCA contains inconsistencies, duplications and contradictions (examples cited: different treatment of cash dealers and financial institutions; conflicts between Section 49 FIA and Section 11 MLPCA; and Section 6 MLPCA and Section 3902 CCDA). - Consequences: - The MLPCA can be interpreted in different ways, creating potential implementation uncertainty for the private sector. - Recommendation: strongly suggested that a new law on AML/CFT be drafted, taking into account the mission’s recommendations, instead of attempting to amend and revise the current version. ### Summary Table Extract — Key Deficiencies and Ratings (selected entries) - ML offense — PC - Palau does not provide for predicate offenses in categories: participation in an organized criminal group and racketeering, illicit arms trafficking, illicit trafficking in stolen and other goods, counterfeiting and piracy of products, environmental crimes, extortion, piracy, and insider trading and market manipulation. - The money laundering offense does not clearly extend to “the use of criminal proceeds.” - The definition of “proceeds of crime” does not expressly cover direct as well as converted proceeds. - Confiscation and provisional measures — PC - Law does not allow confiscation of proceeds of, instrumentalities used or intended for use in commission of a predicate offense for money laundering. - Law does not allow confiscation of property of corresponding value, instrumentalities intended for use, or proceeds/instrumentalities used in predicate offenses. - No freezing measures are available for property related to terrorism financing; no measures to identify or trace property relating to terrorism financing. - Preventive measures / Customer due diligence — NC - Lack of effective implementation of CDD measures. - Occasional transactions that appear linked are not addressed. - Threshold gap between $1,000 and $10,000 for identifying occasional transactions that are wire transfers. - No requirement to undertake CDD where there is suspicion of ML or FT. - No requirement to obtain information on power to bind a legal person/arrangement. - No requirement to obtain purpose and nature of business relationships or to conduct ongoing due diligence. - High-risk categories of customers do not require enhanced due diligence. - Insurance agents classified as OTC exchange dealers are not required to conduct CDD for transactions under $2,500 and not required to conduct CDD on occasional transactions or identify legal persons/beneficial owners for such transactions. - Record-keeping — NC - Financial institutions are not required to maintain all necessary records on transactions for at least five years. - No requirement to maintain records sufficiently to permit reconstruction of individual transactions. - Record-keeping requirements do not require account files and business correspondence for at least five years. - Insurance dealers classified as “cash dealers” and “OTC exchange dealers” have gaps in record-keeping and CDD obligations for transactions under $2,500. - Suspicious transaction reporting — PC - Deficiencies in list of predicate offenses impact scope of STR requirements. - Reporting of suspicious transactions related to terrorism not sufficiently covered in the MLPCA. - No requirement to report attempted transactions. - No adequate implementation of the reporting duty by financial and other institutions. *Source: _cr0909 - 748. Section 7 MLA Act specifies the types of assistance Palau may request, including the taking (extracted content).* ### Section 21 of the MLPCA could constitute tipping ### _cr0909 - Section 21 of the MLPCA could constitute tipping ### Tipping-off and STR confidentiality - "Section 21 of the MLPCA could constitute tipping off by the authorities." - "There no explicit tipping-off prohibition in the MLPCA." - "No explicit requirement to prohibit ARS from disclosing (“tipping-off”) the fact that a STR or related information is being filed with the FIU." ### Internal controls, compliance & audit; training; employee screening - "The MLPCA does not include the need for timely access to customer identification data." - "Training requirements do not include the need for training on current money laundering and financing of terrorism techniques, new developments, methods and trends." - "There are no financial institution requirements for employee screening." - "Cash dealers and OTC exchange dealers are not required to develop compliance programs for AMLCFT under Section 14 of the MLPCA or any other Section of the Act." - "Insurance agents classified as OTC exchange dealers are not covered for compliance with FATF Rec. 21." ### Designated non-financial businesses and professions (DNFBPs) - Rating: "DNFBP–R.13–15 & 21 NC" - "None of the DNFBPs operating in Palau, that is, lawyers and CSPs, are covered by the AML or the CFT Law." - "None of the DNFBPs operating in Palau, that is, lawyers and CSPs, are covered by the AML or the CFT Law." (repeated in DNFBP—regulation, supervision and monitoring) ### Sanctions and remedial measures - Rating: "Sanctions LC" - "The FIC has not issued any regulations providing for remedial provisions." - "The FIC has sanctioning powers; however, it has not used them for AML/CFT purposes." ### Shell banks and correspondent relationships - Rating: "Shell banks PC" - "There is no requirement for banks to have a meaningful mind and management in Palau nor an explicit prohibition against shell banks." - "Palau does not prohibit financial institutions from entering into correspondent banking relationships with shell banks." - "Financial institutions are not required to satisfy themselves that respondent financial institutions in a foreign country do not permit their accounts to be used by shell banks." ### Other forms of reporting and cash usage - Rating: "Other forms of reporting C" - "Other NFBP & secure transaction techniques LC" - "There is still very high cash usage in the Palauan economy." - "Other NFBP & secure transaction techniques LC" (coverage of high cash usage and reporting gaps) ### Special attention for higher risk countries; counter-measures - Rating: "Special attention for higher risk countries NC" - "Financial institutions, cash dealers, or alternative remittance systems are not provided information regarding concerns about weaknesses in the AML/CFT systems of other countries." - "Palau has no plan or procedure to apply counter-measures to those countries not following FATF Recommendations." ### Regulation, supervision and monitoring; supervisors and resources - Rating: "Regulation, supervision and monitoring NC" - "The FIC is not properly funded and staffed and has not supervised its financial institutions to ensure effective implementation of AML/CFT requirements." - "No designated supervisor for cash dealers and OTC exchange dealers." - "Although the FIC has indicated that it will categorize MVTS as ARS, no implementation of the MLPCA has commenced" - Rating: "Supervisors PC" - "Palau meets the requirements regarding supervisory powers to monitor and inspect financial institutions; however, it has not utilized these powers to ensure compliance." - "Palau has significant problems with respect to adequate financial and human resources for the FIU and FIC" - "Customs and the BPS should have more technical resources available for their work on money laundering investigations and cross-border cash activities" - "BPS should apply the techniques learned during trainings by initiating more money laundering investigations." ### Guidance, feedback, and examination - Rating: "Guidelines & Feedback NC" - "Palau has not provided its financial institutions, OTC exchange dealers, ARS or DNFBPs with guidelines or STR/CTR forms to assist them in implementing and complying with their respective AML/CFT requirements." - "The competent authorities have not provided feedback to financial institutions or DNFBPs regarding the reporting of suspicious transactions." - "No regulations or guidance notes have been issued and there is no AML/CFT examination process in place." - "No AML/CFT examinations have been conducted to ensure compliance." ### Financial Intelligence Unit (FIU) - Rating: "The FIU PC" - "No STR reporting guidance provided, nor any forms for CTR and STR reporting." - "No provisions for the FIU to seek additional information from reporting entities except by court order." - "No standard operating procedure or written procedure for STR analysis and dissemination." - "STR analysis does not include all available and relevant intelligence." - "A lack of resources undermines the effectiveness of the FIU’s analysis and dissemination work." - "No publicly available FIU annual report nor statistics." - Recommended actions (see Table 2 excerpts): - "Recruit an additional FIU staff member with appropriate financial analysis and/or financial investigation skills to undertake the FIU analysis functions." - "Allocate a dedicated budget to the FIU which would be under the control of the FIU head to cover operational expenses." - "Advise reporting entities formally in writing of their STR reporting obligations and provide guidance on reporting procedures." - "Consider measures to enable the FIU to obtain additional information from reporting entities during the preliminary STR analysis stage without the need for a court order." - "Formalize and enhance the STR analysis and dissemination process by developing written standard operating procedures." - "Make the FIU Annual Report or a sanitized version of it publicly available." - "Seek from the U.S. authorities (FinCEN) copies of all STRs filed by U.S. banks based in Palau to ensure that the FIU has access to all STRs filed by banks in Palau." ### Law enforcement, powers, prosecutions, and investigations - Rating: "Law enforcement authorities LC" - "The police focuses mainly on investigating the predicate offense and less on money laundering." - "The police does not make use, in the course of investigations, of all the powers provided to it by law." - Rating: "Powers of competent authorities LC" - "The legislation does not provide for powers for authorities to compel, search, seize and obtain records during terrorist financing investigations and investigation into underlying predicate offenses" - Recommended action: - "The CID should focus investigations not solely on the predicate offenses but also on the money laundering offenses which would consequently enhance expertise regarding money laundering and financial investigations." - "The law enforcement agencies should make use of the range of powers provided to them by law." - "The authorities should establish an audit trail for STRs between the FIU, BPS, and OAG to enable better insight into the effectiveness of the reporting duty." ### National co-operation and statistics - Rating: "National co-operation LC" - "The MLWG is not functioning in the most effective way" - Rating: "Statistics NC" - "Palau does not regularly review the effectiveness of its AML/CFT system" - "There are no comprehensive statistics on STRs, ML investigations, amounts frozen, seized, confiscated, mutual legal assistance and extradition requests." ### Beneficial ownership of legal persons and arrangements - Rating: "Legal persons–beneficial owners PC" - "Besides the basic registration requirements, there are no additional obligations regarding obtaining information on the ultimate beneficial owners and control structure of corporations, nor does the law provide for any measures on ensuring transparency or preventing unlawful use of legal persons." - "Information on corporations and their beneficial ownership and control structure might not always be adequate, accurate and current." - Rating: "Legal arrangements – beneficial owners PC" - "Besides the basic registration requirements, there are no additional obligations regarding obtaining information on the ultimate beneficial owners and control structure of trusts, nor does the law provide for any measures on ensuring transparency or preventing unlawful use of legal arrangements." - "Information on trusts might not always be adequate, accurate and current." ### International cooperation, conventions, and MLA/extradition - Rating: "International Cooperation Conventions PC" - "Palau has not signed and ratified the Palermo and Vienna Conventions." - "Both the Palermo and Vienna Conventions are not fully implemented." - Rating: "Mutual legal assistance (MLA) PC" - "Due to the dual criminality requirement, Palau’s ability to provide mutual legal assistance may be limited in cases involving any of the predicate offenses not covered by the MLPCA." - "The law does not allow for the confiscation of property of corresponding value to property laundered, instrumentalities intended for use in the commission of a money laundering offense." - "The MLA Act does not provide for a clear and efficient process for the execution of mutual legal assistance requests in a timely way and without undue delay." - "Palau has not considered devising and applying mechanisms for determining the best venue for prosecution of defendants in cases that are subject to prosecutions in more than one country." - "Not all the DNFBPs are covered by the MLPCA and therefore mutual legal assistance may be avoided by invoking legal professional secrecy." - Rating: "Dual criminality LC" - "Absent dual criminality, Palau may not provide mutual legal assistance even with respect to noncoercive measures." - Rating: "MLA on confiscation and freezing PC" - "The law does not allow for the confiscation of proceeds of, instrumentalities used or intended for use in the commission of a predicate offense for money laundering." - "Apart from one MOU for Mutual Legal Assistance with the United States, which is limited in scope to a specific case, Palau has not entered into any bilateral or multilateral arrangements with other countries to coordinate seizing and confiscation actions." - Rating: "Extradition LC" - "Due to the dual criminality requirement, Palau’s ability to allow for extradition may be limited in cases involving any of the predicate offenses not covered by the MLPCA." ### Nine Special Recommendations (summary of key deficiencies) - SR.I Implement UN instruments — Rating: "PC" - "The authorities could not provide assessors with the required information to establish whether or not Palau has signed and ratified the UN Convention on the Suppression of the Financing of Terrorism." - "Palauan law does not allow for the identification, tracing, and freezing of property relating to terrorism financing." - "Implementation of UNSCR 1267 and UNSCR 1373 is incomplete." - SR.II Criminalize terrorist financing — Rating: "LC" - "The terrorism financing offense does not clearly extend to legitimate funds." - "The lack of investigations, prosecutions, and convictions for terrorist financing make it difficult to assess the effectiveness of the legal framework." - SR.III Freeze and confiscate terrorist assets — Rating: "NC" - "Minister of Justice has the power to freeze, through administrative order, funds and assets of persons designated pursuant to Resolution 1267, in practice he has never made use of his powers and there are no procedures in place on how to issue, administer, and enforce such freezing actions." - "There is no designated authority responsible for receiving and issuing designations pursuant to UNSCR 1373." - "No laws and procedures are in place to freeze without delay and prior notice funds and other assets of persons designated pursuant to Resolution 1373." - Multiple procedural and guidance gaps for freezing, de-listing, unfreezing, access to funds under UNSCR 1452, and sanctions against financial institutions for noncompliance. - SR.IV Suspicious transaction reporting — Rating: "PC" - "The reporting of suspicious transactions related to terrorism is not sufficiently covered in the MLPCA." - SR.V International cooperation — Rating: "PC" - "No freezing measures are available for property related to terrorism financing." - "No measures are in place to identify or trace property relating to terrorism financing." - "Palau has not considered devising and applying mechanisms for determining the best venue for prosecutions of defendants in terrorist or terrorist financing cases that are subject to prosecutions in more than one country." - SR.VI AML/CFT requirements for money/value transfer services — Rating: "NC" - "ARS have not been licensed nor identified." - "No regulations issued for ARS." - "ARS are not required to conduct full CDD on transactions as required in Rec. 5." - "No provisions for compliance with FATF Recs. 6, 8, 9, 15 and 22." - "ARS are not required to keep all necessary records of all transactions for 5 years after the transaction is completed nor records of account files and business correspondence." - "No requirement for ARS to file STRs for attempted transactions." - "The reporting of suspicious transactions related to terrorism is not sufficiently covered in the MLPCA ..." - SR.VII Wire transfer rules — Rating: "NC" - "There are no wire transfer requirements for domestic institutions in the MLPCA." - "There is a gap of coverage in the MLPCA Section 6 requirements resulting in foreign wire transfers between $1,000 and $5,000 not being covered by wire transfer requirements." - "There are no risk-based procedures for identifying and handling wire transfers without complete originator information." - "There are no measures to effectively monitor supervised financial institutions compliance with wire transfer rules." - SR.VIII Non-profit organizations — Rating: "PC" - "No review of laws nor the NPO sector." - "No fit and proper test for NPO registration." - "No audited statements required." - "No active monitoring nor supervision." - "No outreach nor awareness raising." - "No designated contact point." - SR.IX Cash Border Declaration & Disclosure — Rating: "LC" - "The exemption for banks, common carriers of passengers or goods, and traveler checks issuers does not fall within the criteria for SR IX." ### Table 2 — Recommended Action Plan (selected highlights) - General - "The revisions to the MLPCA have resulted in a statute with several inconsistencies and duplications. In order to provide for a common set of requirements applicable to the financial and nonfinancial sector and a clearer legal environment, it is strongly suggested that a new law on AML/CFT be drafted taking into account the recommendations provided in this report." - Criminalization and predicate offenses - "Ensure that the following acts and activities constitute predicate offenses to money laundering: in the categories of participation in an organized criminal group and racketeering, illicit arms trafficking, illicit trafficking in stolen and other goods, counterfeiting and piracy of products, environmental crimes, extortion, piracy, and insider trading and market manipulation." - "Amend the money laundering offense to expressly include 'knowingly using criminal proceeds.'" - "Amend the definition of the term 'proceeds of crime' to expressly cover direct as well as converted criminal proceeds." - Terrorist financing and property definitions - "Section 24 CTA to explicitly criminalize the financing of terrorist organizations." - "Amend the definition of the term 'property' to expressly cover legitimate as well as illegitimate funds, corporeal as well as incorporeal property and all assets representing financial value, including claims and interests in such assets." - "The authorities should consider revisiting the fact that the imprisonment period for financing of terrorism offenses is shorter in cases where an act results in the death of a person." - Confiscation, freezing and seizing - "Amend the definition of 'property subject to the offense' to expressly include the laundered property." - "Amend Section 33 MLPCA to expressly allow for the confiscation of all instrumentalities used or intended to be used in the commission of a money laundering offense." - "Amend the law to allow for confiscation of all direct and indirect proceeds of, instrumentalities used or intended for use in the commission of a predicate offense as well as property of corresponding value to such proceeds or instrumentalities." - "Amend the law to provide for freezing of property related to terrorism financing." - Freezing of funds used for terrorist financing (SR.III & R.32) - Detailed recommended actions to establish procedures, designate authority, ensure freezing without court order where required, communicate freezing actions to financial sector, provide guidance to financial institutions, set out de-listing and unfreezing procedures, ensure access under UNSCR 1452, enable challenges to freezing measures, and "Ensure effective monitoring of compliance with the obligations under SR III and provide for sanctions for noncompliance by financial institutions or other entities that may be holding targeted funds or assets." - Law enforcement, prosecution and competent authorities - "Recruit an additional FIU staff member..." - "Allocate a dedicated budget to the FIU..." - "Advise reporting entities formally in writing of their STR reporting obligations..." - "Consider disseminating STR reports to other relevant agencies such as the DRT and Customs, where appropriate and warranted." - "Include in the FIU Annual Report an analysis of the STR predicate crime groups, a breakdown per type of reporting entity, and if possible, an analysis of the techniques used in ML/FT in Palau." *Source: _cr0909 - Section 21 of the MLPCA could constitute tipping* ### 3. Preventive Measures– ### 3. Preventive Measures– ### Financial Institutions - Develop a more formal risk approach once the FIC is appropriately staffed, funded and reorganized to take into consideration its new FIU responsibilities. - Customer due diligence, including enhanced or reduced measures (R.5–8): - Require CDD for customers for occasional transactions that are carried out in several operations that appear to be linked. - Require CDD for customers that carry out occasional transactions that are wire transfers of $1,000 or more. - Require CDD where there is a suspicion of ML or FT. - Require obtaining information on the purpose and intended nature of the business relationship. - Require obtaining information on the provisions regulating the power to bind a legal person or arrangement. - Where customers are legal persons or arrangements, require understanding the ownership and control structure and determining the natural persons that ultimately own or control the customer. - Require ongoing due diligence for all business relationships. - Require enhanced due diligence for higher-risk categories of customers. - Require appropriate risk management systems to determine whether a customer is a PEP, including measures to protect against misuse of account relationships. - Require measures to know cross-border respondent institutions, assess their AML/CFT controls, have an appropriate approval process and document respective AML/CFT responsibilities including safeguards for payable-through-accounts. - Require policies to prevent the misuse of technological development in money laundering or terrorist financing schemes. - OTC exchange dealers: - Require CDD on occasional transactions, identification of legal persons, beneficial owners, obtaining information on the purpose and nature of the relationship, and ongoing due diligence. - Clarify classification of insurance agents as OTC exchange dealers or cash dealers and commence appropriate supervision of the sector under the MLPCA. - Require CDD for all transactions under the MLPCA for the insurance sector, but permit simplified CDD for life insurance with single premiums under $2,500 or with annual premiums under $1,000. - Third parties and introduced business (R.9): - Require financial institutions, credit institutions, cash dealers, and OTC exchange dealers that rely on third parties to take adequate steps to ensure copies of identification data and other relevant documents will be made available from the third parties upon request. - Require financial institutions to satisfy themselves that the third party is regulated and supervised appropriately. - Financial institution secrecy or confidentiality (R.4): - No recommendations or comments. - Record keeping and wire transfer rules (R.10 & SR.VII): - Require financial institutions to maintain all necessary records on transactions for at least five years. - Require records be maintained in a sufficient manner to permit reconstruction of individual transactions. - Require maintenance of identification data, account files and business correspondence for at least five years following termination of an account or business relationship. - Clarify that financial institutions need to ensure all customer and transaction records and information be made available on a timely basis. - Address discrepancy between the institutions listed in Section 13(a) and Section 13(b) MLPCA. - Amend MLPCA to clarify that all wire transfers of $1,000 or more include originator information including name, account number, and address. - For cross-border wire transfers of $1,000 or more, require ordering financial institutions to include full originator information in the message or payment form accompanying the wire transfer. - Require financial institutions to include, at a minimum, the originator’s account information within the message or payment form for domestic wire transfers of $1,000 or more. - Require beneficiary financial institutions to adopt effective risk-based procedures for identifying and handling wire transfers not accompanied by complete originator information. - Implement measures to effectively monitor compliance of financial institutions’ wire transfer rules that implement SR.VII. - Include provisions under the MLPCA for OTC exchange dealers to obtain and verify CDD for transactions under $2,500 and require OTC exchange dealers to keep records for five years after the termination of the business relationship. - Require OTC exchange dealers to ensure all customer and transaction records and information are available on a timely basis to domestic competent authorities. - Monitoring of transactions and relationships (R.11 & 21): - Develop and issue regulations or guidance notes to clarify requirements regarding special monitoring of certain transactions. - Develop procedures to identify and disseminate information to financial institutions, cash dealers or alternative remittance systems about weaknesses in the AML/CFT systems of other countries. - Be able to apply counter-measures to countries that continue not to apply or insufficiently apply FATF Recommendations and conduct transactions with Palau. - Amend the MLPCA to make requirements consistent for credit and financial institutions and cash dealers or alternative remittance systems. - Amend MLPCA to require OTC exchange dealers to examine background and purpose of unusual or unjustified complexity and document findings in writing. - Include OTC exchange dealers under Section 11 of the MLPCA (special monitoring of certain transactions). - Suspicious transaction reports and other reporting (R.13, 14, 19, 25, & SR.IV): - Ensure a clear reporting duty in the MLPCA for all reporting entities to report transactions suspected to be linked or related to, or to be used for terrorism, terrorist acts or by terrorist organizations, or those who finance terrorism. - Require reporting of attempted transactions. - Provide a clear prohibition for tipping-off in the MLPCA despite an existing penalty that can be used to sanction tipping-off. - Clarify Section 21 MLPCA to ensure it does not inadvertently cause tipping-off; clarify who “all parties to the transaction” includes in Section 21(c). - Issue guidelines and forms to report STRs and CTRs to assist financial institutions and DNFBPs to implement and comply. - Provide financial institutions and DNFBPs with adequate and appropriate feedback from competent authorities, including the FIU and the FIC. - Require OTC exchange dealers to file STRs on attempted transactions and suspicions of FT in the MLPCA. - Consider consolidating reporting duty and tipping off provisions into one new AML/CFT law to avoid duplication across sections and laws. - Internal controls, compliance, audit and foreign branches (R.15 & 22): - Enhance MLPCA Section 14 AML/CFT policy requirements to include need for timely access to customer identification data by compliance officers or appropriate staff. - Clarify Section 14(a)(1) MLPCA focus on record retention, detection of unusual and suspicious transactions and reporting obligations, not solely centralization. - Enhance Section 14(c) MLPCA to include information on current ML/FT techniques, new developments, methods and trends; and clear explanation of all aspects of AML/CFT laws and obligations, particularly CDD and suspicious transaction reporting. - Amend MLPCA to ensure insurance agents classified as “cash dealers” or “OTC exchange dealers” are required to develop compliance programs for AML/CFT. - Require screening procedures to ensure high standards when hiring employees. - Enhance MLPCA to ensure future foreign branches and subsidiaries, if approved, observe AML/CFT measures consistent with home-country requirements and FATF Recommendations to the extent local laws permit. - Shell banks (R.18): - Enhance MLPCA to prohibit financial institutions from entering into correspondent banking relationships with shell banks. - Require financial institutions to satisfy themselves that respondent financial institutions do not permit their accounts to be used by shell banks. - Consider enhancing MLPCA to prohibit establishment of shell banks. ### The supervisory and oversight system–competent authorities and SROs - Role, functions, duties and powers (including sanctions) (R.23, 30, 29, 17, 25, & 32): - Provide adequate funding to the FIC to ensure it is properly staffed to undertake AML/CFT supervisory function. - Once properly staffed, FIC should develop and execute an effective AML/CFT supervisory program. - Ensure staff receive appropriate AML/CFT training on an ongoing basis. - FIC should issue guidelines and provide appropriate feedback to assist financial institutions in applying AML/CFT requirements. - Determine whether insurance agents should be classified as “cash dealers” or “OTC exchange dealers” and designate the AML/CFT supervisor accordingly (FIC under Section 14(b) or MOJ under Section 15(b) of the MLPCA). - Designated supervisor should commence awareness raising for insurance agents and a supervisory program including off-site and on-site supervision. - FIC should promulgate regulations providing for remedial provisions as required by Section 14(b) MLPCA. - Money value transfer services (SR.VI): - Amend MLPCA or issue regulations to provide for prohibition of use of fictitious name as required under criterion 5.1; verification of customer identification as required under criterion 5.3; identification and verification of beneficial owners in accordance with criterion 5.5; performance of enhanced due diligence on high-risk customers as required under criterion 5.8; allowance to perform simplified CDD as permitted under criterion 5.9-5.12. - Amend MLPCA or issue regulations to include provisions satisfying FATF Recs. 6, 8, 9, 15, and 22. - Amend Section 12 of MLPCA or issue regulations to require ARS keep all necessary records on transactions for five years following the transaction and account files and business correspondence as required under Rec. 10. - Require ARS to ensure customer and transaction records and information are available on a timely basis to domestic competent authorities. - FIU should issue STR and CTR form templates to ARS. - Require ARS to file STRs if they suspect funds are linked or related to, or to be used for terrorism, terrorist acts or by terrorist organizations or those who finance terrorism. - Require ARS to file STRs for attempted transactions in accordance with criterion 13.3. - Explicitly prohibit ARS from disclosing (“tipping-off”) that a STR or related information is being filed with the FIU, as required under criterion 14.2. - Allow Palau to apply appropriate counter-measures to jurisdictions that do not have adequate systems to deter ML or FT, in accordance with criterion 21.3; issue guidance to ARS to identify those jurisdictions. ### Preventive Measures–Non-financial Businesses and Professions (DNFBPs) - Customer due diligence and record-keeping (R.12): - Broaden list of persons covered by AML/CFT laws to explicitly include DNFBPs operating in Palau; at minimum include lawyers and CSPs when engaging in activities identified in definition of DNFBPs in the FATF Recommendations. - Include CDD and record-keeping requirements for lawyers and CSP activities in AML/CFT legislation or regulations issued by respective regulators. - Require OTC exchange dealers to obtain and verify CDD identification without a threshold and be subject to full requirements of FATF Rec. 5-6, 8-11. - Provide training to lawyers and CSPs on obligations for CDD and record-keeping when AML/CFT laws are amended to include them. - Suspicious transaction reporting (R.16): - Broaden AML/CFT coverage to explicitly include DNFBPs; at minimum lawyers and CSPs per FATF DNFBP definition. - Include requirements for suspicious transaction monitoring and reporting for lawyers and CSP activities in AML/CFT legislation or regulations, in accordance with FATF Rec. 16. - Provide training to lawyers and CSPs on monitoring and reporting obligations when laws are amended. - Regulation, supervision, monitoring, and sanctions (R.17, 24, & 25): - Broaden AML/CFT coverage to explicitly include DNFBPs. - Designate a supervisory and control authority for each DNFBP sector; subject all DNFBPs to oversight for AML/CFT compliance. - Consider amending AML/CFT legislation to require designated regulators to issue AML/CFT regulations covering FATF Recommendations 12, 16, and 24. - Ensure agencies assigned oversight have adequate legal authority, resources and capacity to monitor and enforce compliance. - Conduct AML/CFT awareness-raising training of all operating DNFBPs (lawyers and CSPs). - Other designated non-financial businesses and professions (R.20): - Continue to encourage use of secure transfer systems (ATMs, credit cards) to reduce reliance on cash and consider issuing guidance to banks on thresholds for cash transactions. ### Legal Persons and Arrangements & Non-profit Organizations - Legal Persons–Access to beneficial ownership and control information (R.33): - Implement measures preventing unlawful use of corporations. - Implement measures and mechanisms to ensure information on beneficial owners and control structure of corporations is available in an adequate and accurate manner. - Registrar of Corporations should implement measures to ensure information on corporations and their beneficial ownership and control structure is adequate, accurate and current. - Legal Arrangements–Access to beneficial ownership and control information (R.34): - Implement measures preventing unlawful use of legal arrangements. - Implement measures and mechanisms to ensure information on beneficial owners and control structure of legal arrangements is available in an adequate and accurate manner. - Registrar of Corporations should implement measures to ensure information on trusts is adequate, accurate and current. - Non-profit organizations (SR.VIII): - Undertake a review of laws affecting NPOs to ensure relevancy and consistency. - Review information available on NPOs at the Registrar of Corporations to identify NPOs with international funding or which account for a significant size of the sector. - Commence an audit or spot checking program targeted at higher-risk NPOs identified from the review. - Amend requirement for record keeping to at least five years after completion of any financial transaction, including records of donors and expenditure. - Designate an agency responsible for NPOs not only for registration but for broader AML/CFT matters including as a coordination point for information sharing. ### National and International Cooperation - National cooperation and coordination (R.31 & 32): - Ensure the MLWG meets regularly to ensure further policy cooperation. - Set up mechanisms to ensure structured cooperation between the FIU, CID, and Customs. - The Conventions and UN Special Resolutions (R.35 & SR.I): - Sign and ratify the Palermo and Vienna Conventions. - Sign and ratify all 13 conventions relating to the fight against terrorism, including the Convention for the Suppression of the Financing of Terrorism. - Ensure full implementation of all provisions of the Palermo and Vienna Conventions. - Amend the CTA to allow for identification, tracing, and freezing of property relating to terrorism financing. - Fully implement UNSCRs 1267 and 1373. - Mutual Legal Assistance (R.36, 37, 38, SR.V & 32): - Amend the Criminal Code to include all categories of predicate offenses as listed in the international standard to provide the widest possible range of mutual legal assistance for money laundering and terrorism financing. - Amend the MLPCA to allow for confiscation of proceeds, instrumentalities used or intended for use in commission of a predicate offense for money laundering based on a request by a foreign country. - Amend the MLPCA to allow confiscation of property of corresponding value, instrumentalities intended for use in commission of a money laundering offense, as well as proceeds and instrumentalities used in or intended for use in commission of any predicate offense based on a request by a foreign country. - Put in place a clear and efficient process for execution of mutual legal assistance requests in a timely way and without undue delay. - Allow provision of mutual legal assistance even absent dual criminality if the request relates to noncoercive measures. - Consider mechanisms for determining best venue for prosecutions when cases involve multiple countries. - Consider formal agreements with other countries to coordinate seizing and confiscation actions. - Amend law to allow identification, tracing and freezing of property related to terrorism financing. - Cover all DNFBPs under the MLPCA to allow mutual legal assistance with respect to information held by these entities. - Extradition (R.39, 37, SR.V & R.32): - Amend the Criminal Code to include all categories of predicate offenses as listed in the international standard to allow extradition of individuals involved in money laundering in all cases. - Other Forms of Cooperation (R.40, SR.V & R.32): - Recognize limited experience with providing international cooperation; most requests appear initiated by foreign counterparts. *Source: _cr0909 - 3. Preventive Measures–* ### 7. Other Issues ### 7. Other Issues ### Other relevant AML/CFT measures or issues - Palau has significant problems with respect to adequate financial and human resources for the FIU and FIC - Customs and the BPS should have more technical resources available for their work on money laundering investigations and cross-border cash activities - BPS should apply the techniques learned during trainings by initiating more money laundering investigations. - Palau does not regularly review the effectiveness of its AML/CFT system - There are no comprehensive statistics on STRs, ML investigations, amounts frozen, seized, confiscated, mutual legal assistance and extradition requests. ### Annex 1 — Authorities’ Response to the Assessment - The Republic of Palau Authorities have reviewed the IMF-APG Mutual Evaluation Assessment in detail and agree with a majority of the findings. - Authorities are committed to working on the majority of the items contained in the “Recommended Action Plan to Improve the AML/CFT System”. - Authorities note appreciation for evaluators' understanding of Palau’s limited financial system and recent updates to national legislation, which took prolonged periods and concentrated efforts by the authorities to enable passage through congress. - Updates address a majority of shortcomings identified during the previous assessment in 2003; new aspects such as bulk cash couriers have also been addressed in new legislation being vigorously implemented and enforced. - For a small jurisdiction with limited financial and personnel resources, the Republic believes it is maximizing these limitations to implement the FATF 40 + 9 Recommendations and has experienced success within this context. - The Republic does not agree fully with the importance given by evaluators to some technical deficiencies in the laws (lack of criminalization of organized criminal group and racketeering, illicit arms trafficking, piracy, insider trading and market manipulation) because: - such crimes are nonexistent in Palau at this time and do not pose an immediate or eminent threat; - there are no major organized criminal groups; - possession of arms is highly illegal, therefore trafficking is included; - there have been no instances of piracy; - there are no markets (stock or capital) to be manipulated. - The Republic views these as mere technical deficiencies to be rectified in the future and will continue to work within the current political environment to effectuate needed changes. - Many deficiencies in the Action Plan are currently being addressed by FIC and FIU regulations that will come into effect during 2008, including basic and enhanced CDD requirements and record keeping requirements. - Summary positions: - The Republic of Palau accepts the assessment report and agrees with a majority of the findings. - The Republic agrees to the publication of the assessment report. - The Republic believes a majority of the noted deficiencies will be addressed during the remainder of 2008 and into the first quarter of 2009. ### Annex 2 — List of All Bodies Met During the On-Site Visit - 1. Vice President and Minister of Justice - 2. Members of the Olbiil Era Kelulau (Congress) - 3. Attorney General - 4. Minister of State - 5. Minister of Finance - 6. Money Laundering Working Group - 7. Bankers Association - 8. Banks – local and foreign - 9. Bar Association - 10. Bureau of Public Safety: Division Criminal Investigation and Drug Enforcement, Division of Marine Law Enforcement, Division of Patrol - 11. Bureau of Immigration - 12. Bureau of Revenue, Customs and Taxation - 13. Chambers of Commerce - 14. Chief Justice - 15. Credit Union - 16. Financial Institutions Commission - 17. Finance Company - 18. Financial Intelligence Unit - 19. Foreign Investment Board - 20. Insurance providers - 21. Law office - 22. Money Remittance Operators - 23. Office of Attorney General - 24. Office of the Special Prosecutor - 25. Public Accountant and Auditor - 26. Registrar of Corporations ### Annex 3 — List of Laws and Regulations - 1. Anti-People Smuggling and Trafficking Act - 2. Cash Courier Disclosure Act of 2007 (CCDA) - 3. Child Abuse Act - 4. Controlled Substances Act - 5. Corporations Act - 6. Corporation Regulations - 7. Counter-Terrorism Act of 2007 (CTA) - 8. Criminal Code - 9. Criminal Procedure Code - 10. Executive Order no. 218 on establishing a Money Laundering Working Group - 11. Executive Order no. 246 on transfer of the FIU from the OAG to the FIC - 12. Extradition and Transfer Act of 2001 (Extradition Act) - 13. Financial Institutions Act of 2001, as amended in February 2008 (FIA) - 14. Foreign Investment Act - 15. Free Trade Zone Act of 2003 - 16. Money Laundering and Proceeds of Crime Act of 2001, as amended in December 2007 (MLPCA) - 17. Mutual Legal Assistance Act of 2001 (MLA Act) - 18. Tax Code ### Annex 4 — Copies of Key Laws - 1. Money Laundering and Proceeds of Crime Act of 2001, as amended in 2007 - 2. Counter-Terrorism Act of 2007 - 3. Cash Courier Disclosure Act of 2007 - 4. Mutual Assistance in Criminal Matters Act of 2001 - 5. Extradition and Transfer Act of 2001 (Sections 1-11, 32, 33) - 6. Financial Institutions Act of 2001, as amended in 2007 (Sections 1, 2, 24, 30, 40, 44, 47-49, 61-63, 79) - 7. Criminal Code (Sections 101-104) ### Extracts from the Money Laundering and Proceeds of Crime Act of 2001, as amended in 2007 - Title and enactment context: - SIXTH OLBIIL ERA KELULAU RPPL No. 6-4 - AN ACT to amend Title 17 of the Palau National Code by the addition of Chapter 36 to be called the Money Laundering and Proceeds of Crime Act of 2001. - Subchapter 1. General Provisions - Section 1. Short title: This Act shall be known and may be cited as the Money Laundering and Proceeds of Crime Act of 2001. - Section 2. Purpose: To facilitate the transparency of transactions of credit and financial institutions for the purposes of the detection and suppression of money laundering offenses. - Section 3. Definition of money laundering: - (a) Acts constituting the offense of money laundering: - (1) the conversion or transfer of property for the purpose of concealing or disguising the illegal origin of such property or assisting any person who is involved in the commission of a predicate offense to evade the legal consequences of his or her actions; or - (2) the concealment or disguise of the illegal nature, source, location, disposition, movement, or ownership of property by any person who knows that the property constitutes the proceeds of crime as defined herein; or - (3) the acquisition, possession, or control of property by any person who knows that the property constitutes the proceeds of crime as defined herein. - (b) Knowledge, intent, or purpose is required as an element of the offense of money laundering and may be inferred from objective factual circumstances. - (c) A person need not be convicted of a predicate offense to establish that property was the proceeds of a predicate offense or to be convicted of laundering such proceeds. - (d) The offense of money laundering is not a lesser included offense of any crime. - Section 4. Definitions: (selected definitions reproduced verbatim) - (a) "account" means any facility or arrangement by which a financial institution or cash dealer does any one or more of the following: - (1) accepts deposits of currency; - (2) allows withdrawals of currency or transfers into or out of the account; - (3) pays checks or payment orders drawn on a financial institution or cash dealer by, or collects checks or payment orders on behalf of, a person; - (4) supplies a facility or arrangement for a safety deposit box; - (c) "Attorney General" means the Attorney General of the Republic of Palau; - (d) "authorized officer" means a person or class of persons designated by the Minister of Justice or the Attorney General as an authorized officer; - (e) "cash dealer" or "over the counter exchange dealer" means: - (1) a person who carries on a business of an insurer, an insurance intermediary, a securities dealer or a futures broker; - (2) a person who carries on a business of dealing in bullion, of issuing, selling or redeeming travelers checks, money orders or similar instruments, or of collecting holding and delivering cash as part of a business of providing payroll services; - (3) an operator of a gambling house, bingo parlor, casino or lottery, including but not limited to all forms of internet gambling; or - (4) a trustee, or manager of a unit trust; - (f) "confiscation" means the permanent deprivation of property by final order of the Supreme Court after all appeals are exhausted; - (g) “crime” or “predicate offense” shall be any act committed in the Republic of Palau that is a felony, or any act committed abroad, which constitutes an offense in that country, and that would have constituted a felony had it occurred in the Republic of Palau; - (h) "criminal organization" means any structured association having the aim of committing crimes; - (i) "currency" means any coin or paper that is designated as legal tender and which is customarily used and accepted as a medium of exchange in the country of issue; - (j) "document" means any material on which data is recorded or marked and which is capable of being read or understood by a person, computer system or other device, and any record of information, and includes: - (1) anything on which there is writing; - (2) anything on which there are marks, figures, symbols, or perforations having meaning for persons qualified to interpret them; - (3) anything from which sounds, images or writings can be produced, with or without the aid of anything else; and - (4) a map, plan, drawing, photograph or similar thing; - (k) "financial institution" or "credit institution" means any bank, savings and loan institution, credit union, securities broker or dealer, or an entity or person whose primary business activity includes: - (1) acceptance of deposits and other repayable funds from the public; - (2) lending, including consumer credit, mortgage credit, factoring (with or without recourse) and financing of commercial transactions; - (3) financial leasing; - (4) money transmission services; - (5) issuing and administering means of payment (such as credit cards, travelers checks and bankers drafts); - (6) guarantees and commitments; - (7) trading for their own account or for account of customers in money market instruments (such as checks, bills, certificates of deposit), foreign exchange, financial futures and options, exchange and interest rate instruments, and transferable securities; - (8) underwriting share issues and participation in such issues; - (9) money-brokering; - (10) portfolio management and advice; - (11) safekeeping and administration of securities; - (12) credit reference services; - (13) safe custody services; or - (14) any other entity licensed by the Financial Institutions Commission as a financial institution; - (l) "Financial Intelligence Unit" ("FIU") means the governmental agency created pursuant to section 16; - (m) “FIC” means the “Financial Institutions Commission”; - (n) "instrumentality" means any property used or intended to be used in any manner to commit one or more criminal offenses; - (o) "interest", in relation to property, means: - (1) a legal or equitable estate or interest in the property; - (2) a right, power or privilege in connection with the property; - (p) "money laundering offense" has the meaning provided in section 3 of this Act; - (q) "offender" means any person legally culpable for a criminal offense under the laws of the Republic of Palau as a principal, accessory, conspirator, or co-conspirator, or a person aiding and abetting the principal as such terms are defined pursuant to 17 PNC; - (r) "person" means any natural or legal person; - (s) "proceeding or proceedings" means any procedure conducted by or under the supervision of a judge or judicial officer however described in relation to any alleged or proven offense, or property derived from such offense, and includes an inquiry, investigation, or preliminary or final determination of facts; - (t) "proceeds of crime" means any property or economic advantage derived directly or indirectly from a crime; - (u) "property" means assets, real property, or personal property of every kind, whether movable or immovable, tangible or intangible, and legal documents or instruments evidencing an interest in such assets; - (v) "Supreme Court" means the Supreme Court of the Republic of Palau, and all its divisions; - (w) "unit trust" means any arrangement made for the purpose or having the effect of providing, for a person having funds available for investment, facilities for the participation by the person as a beneficiary under a trust, in any profits or income arising from the acquisition, holding, management or disposal of any property pursuant to the trust. - Subchapter II. Prevention of Money Laundering - Section 5. Report on the use of cash and bearer securities: - (a) Credit or financial institutions shall keep regular reports of all transactions made in cash or bearer securities of at least US $10,000.00, or its equivalent in foreign cash or bearer securities. Such reports are required to have accurate and meaningful originator and recipient information including, but not limited to, name, address and account number. Such information must remain with the transfer or related message through the payment chain. - (b) The US $10,000.00 threshold in subsection (a) may be met either through a single transaction or a series of contemporaneous transactions that in the aggregate are at least US $10,000. - (c) Within 15 days from the date of the transaction, or as otherwise provided by regulation by the FIC, all such reports shall be provided to the FIU and FIC offices in the form and manner as set forth by the FIU or the FIC. - Section 6. Requirement to effect domestic or international transfers of funds via credit or financial institutions. - (a) Any transfer to or from a foreign country of moneys or securities involving a sum of at least US $ 5,000.00 or its equivalent shall be made by or through a credit or financial institution licensed under the laws of the Republic of Palau. - (b) All transfers are required to have and maintain through the payment chain, accurate and meaningful originator and recipient information, including but not limited to, name, address, and account number. - Section 7. Financial institutions and cash dealers to verify customers' identity: - (a) Credit and financial institutions and cash dealers shall be required to verify their customers' identity and address before opening ordinary accounts or passbooks; establishing business relations; taking stocks, bond, or other securities into safekeeping, granting safe-deposit facilities, managing assets, or effecting or receiving payments on behalf of either natural or legal persons. - (b) A natural person's identity and address shall be evidenced by the presentation of either an original official identification document that is unexpired and bears a photograph or a reasonable alternative. A copy thereof shall be taken or other adequate record shall be retained or the verification shall be retained as established by regulation by the FIC. - (c) A legal person shall be identified by the production of its articles of incorporation or charter or its equivalent or any other document establishing that it has been lawfully registered and that it is actually in existence at the time of the identification, a document establishing its address and a notarized document setting forth its directors and, wherever necessary to know the true identity of the customer, its principal owners and beneficiaries. A copy of such documents shall be taken by the credit or financial institution or the cash dealer. - (d) Natural or legal persons authorized to enter into transactions at credit or financial institutions on behalf of third parties shall produce the documents referred to in subsections (b) and (c) above for themselves and the beneficial owners. - (e) If the transaction is not face-to-face, the credit or financial institution or cash dealer shall require a notarized identification from the customer’s local bank. If, however, the local bank is located in, or a branch office of the bank is located in a Non-Cooperative Countries and Territories jurisdiction as that term is defined by the Financial Action Task Force on Money Laundering, the non-face-to-face transaction shall not be completed. - (f) Credit and financial institutions and cash dealers shall, to the extent not already done, verify their existing customer’s identity and address. - (g) Credit and financial institutions and cash dealers shall identify and verify their customers where the institution has doubts about the veracity or adequacy of previously obtained customer identification. - (h) Credit and financial institutions and cash dealers shall not establish any business relationship with or complete any financial transaction for any anonymous person or entity or for any person or entity using a false or fictitious name. - (i) If a prospective or existing customer is either unwilling to provide the documentation required in this section or the credit or financial institution or cash dealer is unable to resolve doubts about the prospective or existing customer’s identity, the credit or financial institution or cash dealer shall not open the account and shall file a suspicious transaction report as specified in section 20 and its accompanying regulations. *Source: _cr0909 - 7. Other Issues* ### Section 8. Licensing and regulations concerning alternative remittance systems. ### Section 8. Licensing and regulations concerning alternative remittance systems ### Licensing and regulatory authority - All persons, and their agents, that provide a service for the transmission of money or value, including transmission through an alternative remittance system or informal money or value transfer system or network (hereinafter referred to as “Alternative Remittance Systems”), shall be required to be licensed by the Financial Institutions Commission of Palau. - The FIC shall promulgate such regulations as may be necessary for the proper licensing and regulation of such Alternative Remittance Systems, and such regulations shall become effective in accordance with 6 PNC § 127. - Persons licensed under other provisions of this Act need not be licensed pursuant to this section. ### Transaction reporting and due diligence requirements for Alternative Remittance Systems - Reporting threshold: - Alternative Remittance Systems shall keep regular reports of all transactions made in cash or bearer securities in excess of US $1,000.00, or its equivalent in foreign cash or bearer securities. - Required report content and message-chain integrity: - Reports are required to have accurate and meaningful originator and recipient information including, but not limited to, name, address and account number. - Such information must remain with the transfer or related message through the payment chain. - Suspicious transaction monitoring: - Alternative Remittance Systems are required to pay special attention to all complex, unusually large transactions, or unusual patterns of transactions, that have no apparent economic or lawful purpose, to examine as far as possible the background and purpose of such transactions, to set forth their findings in writing, and provide such findings to the FIU upon completion. - Applicability of other provisions: - Alternative Remittance Systems are required to follow the requirements of Section 12 of this Act as if they were a financial institution. ### Reporting timelines and form - Within 15 days from the date of the transaction, or as otherwise provided by regulation by the FIC, all reports required by section 8(b) shall be provided to the FIU and FIC offices in the form and manner as set forth by the FIU or FIC. ### Related statutory provisions (cross-references and operational context) - Identification of casual customers: - Casual customers of financial institutions shall be identified for any transaction involving a sum of at least the equivalent of US $10,000.00 (Section 9). - Identification of beneficial owners: - Institutions must seek information by any legal and reasonable means to ascertain beneficial owners; failure to verify after good faith attempts may require termination of the banking relationship (Section 10). - Special monitoring obligations: - Where there are reasonable grounds to suspect criminal proceeds, institutions and Alternative Remittance Systems shall immediately provide information as to origin and destination, purpose, and identities to the FIU; reports must be maintained as specified in Section 12 (Section 11). - Record-keeping: - Credit and financial institutions shall maintain records of customer identification for five years after the account has been closed or the relations with the customer have ended (Section 12(a)). - Records of transactions falling under section 5 and the reports provided for in section 11 shall be retained for five years following execution of the transaction (Section 12(b)). - Communication and confidentiality: - Confidential reports and records may be delivered to the FIU and the Office of the Attorney General upon court order based on probable cause; the FIU or FIC may review records as part of a compliance audit (Section 13). - The Office of the Attorney General, FIU, Ministry of Justice, and related employees and agencies are prohibited from disclosing the existence and content of received confidential information except as provided in sections 17 and 19 (Section 13(d)). ### Sanctions, compliance oversight, and related operational rules - Internal programs and compliance audits: - Credit and financial institutions shall develop written policies and procedures for the prevention of money laundering, including centralization of identity information, designation of compliance officers, on-going training, and internal audit arrangements (Section 14(a)(1)-(4)). - The FIC shall conduct random compliance audits to assess compliance with this Act (Section 14(b)). - Remedial measures and penalties: - Any credit or financial institution that fails to comply with the requirements of sections 5, 7, 8, 9, 10, 11, 12, 13, 14, or 20 are subject to remedial provisions, including fines, as provided for in regulations promulgated pursuant to this Act (Section 14(b)). - Repeated failures may lead to fines, license suspension, or revocation by the FIC after a hearing by the FIC Board (Section 14(b)). ### Interaction with other specialized dealers and reporting thresholds - Over-the-counter exchange dealers (Section 15): - Must submit a declaration of activity to the Minister of Justice and furnish proof of lawful origin of capital before commencing business (Section 15(a)). - Must verify customer identity prior to any transaction involving a sum greater than the equivalent of US $2,500.00 or in transactions of unusual or unjustified complexity, by requiring an unexpired official original photographic identification and taking a copy (Section 15(b)). - Must record all transactions chronologically with customer complete name, nature and amount, retain register for five years after the last transaction (Section 15(c)). ### FIU role and inter-agency cooperation - FIU establishment and duties: - A Financial Intelligence Unit ("FIU") shall be created within the Office of the Attorney General or the Financial Institutions Commission by Executive Order of the President; the FIU may promulgate regulations pursuant to the Administrative Procedure Act, 6 PNC Chapter 1 (Section 16(a)). - The FIU shall receive reports transmitted by persons referred to in sections 11 and 20, analyze reports, and gather additional information from organizations and government ministries and agencies (Section 16(d)). - The FIU shall confirm in writing receipt of reports and of money laundering trends and shall submit an annual report to the President and the Olbiil Era Kelulau upon the effective date of this Act (Section 16(e)-(f)). - Confidentiality, access, and international cooperation: - FIU members must keep information confidential, may not hold elective office or private employment while serving, and may disseminate information to domestic authorities upon suspicion of money laundering, terrorist financing, or a predicate offense (Section 16(b)-(c); Section 17). - The FIU may obtain information and records from public authorities and be granted reasonable access to databases of all public authorities for purposes of this Act (Section 18). - The FIU may enter into reciprocal arrangements with foreign FIUs for exchange of financial intelligence information subject to confidentiality requirements substantially similar to those in this Act (Section 19(a)-(c)). ### Enforcement tools and protections - Reporting obligation and confirmation: - Any credit and financial institutions, financial intermediaries, over-the-counter exchange dealer, cash dealer, alternative remittance system, or other persons subject to sections 5-11 shall report to the FIU transactions referred to in section 11, even if execution could not be deferred or suspicion arose only after completion; they shall also report without delay any information that might confirm or invalidate the suspicion of a violation of section 3 (Section 20(a)). - Reports shall be transmitted by confidential written communication and telephone reports must be confirmed in writing within the shortest reasonable time; the FIU shall immediately acknowledge receipt by confidential written communication (Section 20(b)). - Stop notice and transaction stoppage: - The FIU or the Office of the Attorney General may petition the Supreme Court for an order to stop the execution of a transaction upon an ex parte showing of probable cause; telephonic petitions to a sitting Justice are permitted in exigent circumstances (Section 21(a)-(b)). - The Court’s stop notice order shall defer the execution of the transaction for a period not to exceed 72 hours (Section 21(b)). - To extend stoppage, the Office of the Attorney General or the FIU must notify all parties by facsimile and simultaneously move the Court for an extension not to exceed eight (8) days; the Court shall order an expedited hearing (Section 21(c)). - Liability protections: - No cause of action, suit, or other judicial proceeding for breach of banking or professional secrecy may be instituted against a person who in good faith has carried out a transaction later determined to be suspect or has transmitted information or submitted a report pursuant to this Act (Section 22(a)). - No civil or criminal action or professional sanction may be brought against any person who in good faith transmits information or submits reports pursuant to this Act, even if the investigation or judicial decision do not give rise to a charge (Section 22(b)). - No civil or criminal action may be brought against any person by reason of any material or non-material loss or economic or non-economic damage resulting from the freezing of a transaction or the reporting of suspicious transactions or possible violations (Section 22(c)). *Source: Section 8. Licensing and regulations concerning alternative remittance systems.* ### Section 23. Exemption from liability arising out of the execution of transactions ### _cr0909 - Section 23. Exemption from liability arising out of the execution of transactions ### Exemption from liability arising out of the execution of transactions (Section 23) - (a) If a suspect transaction has been carried out, and unless the Supreme Court has determined that there is probable cause to believe there was a conspiracy with the perpetrator or perpetrators of the money laundering offense, no criminal proceedings in respect of money laundering may be brought against any person who, in connection with his, her, or its trade or occupation, carried out or gave advice regarding the suspect transaction. - (b) The foregoing exemption of liability shall only apply if a person subject to this Act carries out any transaction at the request of the FIU or the Office of the Attorney General acting pursuant this Act. ### Special investigative techniques (Section 24) - The FIU or the Office of the Attorney General may, in the course of an investigation: - (a) monitor bank accounts; - (b) access computer systems, networks, and servers; - (c) place under surveillance or tap telephone lines, facsimile machines, or electronic transmission or communication facilities; - (d) electronically record acts and behavior or conversations; and - (e) inspect communications of notarial and private deeds or of bank, financial, and commercial records. - The Supreme Court may also order the seizure of the aforementioned documents. - The operations in subsections (a)-(e) are permissible only when the aforesaid evidence exists which constitutes probable cause for suspecting that such accounts, telephone lines, computer systems and networks, or documents are or may be used by persons suspected of participating in offenses referred to in section 3. - Absent exigent circumstances, these operations shall be permitted only pursuant to a warrant issued by the Supreme Court. - All investigations and applications for hearing for the above orders shall be filed under seal and kept confidential unless and until charges constituting crimes in the Republic of Palau are brought against suspected parties. Where appropriate, the Court may order that the charges remain under seal until all related investigations have been completed. ### Undercover operations and controlled delivery (Section 25) - No punishment may be imposed on officials competent to investigate the money laundering offenses who, for the sole purpose of obtaining evidence relating to offenses referred to in this Act, perform, in the manner specified herein, acts which might be construed as elements constituting any of the offenses referred to in this act. - The authorization of the Supreme Court shall be obtained prior to any operation as described in sections 13 and 24. - A detailed report in the form of a sworn affidavit by the officer supervising the investigation shall be transmitted to the Supreme Court upon application for any further order to the Court which may include allowing officials charged with investigating the money laundering offenses to carry out such operations, including the delay of, freezing or seizure of money or any other property, until the investigation has been completed and, if necessary, order specific measures for the safekeeping of such property. - Money, assets, and property shall not be frozen for any period in excess three (3) months after seizure or freezing, absent a conviction for the crimes under investigation, without a further application being made to the Supreme Court. - The Supreme Court may extend the seizure or freezing of such assets for one or more additional three-month periods upon a showing of good cause by the Office of the Attorney General or the FIU. ### Disallowance of bank secrecy (Section 26) - Banking or professional secrecy may not be invoked as grounds for refusal to provide information referred to in section 12 or required in connection with an investigation which relates to money laundering and is ordered by or carried out pursuant to an order of the Supreme Court. ### Seizure (Section 27) - Subject to the requirements of 18 PNC, all members of Palau's law enforcement agencies responsible for the detection and suppression of money laundering offenses shall be empowered to seize property connected with the offense under investigation, as well as any evidentiary items that may make it possible to identify such property. ### Provisional measures (Section 28) - The Supreme Court may upon motion of the Office of the Attorney General or the FIU issue a temporary order, at the expense of the national government, freezing capital and financial transactions relating to property of whatsoever nature that is liable to seizure or confiscation under this Act. - The lifting of those measures may be ordered at any time at the request of the Office of the Attorney General or the FIU or upon motion of the beneficial owner to the Supreme Court. - Any capital, property, transactions, money, or other assets seized or confiscated and not adjudicated by the Court to be the fruit of the crime of money laundering may not be seized or confiscated for any period in excess of three (3) months, after a seizure or confiscation, absent a conviction for the crimes under investigation, without a further application being made to the Supreme Court. - The Supreme Court may extend the seizure or confiscation of such assets for one or more additional three-month periods upon a showing of good cause by the Office of the Attorney General or the FIU. ### Money laundering penalties (Section 29) - Any natural person convicted of violating section 3 as a principal, involving proceeds of crime having a total value of less than $2,500.00, shall be fined not more than double the amount laundered or attempted to be laundered, or imprisoned for not more than one year and one day, or both. - Any natural person convicted of violating section 3 as a principal, involving proceeds of crime having a total value of $2,500.00 or more, shall be fined not less than $5,000.00, nor more than double the amount laundered or attempted to be laundered, whichever is greater, or imprisoned for not more than ten years, or both. - Any natural person convicted for being an accessory to a violation of section 3 shall be punished pursuant to 17 PNC 103. - Any natural person convicted of attempting to violate section 3 shall be punished pursuant to 17 PNC 104. - Any natural person found guilty of aiding and abetting a violation of section 3 shall be punished pursuant to 17 PNC 102. - Any natural person found guilty of conspiracy to violate section 3 shall be punished pursuant to 17 PNC 901. ### Penalties applicable to corporate entities (Section 30) - Corporate entities, other than the National Government of the Republic of Palau, on whose behalf or for whose benefit a money laundering offense has been committed by one of their agents or representatives shall be fined in an amount equal to two times the fines specified for natural persons, without prejudice to the conviction of those individuals as perpetrators of the offense or accessories to it. - If a corporate entity’s agents or representatives, on the entity’s behalf or benefit are convicted of three or more offenses under section 3 within a five-year period, such entity may be: - (a) permanently or for a minimum of five years banned from directly or indirectly carrying on the business activities in the Republic of Palau for which they are licensed or conducted at the time of the offense; - (b) ordered to close permanently or for a minimum of five years their premises which were used for the commission of the offense; or - (c) required to publicize the judgment in the press or by radio or television. ### Civil penalties (Section 31) - Any person who fails to comply with sections 5, 6, 7, 8, 9, 10, 12, 14, 15, or 20 shall, upon conviction therefor on the basis of clear and convincing evidence, be subject to a civil penalty not to exceed US $50,000.00 upon application by the Office of the Attorney General or the FIU. - The rules governing adjudicative proceedings under the Administrative Procedure Act, 6 PNC Chapter 1, shall not apply to this section. ### Penalties for other offenses (Section 32) - (a) A penalty of not more than two years' imprisonment or a fine not to exceed US $10,000.00 shall be imposed on: - (1) persons and directors or employees of organizations that carry out or advise on operations involving deposits, exchange operations, investments, conversions, or any other movements of capital, and in particular to credit and financial institutions and financial intermediaries, who knowingly disclose, to the owner of the sums or to the principal of the transactions specified in that section, a report which they are required to make or the action taken on it as specified in sections 11, 13, 20, and 25; - (2) anyone who knowingly destroys or removes registers or records which are maintained pursuant to sections 11, 12, or 15; - (3) anyone who under a false identity performs or attempts to perform any of the operations specified in sections 5, 6, 7, 8, 9, 10, 11 or 15; - (4) anyone who, having learned by reason of his or her trade or occupation of an investigation into a case of money laundering, knowingly discloses that fact, by any means, to the person or persons to whom the investigation relates; - (5) anyone who knowingly communicates deeds or records specified in section 24(e) to the FIU or Office of the Attorney General or to the officials competent to investigate the offenses, knowing such deeds or records to contain material errors or omissions, without informing them of that fact; - (6) anyone who upon a reasonable suspicion fails to report, pursuant to section 20, in cases where the circumstances of the transaction admit the conclusion that the money was derived from one of the offenses referred to in section 20. - (b) Persons found guilty of any offense or offenses set forth in subsection (a) may also be banned permanently or for a minimum of five years from pursuing the trade or occupation which provided the opportunity for the offense to be committed. ### Confiscation (Section 33) - (a) In the event of a conviction for actual or attempted money laundering, an order shall be issued by the Supreme Court for the confiscation of the property forming the subject of the offense, including income and other benefits obtained therefrom, against any person to whom they may belong, unless the owner can: - (1) establish the absence of any connection between such property, income, and other benefits and the predicate or money laundering offense; and - (2) establish that the owner was a bona fide purchaser for value acquired the property in return for the provision of services corresponding to its value or the owner did not acquire the property on any other legitimate grounds. - The confiscation order shall specify the property with particularity and contain the necessary details to identify and locate it. - (b) In the event of a conviction for actual or attempted money laundering, an order may additionally be issued for the confiscation of the property of the convicted offender in an amount equal to the enrichment obtained by the convicted offender during a period of three years preceding the conviction unless the convicted offender can establish the absence of any connection between such enrichment and the predicate or money laundering offense. - The confiscation order shall specify the property with particularity and contain the necessary details to identify and locate it. ### Confiscation of property of criminal organizations (Section 34) - If the Supreme Court has determined beyond a reasonable doubt that an individual convicted of an offense under this Act is a member of a criminal organization, the property over which a criminal organization has power of disposal shall be confiscated unless the lawful origin of the property is established by the organization. ### Avoidance of certain legal instruments (Section 35) - Any instrument, the purpose of which is to fraudulently convey property and keep it from confiscation, shall be voidable upon a determination by the Supreme Court that the instrument has been done for fraudulent purposes. ### Disposal of confiscated property (Section 36) - (a) Confiscated property and proceeds under this Act shall accrue and be forfeit to the Republic of Palau, which property and proceeds shall be delivered to the general fund of the Republic after the auction sale of such property. Said confiscated property shall remain encumbered, up to its value, by any rights in rem lawfully established in favor of third parties. - (b) In cases where confiscation is ordered under a judgment by default, the confiscated property shall accrue to the Republic of Palau and be liquidated in accordance with law. However, if the Supreme Court, ruling on an application to set aside such judgment, acquits the person prosecuted, it shall order that the Republic of Palau pay full and fair restitution for the value of the confiscated property, unless it is established beyond a reasonable doubt that such property is the proceeds of crime committed in Palau. The Republic of Palau shall not be liable for any exemplary or consequential damages as a result of the sale of confiscated property. ### Rulemaking and cultural exemptions (Sections 37–38) - Section 37: The Administrative Procedure Act, 6 PNC Chapter 1, shall apply for all rules and regulations promulgated under this Act, unless otherwise specified. - Section 38: This Act shall not apply to bona fide transfers or exchanges of property pursuant to recognized cultural traditions and customs of Palau. *Content extracted from: _cr0909 - Section 23. Exemption from liability arising out of the execution of transactions* ### Section 6. ### Section 6. ### Definitions (selected, as provided) - (g) “delivery system” means, with respect to biological weapons: - (1) any apparatus, equipment, device, or means of delivery specifically designed to deliver or disseminate a biological agent, toxin, or vector; or - (2) any vector. - (h) “engage(s) in” with respect to terrorist acts, terrorism offenses, and terrorism, means in an individual capacity or as a member of an organization: - (1) to perpetrate, commit, or carry out or to incite to commit or carry out; - (2) to threaten, attempt, solicit, or conspire to carry out or commit; - (3) to prepare or plan; - (4) to gather information on potential targets for; - (5) to solicit, collect or provide property or other things of value, with the knowledge or intention that the property or other things of value will be used: - (i) for terrorism; or - (ii) by a terrorist organization; - (6) to solicit, recruit, or train any person: - (i) to engage in terrorism; - (ii) to engage in conduct otherwise described in this section or prohibited by this Act; or - (iii) for membership in a terrorist organization; or - (7) to commit or carry out an act that the actor knows, or reasonably should know, affords material support, including a safe house, transportation, communications, property, transfer of property or other material benefit, false documentation or identification, weapons, including, without limitation, chemical, biological, or radiological weapons, explosives, or training: - (i) for terrorism; - (ii) to any individual who the actor knows, or reasonably should know, engages in terrorism; or - (iii) for a terrorist organization. - (i) “fixed platform” means an artificial island, installation, or structure permanently attached to the seabed for the purpose of exploration or exploitation of resources or for other economic purposes; - (j) “foreign national” means a natural person who is neither a citizen or a national of the Republic of Palau; - (k) “foreign State” means: - (1) any country other than the Republic of Palau; and - (2) every constituent part of such country, including a territory, dependency or protectorate which administers its own laws; - (l) “foreign government” means any foreign State or nation, or any agency, instrumentality or political subdivision of any such government or nation, whether or not it is engaging in legal activities or is operating legally or in a lawful manner. - (m) “freeze” means to prohibit the transfer, conversion, disposition, or movement of funds or other assets on the basis of, and for the duration of the validity of, an action initiated by a competent authority or a court under a freezing mechanism. - (n) “property” means real and personal property of every kind whatsoever. - (o) “in flight” means, with respect to aircraft, at any time from the moment when all the external doors are closed following embarkation until the moment when any such door is opened for disembarkation; provided, however, in the case of a forced landing, the flight shall be deemed to continue until the competent authorities take over the responsibility for the aircraft and for persons and property on board; - (p) “in service” means, with respect to aircraft, from the beginning of the pre-flight preparation of the aircraft by ground personnel or by the crew for a specific flight until twenty-four hours after any landing; and, the period of service shall, in any event, extend for the entire period during which the aircraft is in flight; - (q) “international terrorism conventions” means and includes the listed conventions (13 items), including: - (1) “Convention on Offences and Certain Other Acts Committed on Board Aircraft”, Tokyo, September 14,1963 (deposited with the International Civil Aviation Organization); - (2) “Convention for the Suppression of Unlawful Seizure of Aircraft”, The Hague, December 16, 1970 (deposited with the International Civil Aviation Organization); - (3) “Convention for the Suppression of Unlawful Acts against the Safety of Civil Aviation”, Montreal, September 23,1971 (deposited with the International Civil Aviation Organization); - (4) “Convention on the Prevention and Punishment of Crimes against Internationally Protected Persons, including Diplomatic Agents”, adopted December 14,1973 (deposited with the Secretary-General of the United Nations); - (5) “International Convention against the Taking of Hostages”, adopted December 17, 1979 (deposited with the Secretary-General of the United Nations); - (6) “Convention on the Physical Protection of Nuclear Material”, opened March 3, 1980 (deposited with the Director General of the International Atomic Energy Agency); - (7) Protocol for the Suppression of Unlawful Acts of Violence at Airports Serving International Civil Aviation, Montreal, February 24, 1988; - (8) “Convention for the Suppression of Unlawful Acts against the Safety of Maritime Navigation”, Rome, March 10, 1988; - (9) “Protocol for the Suppression of Unlawful Acts against the Safety of Fixed Platforms located on the Continental Shelf”, Rome, March 10,1988; - (10) “Convention on the Marking of Plastic Explosives for the Purpose of Detection”, Montreal, March 1, 1991; - (11) “International Convention for the Suppression of Terrorist Bombings”, adopted December 15,1997; - (12) “International Convention for the Suppression of the Financing of Terrorism”, adopted December 9,1999; and - (13) Any conventions regarding terrorism to which Palau becomes a State Party. - (r) “internationally protected person” means and includes: - (1) a Head of State, including any member of a collegial body performing the functions of a Head of State under the constitution of the State concerned, a Head of Government or a Minister of Foreign Affairs, whenever any such person is in a foreign State, as well as members of such person's family who accompany him or her; - (2) any representative or official of the Republic of Palau or of a foreign State, or any official or other agent of an international organization of an intergovernmental character who, at the time when and in the place where a crime against such person, the person's official premises, private accommodation or means of transport is committed, is entitled pursuant to international law to special protection from any attack on his or her person, freedom or dignity, as well as members of such person's family forming part of the person's household. - (s) “infrastructure facility” means any publicly or privately owned facility providing or distributing services for the benefit of the public, such as water, sewage, energy, fuel or communications; - (t) “key component of a binary or multi-component chemical system” means, with respect to precursors and chemical weapons, the precursor which plays the most important role in determining the toxic properties of the final product and reacts rapidly with other chemicals in the binary or multi-component system; - (u) “Minister of Justice” means the Minister of Justice of the Republic of Palau, and includes any person to whom the Minister of Justice delegates authority to carry out the duties and responsibilities of the Minister of Justice established by this Act; - (v) “nuclear material” has the same meaning as defined in the Convention on the Physical Protection of Nuclear Material; - (w) “Palau” means the Republic of Palau, and every part of the territory of Palau, including the marine space and the territorial sea and the airspace above the territory of Palau, and also includes all governments of Palau; - (x) “person” means and includes both natural and legal persons and any foreign government or nation or any agency, instrumentality or political subdivision of any such government or nation, whether or not it is engaging in legal activities or is operating legally and in a lawful manner; - (y) “place of public use” means those parts of any building, land, street, waterway or other location that are accessible or open to members of the public, whether continuously, periodically or occasionally, and encompasses any commercial, business, cultural, historical, educational, religious, governmental, entertainment, recreational or similar place that is so accessible or open to the public; - (z) “plastic explosive” means an explosive material in flexible or elastic sheet form formulated with one or more high explosives which in their pure form has a vapor pressure less than 10-4 Pa at a temperature of 25ºCelsius, is formulated with a binder material, and is as a mixture malleable or flexible at normal room temperature; - (aa) “precursor” means, with respect to chemical weapons, any chemical reactant which takes part at any stage in the production by whatever method of a toxic chemical. This includes any key component of a binary or multi-component chemical system; - (bb) “proceeds” means any property derived from or obtained, directly or indirectly, through or from terrorism; - (cc) “public transportation system” means all facilities, conveyances, and instrumentalities, whether publicly or privately owned, that are used in or for publicly available services for the transportation of persons or cargo; - (dd) “purpose not prohibited by law” with respect to chemical weapons, means: - (1) industrial, agricultural, research, medical, pharmaceutical, or other peaceful purposes; - (2) protective purposes directly related to protection against toxic chemicals and to protection against chemical weapons; - (3) military purposes of Palau that is not connected with the use of a chemical weapon or that is not dependent on the use of the toxic or poisonous properties of the chemical weapon to cause death or other harm; and - (4) law enforcement including domestic riot control purposes; - (ee) “ship” means a vessel of any type whatsoever not permanently attached to the sea-bed, including dynamically supported craft, submersibles, or any other floating craft; - (ff) “serious bodily injury” means physical pain, illness or any impairment of physical condition that creates a substantial risk of death or which causes serious, permanent disfigurement, or protracted loss or impairment of the function of any bodily member or organ; - (gg) “serious offense” means any act committed in Palau that is punishable by a period of imprisonment of more than one year and any act committed abroad, which constitutes a felony if it had been committed in the Palau.; - (hh) “state or government facility” means any permanent or temporary facility or conveyance that is used or occupied by representatives of a country, members of government, the legislature, or the judiciary, or by officials or employees of a country or any other public authority or entity, or by employees or officials of an intergovernmental organization in connection with their official duties; - (ii) “substantial property damage” means damage in an amount exceeding $10,000; - (jj) “terrorism” means terrorism offenses and terrorist acts; - (kk) “terrorism offense” means: - (1) any crime established by this Act; - (2) any crime established by the Palau National Code and declared to be a terrorism offense by the Olbiil Era Kelulau; - (3) any crime established by an international terrorism convention; - (4) any crime recognized under international humanitarian law as a terrorism offense; and - (5) any crime established under the law of a foreign State, where such crime, if committed in Palau, would constitute a terrorism offense under the Palau National Code; - (ll) “terrorist” means a person who engages in terrorism; - (mm) “terrorist act” means any act that is intended, or by its nature or context can be reasonably regarded as intended, to advance political, ideological, or religious causes, by intimidating the public or any portion of the public, or by compelling or attempting to compel a government or an international or regional organization to do or refrain from doing any act, and: - (1) involves the seizing or detaining, and threatening to kill, injure, harm, or continue to detain, another person; - (2) endangers the life of any person; - (3) creates a risk to the health or the safety of the public, or to any portion of the public; - (4) endangers the national security or national defense of any country; - (5) involves substantial damage to property; - (6) involves the highjacking, seizure or sabotage of any conveyance (including an aircraft, vessel, ship, or vehicle), or of any fixed platform attached to the continental shelf; - (7) involves any act that is designed to disrupt or destroy an electronic system, including, without limitation: - (i) an information system; - (ii) a telecommunications system; - (iii) a financial system; - (iv) a system used for the delivery of essential government services; - (v) a system used for, or by, an essential public utility; or - (vi) a system used for, or by, a transport system; or - (8) involves any act that is designed to disrupt the provision of essential emergency services such as the police, civil defense, or medical services; - (nn) “terrorist organization” means a group composed of two or more persons, whether organized or not, that engages in terrorism; - (oo) “toxic chemical” means any chemical which through its chemical action on life processes can cause death, temporary incapacitation, or permanent harm to humans or animals, and includes all such chemicals, regardless of their origin or of their method of production, and regardless of whether they are produced in facilities, in munitions, or elsewhere; - (pp) “toxin” means the toxic material of plants, animals, microorganisms, viruses, fungi, or infectious substances, or a recombinant molecule, whatever its origin or method of production, including: - (1) any poisonous substance or biological product that may be engineered as a result of biotechnology produced by a living organism; or - (2) any poisonous isomer or biological product, homolog, or derivative of such a substance; - (qq) “vector” means, with respect to delivery systems and biological weapons, a living organism, or molecule, including a recombinant molecule, or biological product that may be engineered as a result of biotechnology, capable of carrying a biological agent or toxin to a host; - (rr) “weapon of mass destruction” means, any: - (1) chemical weapon or any other weapon that is designed or intended to cause death or serious bodily injury through the release, dissemination, or impact of toxic or poisonous chemicals, or its precursors; - (2) biological weapon, or any other weapon involving a disease organism; or - (3) nuclear material, weapon, or device, and any other weapon that is designed to release radiation or radioactivity at a level dangerous to human life. ### Application, jurisdiction, and enforcement (Section 4, summarized) - Ministry of Justice shall have primary enforcement authority for this Act. - Palau shall have and take jurisdiction over and prosecute any crime established by this Act when the offense: - (1) is committed in Palau; - (2) is committed by a Palau citizen or national; - (3) is committed on board an aircraft or ship: - (a) registered under Palau national law at the time the offense was committed; or - (b) operating under or flying the Palau flag; - (i) which lands in the territory of the Republic of Palau with the alleged offender still on board; or - (ii) leased or chartered without crew to a lessee who has its principal place of business in Palau, or who is a habitual resident of Palau; - (4) is committed against or on board a fixed platform while it is located on Palau's continental shelf; - (5) was directed towards or resulted in the carrying out of a crime against a Palau citizen or national, or during its commission a Palau citizen or national is seized, threatened, injured or killed; - (6) was directed towards or resulted in the carrying out of a crime against the government of Palau or a Palau government facility abroad, including diplomatic or consular premises of Palau; - (7) was directed towards or resulted in a crime committed in an attempt to compel Palau to do or abstain from doing any act; - (8) was committed by a stateless person whose habitual residence is in Palau; or - (9) is committed in a foreign state by an alleged offender who is present in Palau, and the alleged offender is not extradited to a foreign State that has established jurisdiction over the offense or the alleged offender. - Application of provisions implementing international terrorism conventions or protocols shall conform to the requirements, exclusions, and jurisdictional requirements of the particular convention or protocol. ### Terrorist acts (Section 5) - It shall be a crime, punishable by the penalties established by section 6, for any person to knowingly, by any means, directly or indirectly, engage in a terrorist act. ### Criminal penalties; complicity; inchoate offenses; limitation and detention (Section 6) - (a) Crimes established by this Act resulting in the death of any natural person: - punishable by a minimum term of imprisonment of 10 years and a maximum term of life, and unless otherwise expressly provided, a maximum fine of $1,000,000. - All other crimes established by this Act, unless otherwise expressly provided: - punishable by a minimum term of imprisonment of 20 years and a maximum term of life, and unless otherwise expressly provided, a maximum fine of $1,000,000. - The Court shall not place on probation any person convicted of such a crime; nor shall the term of imprisonment imposed run concurrently with any other term of imprisonment. - (b) In lieu of the amount of the fine otherwise authorized by this Act, and in addition to any term of imprisonment, a defendant who derived profits or other proceeds from a crime established by this Act may be fined not more than twice the gross profits or other proceeds, where the profits or proceeds from the offense exceed the maximum assessable fine. - (c) A person also commits a crime, punishable by the same penalties established by subsection (a), if that person knowingly: - (1) attempts or conspires to commit; - (2) participates as an accomplice in; or - (3) organizes or directs others to commit; - any crime established by this Act. - (d) Any person who threatens to commit any crime established by this Act shall, upon conviction, be subject to a minimum term of imprisonment of five years and a maximum term of life, or a fine of not more than $250,000, or both. - (e) Time limitation and detention: - There shall be no limitation of time on when a prosecution for a crime established by this Act can be brought. - In situations of urgency, where there are reasonable grounds to believe that detention of any person is necessary to prevent terrorism from occurring, or to prevent any person from interfering with an investigation relating to suspected terrorism, any law enforcement officer, immigration officer, or customs official in Palau shall be authorized to detain such person for a period of 48 hours for purposes of investigation; provided, however, such period of detention may be extended by Court order for an additional seven (7) days, without the filing of criminal charges against such person. - (f) The Court, in imposing sentence on any person convicted of a terrorism offense, shall order, in addition to any other sentence imposed, that the person forfeit to Palau all property described in Section 7. *Source: _cr0909 - Section 6.* ### Section 7. Criminal forfeiture ### Section 7. Criminal forfeiture ### Scope of criminal forfeiture - Any person convicted of a terrorism offense shall be required to forfeit to Palau, irrespective of any other provision of law: - (1) any property used or intended to be used by a person involved in the offense; - (2) any property constituting or derived from proceeds the person obtained, directly or indirectly, from the offense; and - (3) any property used in any manner or part, to commit, or to facilitate the commission of, such offense. - Such a forfeiture shall be ordered by the Supreme Court when any such person is convicted upon a finding supported by a preponderance of the evidence that any particular property is within one or more of the categories in Section 7(a) (1), (2), or (3). - Weapons of mass destruction, plastic explosives, and nuclear material shall be seized, confiscated, and forfeited to Palau; and the Minister of Justice shall provide for their destruction or other appropriate disposition. ### When specific property cannot be identified - When the specific property cannot be identified, found, or recovered, the Court shall confiscate property of equal value from the owner of the property in question. ### Voidable safeguarding instruments and transfers - Any instrument executed free of charge or for a consideration inter vivos or mortis causa, the purpose of which is to safeguard property from confiscation measures as provided in this section, is void. - In the case of the nullification of a contract involving payment, the buyer is reimbursed only for the amount actually paid. - The Court may set aside any conveyance or transfer of any property which was seized, forfeited, or is subject to seizure or forfeiture under Sections 7, 9 or 10 of this Act, unless the conveyance or transfer was made for valuable consideration to a person acting in good faith and without notice. ### Emergency seizure and temporary orders - For the purposes of forfeiture proceedings under this section, a temporary restraining order and seizure warrant may be entered upon application of the Attorney General without notice or opportunity for a hearing when an information or complaint has not yet been filed with respect to the property, where: - there is probable cause to believe that the property with respect to which the order is sought would, in the event of conviction, be subject to forfeiture under this section; and - exigent circumstances exist that place the life or health of any person in danger. ### Third-party rights and liabilities - The provisions of this section shall be implemented without prejudice to the property rights of third parties acting in good faith. - The owner or possessor of any property seized under this section shall be liable to Palau for any expenses incurred incident to the seizure, including any expenses relating to the handling, storage, transportation, and destruction or other disposition of the seized property. *Source: Counter-Terrorism Act of 2007 — Section 7. Criminal forfeiture* ### Section 19. Transfer of persons ### Section 19. Transfer of persons ### Transfer of detained persons - Transfer is authorized where countries agree on the conditions for any person detained or serving a sentence in the territory of Palau or a foreign State whose presence is requested in Palau or in a foreign State for purposes of identification, testimony, or otherwise providing assistance in obtaining evidence for the investigation or prosecution of a terrorism offense. - Transfers shall be carried out pursuant to and in accordance with requirements of the Extradition and Transfer Act of 2001, Chapter 10 of Title 18 of the Palau National Code for convicted persons, whether or not the person to be transferred has already been convicted of an offense. ### Other procedural provisions linked to transfer - Implementing regulations may be prescribed by the Minister of Justice as reasonably necessary to implement the provisions of this Act. --- ### Section 20. Other rights, obligations and responsibilities not affected; no liability for actions taken in good faith ### Preservation of other legal obligations - Nothing in this Act shall affect other rights, obligations, and responsibilities of Palau and individuals under international law, specifically including the purposes of the Charter of the United Nations, the Compact of Free Association with the United States, international humanitarian law and other relevant conventions. - Nothing in this Act entitles Palau or any other country to undertake in the territory of the other the exercise of jurisdiction or performance of functions that are exclusively reserved for the authorities of that country by its domestic law. ### Immunity for good-faith actions - Persons shall be immune from suit and civil liability for actions taken in good faith pursuant to and in accordance with this Act. --- ### Section 21. Resolution of disputes ### Dispute resolution mechanism - Any dispute between Palau and any State Party to an international terrorism convention concerning the interpretation or application of this Act relating to application of the convention shall be resolved in accordance with the provisions of the relevant international terrorism convention. --- ### Subchapter II — Suppression of Financing of Terrorism ### Section 23. Purpose - Purpose: create offenses relating to the financing of terrorism and give effect to the “International Convention for the Suppression of the Financing of Terrorism” (Palau acceded November 14, 2001), United Nations Security Council Resolution 1373, and the “Special Recommendations on Terrorist Financing” issued by the Financial Action Task Force on Money Laundering. ### Section 24. Financing of terrorism prohibited - Offense definition: - Any person who, by any means, directly or indirectly, or as an accomplice, solicits, provides or collects property, or provides financial or other services, or organizes or directs others to solicit, provide or collect property or provide financial or other services, with the intention that they should be used or in the knowledge that they are to be used, in full or in part: - (1) for Terrorism; - (2) for the benefit of persons who engage in Terrorism, or for the benefit of entities owned or controlled, directly or indirectly, by persons who engage in Terrorism; or - (3) for the benefit of persons or entities acting on behalf of or at the direction of any person referred to in subsection (a)(2); - Such conduct commits the crime "Financing of Terrorism", punishable by the penalties established by Section 6 of this Act. - Causation and mens rea: - It is not necessary that the property was actually used to commit or carry out a terrorism offense, or terrorist act. - No political or similar considerations may justify commission of the offenses. - Liability of legal persons and foreign governments: - Legal persons and any foreign government shall be liable in the same manner and to the same extent as any natural person for the offense of Financing of Terrorism. - The maximum assessable fine for legal persons and foreign governments shall be increased by ten times the amount assessable in the case of a natural person. - Establishing state of mind: - For legal persons, it is sufficient to show that a director, officer, or agent who engaged in the conduct within the scope of his or her actual apparent authority, had that state of mind. - For foreign governments, it is sufficient to show that its agent engaged in the conduct within the scope of his or her apparent authority, and had that state of mind. - Conduct by directors, officers, agents, or others at their direction or consent is deemed to have also been engaged in by the legal person or foreign government. - Additional penalties for legal persons: - (1) banned for a minimum period of five years from directly or indirectly carrying on certain business activities within the Republic of Palau; - (2) ordered to close permanently their premises that were used for the commission of the offense; - (3) dissolved if they were created for the purpose of committing the offense; and - (4) required to publicize the judgment in the press or any other audiovisual media. ### Section 25. Prevention of terrorism financing through nonprofit entities - Denial of charitable or non-profit status: - No corporation, business, enterprise, partnership, association, or entity shall be granted charitable or non-profit status in Palau where there are reasonable grounds to believe that any property solicited, collected, held, used, or owned by such entity may be diverted to a terrorist or a terrorist organization. - Donation recording requirements: - Any donation made to a non-profit corporation, association, or organization in an amount equal to or greater than $5,000, or any greater amount to be established pursuant to regulations issued by the Financial Intelligence Unit, shall be recorded in a record maintained for the purpose by the non-profit association or organization, containing the full details of the donor, the date, the nature, and the amount of the donation. - The record shall be kept for a period of 3 years and shall be produced at the request of the Financial Intelligence Unit. - When the donor of an amount in excess of that amount wishes to remain anonymous, the record may omit the identification, but the association or organization is required to disclose his or her identity at the request of the Financial Intelligence Unit. - Cash donation reporting: - Any cash donation in an amount equal to or greater than $10,000 or any sum established by regulation as promulgated by the Financial Intelligence Unit shall be reported to the Attorney General and the Financial Intelligence Unit pursuant to the procedures as set forth by regulation. - A donation of any amount, whether cash or otherwise, shall be reported to the Attorney General and the Financial Intelligence Unit where the donation is suspected of being related to a terrorist operation, the financing of terrorism, or the proceeds of a crime as that term is defined in the Money Laundering and Proceeds of Crime Act. - Penalties for violations: - (1) a fine of no more than $10,000; - (2) a temporary ban on the activities of the association or organization of no more than 2 years; or - (3) the dissolution of the association or organization. ### Section 26. Seizure and detention of terrorist related property - Seizure authority: - Any Palau law enforcement officer or customs official may seize and, in accordance with this section, detain, any property that the officer or official has probable cause to believe was derived from or intended for terrorism, financing of terrorism or terrorist organizations, including property being imported into or exported from Palau. - Freezing/seizing of terrorist organization property: - Property of, or intended for, terrorist organizations shall be frozen, seized, and detained where the organization has been designated as a terrorist organization by the United Nations Security Council, or by the Minister of Justice pursuant to regulations promulgated pursuant to this Act, or where there is probable cause to believe that the entity involved is a terrorist organization. - Detention time limits and judicial review: - Property detained shall not be detained for more than forty-eight (48) hours after seizure, unless a judge of the Supreme Court grants an order of continued detention for a period not exceeding 3 months from the date of seizure, upon being satisfied that: - (1) there is probable cause to believe that the property was derived from terrorism, or is intended by any person for use in the commission of a terrorism offense or for a terrorist act; and - (2) the continued detention is justified while: - (i) its origin or derivation is further investigated; or - (ii) consideration is given to the institution in Palau or elsewhere of criminal proceedings against any person for an offense with which the property is connected; - Provided, however, upon request by the person from whom the property was seized and detained, the Court shall grant a hearing to determine if the order of continued detention is warranted. - A judge of the Supreme Court may subsequently order, after hearing, with notice to all parties concerned, the continued detention of the property if satisfied of the matters mentioned in subsection (c), but the total period of detention shall not exceed two (2) years from the date of the order. - Release restrictions: - Subject to subsection (f), property detained may be released in whole or in part to the person on whose behalf the property was imported or exported: - (1) by order of a judge of the Supreme Court that continued detention is no longer justified, upon application by or on behalf of that person and after considering any views of the Attorney General to the contrary; or - (2) by an authorized officer or customs official, if satisfied that the continued detention is no longer justified. - No property detained shall be released where an application is made under this Act or other Palau national law for the purpose of: - (1) the confiscation and forfeiture of the whole or any part of the property; - (2) the property’s restraint pending determination of liability to confiscation and forfeiture; or - (3) proceedings are instituted in Palau, or elsewhere, against any person for a terrorism offense with which the property is connected unless and until the proceedings relating to the relevant application or the proceedings for the offense, as the case may be, have been concluded. - Confiscation and forfeiture: - Property seized pursuant to this section shall be subject to confiscation and forfeiture pursuant to Sections 7 and 10 of this Act. --- ### Subchapter III — Cross-Border Movement of Terrorists ### Section 27. Terrorists inadmissible - Categories of inadmissible persons (inadmissible to Palau for purposes of immigration, temporary visa, or otherwise, except for prosecution or extradition for a terrorist offense): - (1) A foreign national: - (i) convicted of a terrorism offense; or - (ii) who admits to having engaged in terrorism; - (iii) as to whom there is probable cause to believe such person has engaged in terrorism; - (iv) who the Minister of Justice knows, or has reasonable ground to believe, is engaged in or is likely after entry, to engage in terrorism; - (v) who has used his or her position of prominence within any country to endorse or espouse terrorism, or to persuade others to support terrorism or a terrorist organization, in a way that the Minister of Justice has determined undermines Palau's efforts to reduce or eliminate terrorism; - (vi) who is a representative a terrorist organization, specified as such in regulations promulgated by the Minister of Justice or designated as a terrorist organization by the United Nations Security Council; or - (vii) who is a representative of a political, social, or other similar group whose public endorsement of terrorism, or terrorist organizations, the Minister of Justice has determined undermines Palau's efforts to reduce or eliminate terrorism; - (2) A foreign national, who the Minister of State, after consultation with the Minister of Justice, determines has been associated with a terrorist organization or terrorism and intends, while in Palau, to engage solely, principally, or incidentally in activities that could endanger the welfare, safety, or security of Palau. - Except as provided, foreign nationals inadmissible under this section shall be ineligible to be admitted to Palau for any purpose, except when necessary for prosecution or extradition for a terrorism offense. Title 13 of the Palau National Code is amended to conform to this section. ### Section 28. Reports of cross-border movement of terrorists - Mandatory reporting by carriers and freight services: - All airlines, ships, and other entities that provide transportation, conveyance, or freight services to and from Palau shall be authorized and required to immediately report to the Minister of Justice, through disclosure of passenger manifests and any other available means: - the intended movement of suspected terrorists into or out of Palau; - information regarding possible forged or falsified travel documents; - trafficking of arms, explosives, illicit drugs, contraband, or sensitive materials; - cross-border movement of nuclear, chemical, biological, and other potentially deadly materials. --- ### Subchapter IV — Weapons of Mass Destruction ### Section 29. Weapons of mass destruction offenses - General prohibition: - Except as authorized by the President, any person who knowingly, by any means, directly or indirectly, develops, produces, ships, transports, transfers, receives, acquires, retains, possesses, imports, exports, or manufactures a weapon of mass destruction, commits a crime punishable by the penalties established by Section 6 of this Act. - Enhanced fines where linked to terrorism: - If done with the intent to engage in terrorism or with knowledge that the weapon of mass destruction is intended to be used for terrorism, the maximum fine shall be increased to $100,000,000] for natural persons and $[1,000,000,000] for legal persons. - Use or deployment without lawful authority: - Any person who, without lawful authority expressly given by the President of Palau, uses or deploys a weapon of mass destruction, commits a crime punishable by the penalties established by section 6 of this Act; provided, however the maximum fine shall be increased to $1,000,000,000 for natural persons and $10,000,000,000 for legal persons. --- ### Subchapter V — Internationally Protected Persons ### Section 30. Implementation of the convention on internationally protected persons - Purpose: create offenses relating to internationally protected persons and give effect to the “United Nations Convention on the Prevention and Punishment of Crimes against Internationally Protected Persons”, including Diplomatic Agents (Palau acceded November 14, 2001). ### Section 31. Internationally protected persons offenses - Offenses: - Any person who knowingly, by any means, directly or indirectly, perpetrates: - (a) a murder, kidnapping, or other attack upon the person or liberty of an internationally protected person; or - (b) a violent attack upon the official premises, the private accommodation or the means of transport of an internationally protected person, which is likely to endanger the person or his or her liberty; - commits a crime punishable by the penalties established by section 6 of this Act. --- ### Subchapter VI — Hostage-Taking ### Section 32. Implementation of the convention on the taking of hostages - Purpose: create hostage-taking offenses and give effect to the "International Convention Against the Taking of Hostages" (Palau acceded November 14, 2001). ### Section 33. Hostage-taking offenses - Offense definition: - Any person who knowingly, by any means, directly or indirectly, seizes or detains, and threatens to kill, to injure, or to continue to detain another person, the "hostage", in order to compel a third party, namely, Palau, a foreign State, an international intergovernmental organization, a natural or legal person, or a group of persons, to do or abstain from doing any act as an explicit or implicit condition for the release of the hostage, commits a crime punishable by the penalties established by section 6 of this Act. --- ### Subchapter VII — Terrorist Bombing ### Section 34. Implementation of the convention on terrorist bombings - Purpose: create offenses relating to terrorism using explosive or lethal devices and give effect to the “International Convention for the Suppression of Terrorist Bombings” (Palau acceded November 14, 2001). ### Section 35. Terrorist bombing offenses - Offense definition: - Any person who knowingly, by any means, directly or indirectly, delivers, places, discharges, deploys, or detonates any explosive, incendiary weapon, or lethal device that is designed, or has the capability, to cause death, serious bodily injury, or substantial property damage in, into, or against a place of public or private use, a State or government facility, a transportation system or an infrastructure facility: - (a) with the intent to cause death or serious bodily injury; or - (b) with the intent to cause extensive destruction of such a place, facility, or system, where such destruction results in or is likely to result in major economic loss; - commits a crime punishable by the penalties established by Section 29(b) of this Act for weapons of mass destruction. --- *Counter-Terrorism Act of 2007 — Sections 19–35 (excerpts).* ### Section 36. Implementation of the convention on plastic explosives ### Section 36. Implementation of the convention on plastic explosives ### Purpose - Prohibit unauthorized plastic explosives in Palau, in particular unmarked plastic explosives. - Give effect to the “Convention on the Marking of Plastic Explosives for the Purpose of Detection”, to which Palau became a party by accession on November 11, 1995. ### Section 37. Prohibition on plastic explosives; offenses - Unless expressly authorized by the President, plastic explosives shall be prohibited in Palau. - Where authorized by the President for legitimate needs, plastic explosives must contain a detection agent as defined by the Convention and described in the “Technical Annex” to that convention. - Any person who knowingly, by any means, directly or indirectly, develops, produces, ships, transports, transfers, receives, acquires, retains, possesses, manufactures, imports, or exports an unauthorized plastic explosive commits a crime: - Punishable by a minimum of ten (10) years imprisonment and a maximum fine of $50,000; - If the plastic explosive was handled with the intent to engage in terrorism, penalties established by Section 29(a) of this Act for weapons of mass destruction apply; - If the plastic explosive was used or deployed, penalties established by Section 29(b) of this Act for weapons of mass destruction apply. ### Subchapter IX — Safety of Civil Aviation: Purpose - Create offenses relating to aircraft and airports serving international civil aviation. - Give effect to the international civil aviation conventions and protocol identified in Section 3(q)(1), (2), (3), and (7) of this Act. ### Section 39. Civil aviation offenses - In applicable airspace or territory, any person who knowingly, by any means, directly or indirectly, commits the following acts against aircraft, persons on board, or airports serving international civil aviation commits a crime punishable by the penalties established by section 6 of this Act; if a weapon of mass destruction is used or deployed, penalties under section 29(b) apply: - (a) Performs an act of violence against a person on board an aircraft in flight, if that act is likely to endanger the safety of that aircraft. - (b) By force or threat, or any other form of intimidation, seizes or exercises control of an aircraft in flight. - (c) Destroys an aircraft in service or causes damage rendering it incapable of flight or likely to endanger its safety in flight. - (d) Places or causes to be placed on an aircraft in service any device or substance likely to destroy it or render it incapable of flight or likely to endanger its safety in flight. - (e) Destroys or damages air navigation facilities used in international air navigation, or interferes with their operation, if likely to endanger the safety of aircraft in flight. - (f) Communicates information known to be false, thereby endangering the safety of an aircraft in flight. - (g) Using any device, substance or weapon: - (1) Performs an act of violence against a person at an airport serving international civil aviation, which causes, or is likely to cause, serious injury or death; or - (2) Destroys or seriously damages facilities of an airport serving international civil aviation or aircraft not in service located thereon or disrupts airport services. ### Section 40. Power to take reasonable measures (aircraft commander and others) - Aircraft commander, with reasonable grounds to believe a person has committed or is about to commit on board a criminal offense or act jeopardizing safety, good order, or discipline, may: - (1) Impose reasonable measures, including restraint, necessary to: - (i) Protect safety of the aircraft, or persons or property therein; - (ii) Maintain good order and discipline on board; - (iii) Enable delivery of the person to competent authorities; - (2) Disembark the person in accordance with this subchapter. - Aircraft commander may require or authorize assistance of other crew members and may request or authorize, but not require, assistance of passengers to restrain such person. - Any crew member or passenger may take reasonable preventive measures without authorization when action is immediately necessary to protect safety of the aircraft, or persons or property therein. - Measures of restraint must conform to the requirements of the Convention on “Offenses and Certain Other Acts Committed on Board Aircraft”. ### Section 41. Power to disembark certain passengers - Aircraft commander may disembark, in accordance with the “Convention on Offenses and Certain Other Acts Committed on Board Aircraft”, any person reasonably believed to have committed or be about to commit on board an act contemplated by Section 40(a)(2), insofar as necessary to protect safety or maintain good order and discipline. ### Section 42. Power to deliver alleged offenders to competent authorities - Aircraft commander may deliver to competent law enforcement authorities, in accordance with the Convention, any person reasonably believed to have committed on board an act which, in the commander's opinion, is a serious offense according to the criminal laws of the country of registration of the aircraft. ### Section 43. No liability for actions taken - For actions taken in accordance with Sections 40, 41, or 42, neither the aircraft commander, any other member of the crew, any passenger, the owner or operator of the aircraft, nor the person on whose behalf the flight was performed shall be held responsible in any proceeding on account of the treatment undergone by the person in respect of whom the actions were taken. ### Subchapter X — Safety of Maritime Navigation and Fixed Platforms: Purpose - Create offenses relating to safe navigation of ships on the high seas and safety of fixed platforms. - Give effect to: - (a) “Convention for the Suppression of Unlawful Acts Against the Safety of Maritime Navigation”; and - (b) “Protocol for the Suppression of Unlawful Acts Against the Safety of Fixed Platforms Located on the Continental Shelf”; - Palau became a party by accession on December 4, 2001. ### Section 45. Maritime offenses - In applicable waters, any person who knowingly, by any means, directly or indirectly, commits the following acts commits a crime punishable by the penalties established by Section 6 of this Act; if a weapon of mass destruction is used or deployed, penalties under Section 29(b) apply: - (a) Seizes or exercises unauthorized control over a ship or fixed platform by force or threat or any other form of intimidation. - (b) Injures or kills any person, or endangers safe navigation of a ship, or safety of a fixed platform, by: - (1) Committing an act of violence against a person on board the ship or fixed platform; - (2) Destroying or damaging the ship, its cargo, or the fixed platform; - (3) Placing, or causing to be placed, any device or substance on the ship or fixed platform; - (4) Destroying or damaging maritime navigational facilities, or interfering with their operation; - (5) Communicating information which the person knows to be false. ### Subchapter XI — Nuclear Material - Section 46. Nuclear material offenses: - Any person who intentionally, by any means, directly or indirectly: - (a) Without lawful authority, receives, possesses, uses, transfers, alters, disposes of, or disperses nuclear material under circumstances which cause or are likely to cause death or serious bodily injury to any person or substantial damage to property; - (b) Commits a theft or robbery of nuclear material; - (c) Embezzles or fraudulently obtains nuclear material; - (d) Makes a demand for nuclear material by threat or use of force or by any other form of intimidation; - (e) Threatens: - (1) To use nuclear material to cause death or serious bodily injury to any person or substantial property damage; or - (2) To commit a theft or robbery of nuclear material in order to compel a natural or legal person, or an international organization, or country to do or to refrain from doing any act; - Commits a crime punishable by the penalties established by Section 29(b) of this Act for weapons of mass destruction. ### Section 47. Effective date - This Act shall take effect upon its approval by the President of the Republic, or upon becoming law without such approval. - PASSED: April 25, 2007 - Approved this day of , 2007. - Tommy E. Remengesau, Jr., President Republic of Palau --- ### Cash Courier Disclosure Act of 2007 (Chapter 39, Title 17 PNC) ### Purpose and short title - Purpose: Establish measures to detect physical cross-border transportation of currency and negotiable instruments to prevent terrorists and other criminals from financing activities or laundering proceeds of crimes. - Short title: “Cash Courier Disclosure Act of 2007”. ### § 3901 Definitions (selected) - “Declaration”: Form prescribed by the Division of Customs requiring a signed, written disclosure of transport of currency or negotiable instruments into or out of the Republic of Palau. - “Division of Customs”: Ministry of Finance, Bureau of Revenue, Customs & Taxation, Division of Customs. - “Financial Intelligence Unit”: governmental unit created pursuant to section 15 of RPPL No. 6-4. - “Negotiable instruments” includes monetary instruments in bearer form, including but not limited to, checks, travelers checks, promissory notes and money orders that are endorsed without restrictions, made out to a fictitious payee, or otherwise in such form that title passes upon delivery. - “Transport cash or negotiable instruments” includes: - (1) Physical transportation by a natural person, or in that person’s accompanying luggage or vehicle; - (2) Shipment of currency through containerized cargo; or - (3) Mailing of currency or negotiable instruments by a natural or legal person. ### § 3902 Report on the transport of cash and negotiable instruments - Any person who attempts to, or physically transports cash or negotiable instruments in an aggregate amount of $10,000 or more (or its equivalent in foreign currency) at one time into or out of the Republic of Palau shall make a written, signed Declaration to the Division of Customs on the prescribed form. A copy shall be provided to the Financial Intelligence Unit. - A person is deemed to have caused such transportation when he or she aids, abets, counsels, commands, procures, or requests it to be done by a financial institution or any other person. - Exceptions (no Declaration required): - (1) A bank licensed by the Financial Institutions Commission or its agent for its own domestic use or purposes; - (2) A common carrier of passengers in respect to currency or negotiable instruments in the possession of its passengers; - (3) A common carrier of goods for shipments not declared to be such by the shipper; - (4) A traveler’s check issuer or its agent in respect to transportation of travelers’ checks prior to delivery to selling agents. - Transfers through normal banking procedures that do not involve physical transportation are not required to be reported. - A Declaration copy shall accompany the currency until its final destination. ### § 3903 Requirement to promulgate regulation - Division of Customs shall promulgate such regulations as necessary to enforce the requirements of this Act. ### § 3904 Availability of information - (a) If Division of Customs suspects or has reasonable grounds to suspect currency or negotiable instruments are being transported in violation of this Chapter, or are proceeds of criminal activity or related to terrorist financing, it shall report the factual basis to the Attorney General and file a suspicious transaction report with the Financial Intelligence Unit within 48 hours. The report shall be in form and manner set forth in regulations promulgated by the Financial Intelligence Unit. - (b) Division of Customs and the Financial Intelligence Unit may make information from reports available to another government agency or foreign government agency upon written request stating particular information desired and the criminal, tax or regulatory purpose. - (c) Any information made available to other departments, agencies, or foreign governments shall be received in confidence and not disclosed except for official purposes related to the investigation, proceeding, or matter. ### § 3905 Enforcement Authority With Respect to Transportation of Currency or Negotiable Instruments - (a) If an officer of the Division of Customs suspects or has reasonable cause to believe negotiable instruments or currency are being transported without the required Declaration, the officer may stop and search, without a search warrant, a vessel, aircraft, other conveyance, envelope, container, or person entering or departing the Republic of Palau. Authority applicable only at ports of entry. - (b) Same stop-and-search authority applies if officer reasonably believes the currency or negotiable instrument is proceeds of criminal activity or related to terrorist financing. Authority only at ports of entry. - (c) If the Office of the Attorney General has reason to believe currency or negotiable instruments in an aggregate amount of $10,000 or more (or equivalent) are being or have been transported and no Declaration has been filed, or a materially incomplete or inaccurate Declaration has been filed, the Office may apply to the Supreme Court for a search warrant. Upon showing of probable cause, the court may issue a warrant authorizing search of: - (1) One or more designated persons; - (2) One or more designated or described places or premises; - (3) One or more designated or described letters, parcels, packages, or other physical objects; - (4) One or more designated or described vehicles. - (d) If an officer has reasonable cause to believe negotiable instruments or currency are being transported without the required Declaration, or are proceeds of crime or related to terrorist financing, the officer may seize the currency or negotiable instrument and hold them for a period of 14 calendar days pending investigation. For good cause shown, the Office of the Attorney General may apply to the Supreme Court for additional 14-day extensions. ### § 3906 Penalties - Penalties are in addition to any criminal or civil penalties under other law. - (a) Administrative Penalty: For failure to file a required Declaration, or for filing a Declaration containing any material omission or misstatement, the Chief of the Division of Customs may assess an administrative penalty of 5% of the amount of the currency or negotiable instruments transported, mailed, or shipped. - (b) Civil Penalty: The Attorney General may bring a civil action. Upon proof by a preponderance of the evidence that the person willfully violated this Chapter, the person shall be subject to a civil penalty not to exceed twice the amount of the currency or negotiable instruments carried, or attempted to be carried. Willfulness may be inferred through objective factual circumstances. - (c) Penalties applicable to corporate entities: Corporate entities, other than the Republic of Palau, on whose behalf or for whose benefit a violation of § 3902 has been committed by one of their agents or representatives, shall be fined in an amount equal to two times the fines specified for natural persons. For corporate entities found guilty of three or more offenses under § 3902 within a five-year period, such entities may be: - (1) Permanently or for a minimum of five years banned from directly or indirectly carrying on the business activities in the Republic of Palau for which they are licensed or conducted at the time of the offense; - (2) Ordered to close permanently; or - (3) Required to publicize the judgment in the press or by radio or television. ### § 3907 Applicable law for rulemaking and regulations - The Administrative Procedure Act, 6 PNC Chapter 1, shall apply for all rules and regulations promulgated under this Act. *Source: _cr0909 - Section 36. Implementation of the convention on plastic explosives (Counter-Terrorism Act of 2007 and Cash Courier Disclosure Act of 2007 excerpts).* ### Section 4. Amendment. ### _cr0909 - Section 4. Amendment. ### Amendment to RPPL No. 6-3 — addition of Section 3(g) and 3(h) - Section 3 of RPPL No. 6-3 is amended to add subsections (g) and (h). - Section 3(g): - Grants the Attorney General authority to bring a civil action in the Republic of Palau against any natural or legal person who attempts to, or engages in, the business of a bank, securities broker, or securities dealer in the Republic of Palau without a valid license by the Financial Institutions Commission. - Burden of proof: Upon proof by a preponderance of the evidence that such person committed the offense: - Natural persons: subject to a civil penalty of at least $25,000. - Corporate entities (other than the Republic of Palau) on whose behalf or for whose benefit a violation has been committed by one or their agents or representatives: - Fined in an amount equal to two times the fines specified for natural persons, or the amount of gross profit realized by the entity for the two years prior to the offense, whichever is greater. - Additionally, such entities may be subject to one or more of: 1. Permanently, or for a minimum of five years, banned from directly or indirectly carrying on the business activities in the Republic of Palau for which they are licensed or conducted at the time of the offense; 2. Ordered to close permanently; or 3. Required to publicize the judgement in the press or by radio or television. - Section 3(h): - States: "Actions under either Section 3(g) or 3(h) shall not prejudice any action taken by the Board pursuant to its powers under the FIA." ### Effective date and enactment details - Section 5. Effective date: - "This Act shall take effect upon its approval by the President of the Republic, or upon its becoming law without such approval." - PASSED: April 25, 2007 - Approval form in text left blank for day and month in 2007. - Tommy E. Remengesau, Jr., President, Republic of Palau *Italic: Source: _cr0909 - Section 4. Amendment.* ### Mutual Assistance in Criminal Matters Act of 2001 — CHAPTER 13 (excerpt) - RPPL No. 6-6 enacts a new Chapter 13 to Title 18: "Mutual Assistance in Criminal Matters Act of 2001." - Purpose and scope: - Section 1 (Short title): "Mutual Assistance in Criminal Matters Act of 2001." - Section 2 (Purpose): enable the Republic of Palau to cooperate with foreign States in criminal investigations and proceedings. - Section 3 (Application): Act applies between the Republic of Palau and any foreign State, subject to conditions, variations, or modifications in agreements with that State. - Key definitions (Section 4) — selected terms and exact formulations preserved: - (a) "appeal" includes proceedings by way of discharging or setting aside a judgment, and an application for a new trial or for a stay of execution; - (b) "Attorney General" means the Attorney General of the Republic of Palau; - (c) "data" means representations, in any form, of information or concepts; - (d) "document" means any record of information and any material on which data is recorded or marked and which is capable of being read or understood by a person, computer system or other device, and includes, but is not limited to: (1) anything on which there is writing, marks, figures, symbols, or perforations having meaning for persons qualified to interpret them; (2) anything from which sounds, images or writings can be produced, with or without the aid of anything else; or (3) a map, plan, drawing, photograph or similar thing; - (e) "foreign confiscation order" means an order, made by a court in a foreign State, for the confiscation or forfeiture of property in connection with or recovery of the proceeds of a serious offense; - (f) "foreign restraining order" means a foreign court order made relating to a serious offense to restrain a person or persons from dealing with property; - (g) "foreign state" means any country other than the Republic and every constituent part of such country which administers its own laws relating to international cooperation; - (h) "interest," in relation to property, means a legal or equitable estate in the property; or right, power or privilege in connection with the property, whether present or future and whether vested or contingent; - (i) "person" means any natural or legal person; - (j) "place" includes any land and any premises; - (k) "premises" includes the whole or any part of a structure, building, aircraft, or vessel; - (l) "proceedings" means: (a)[sic] any procedure conducted under the supervision of an authorized judicial officer in relation to any alleged or proven offense, and includes an inquiry, investigation, or preliminary or final determination of facts; or (b)[sic] property derived from such offense; - (m) "proceeds of crime," except as otherwise provided herein, means fruits of a crime, or any property derived or realized directly or indirectly from a serious offense and includes, on a proportional basis, property into which any property derived or realized directly from the offense was later successively converted, transformed or intermingled, as well as income, capital or other economic gains derived or realized from such property at any time since the offense; - (n) "property" means real or personal property of every description, whether situated in the Republic or elsewhere and whether tangible or intangible, and includes an interest in any such real or personal property; but does not include any clan, lineage, or family land located in the Republic, nor any interest held by a legitimate bonafide purchaser or owner of property, real or otherwise, without notice of any illegal interest, in such property located in the Republic; - (o) "Republic" means the Republic of Palau; - (p) "serious offense" means an offense against a provision of: (1) any law of the Republic which is a criminal offense punishable by imprisonment for more than one year; (2) a law of a foreign state, in relation to acts or omissions, which had it occurred in the Republic would have constituted a criminal offense punishable by imprisonment for more than one year; - (q) "Supreme Court" means the Supreme Court of the Republic of Palau. ### Mutual legal assistance powers and procedures (selected provisions) - Section 5. Authority to make and act on mutual legal assistance requests: - (a) Attorney General may make requests to appropriate authority of a foreign state on behalf of the Republic for mutual legal assistance in investigations or proceedings relating to any serious offense; all such requests made through the Minister of State, submitting the name of the foreign State, the nature of the request, and the nature of the criminal matter. - (b) Upon receipt by the Minister of State and notification of the President, the Attorney General may: 1. Grant the request, in whole or in part, on such terms and conditions as he or she thinks fit provided however that no request for assistance under this or any other law of the Republic shall be granted unless the requesting foreign state makes sufficient written assurance that they will cover all costs associated with the request; 2. Refuse the request, in whole or in part, on the ground that to grant the request would be likely to prejudice the sovereignty, security or other essential public interest of the Republic; 3. After consulting with the competent authority of the foreign state, postpone the request, in whole or in part, on the ground that granting the request immediately would be likely to prejudice the conduct of an investigation or proceeding in the Republic. - (c) The President or his designee may refuse any request for mutual legal assistance from a country that does not afford substantially reciprocal privileges to the Republic of Palau, or upon determination that refusal of such a request is in the public interests of the Republic. - Section 6. Saving provision: - Nothing in this Act shall limit the Attorney General's power apart from this Act to make requests or act on requests; nor limit the power of any other person or court to make requests for forms of international assistance other than those specified in section 7; nor limit the nature or extent of assistance lawfully given to or received from foreign states. - Section 7. Types of mutual legal assistance requests the Attorney General may make: - (a) Have evidence taken, or documents or other articles produced; - (b) Obtain and execute search warrants or other lawful instruments authorizing a search for, and seizure of, relevant evidence; - (c) Locate or restrain any property believed to be the proceeds of crime located in the foreign state; - (d) Confiscate any property which is the subject of a confiscation order made under the Money Laundering and Proceeds of Crime Act of 2001; - (e) Transmit to the Republic any such confiscated property or any proceeds realized therefrom, or any such evidence, documents, articles or things; - (f) Transfer in custody to the Republic a person who consents to assist the Republic in the relevant investigation or proceedings; - (g) Provide any other form of assistance that involves or is likely to involve the exercise of a coercive power over a person or property; - (h) Permit the presence of nominated persons during the execution of any request made under this Act. - Section 8. Contents of requests for assistance: - A request shall include: (1) name of authority conducting the investigation/proceeding; (2) description of the nature of the criminal matter and summary of relevant facts and laws together with a copy of the laws referenced; (3) description of the purpose of the request and nature of assistance sought; (4) in asset restraint/forfeit requests, details of the offense, particulars of any investigation or proceeding, and copy of any relevant restraining or forfeiture order; (5) details of any procedure desired to be followed; (6) statement of any requests for confidentiality and reasons; (7) desired time frame for compliance; (8) where applicable, details of property to be traced, restrained, seized or confiscated, and grounds for believing the property is in the requested state; (9) any other information that may assist. - Subsection (b): A request from a foreign state may be granted notwithstanding non-compliance with subsection (a), if necessary after consultation. - Section 9. Foreign requests for an evidence-gathering order or a search warrant: - (a) An authorized person of the foreign state may apply to the Supreme Court for a search warrant or an evidence-gathering order. - (b) The Supreme Court may issue such orders where there is probable cause to believe: (1) a serious offense has been or may have been committed against the laws of the foreign state; (2) evidence relating to that offense may be found in a building, receptacle or place in the Republic or be given by a person believed to be in the Republic; (3) in the case of a search warrant application, it would not, in all the circumstances, be more appropriate to grant an evidence-gathering order. - (c) A statement in the foreign request that a serious offense has been or may have been committed is prima facie evidence of that fact. - (d) An evidence-gathering order shall provide for the manner of obtaining evidence unless such manner is prohibited in the Republic, and may require persons to: (A) make a record from data or make a copy of a record; (B) attend court to give evidence on oath or otherwise until excused; (C) produce to the Supreme Court or to any person designated by the Court, any thing, including any document, or copy thereof. Such orders may include terms and conditions the Court considers desirable and shall only be issued subject to agreement by the requesting foreign state to bear all costs incurred by the Republic. - (e) A person named may refuse to answer or produce where refusal is based on: (1) a law currently in force in the Republic; (2) a privilege recognized by a law in force in the foreign state; or (3) a law in the foreign state that would render the answering or production an offense in the person’s own jurisdiction. - (f) Where refusal is based on (e)(2) or (3), the Supreme Court shall report to the Attorney General who shall notify the foreign state and request a written statement on whether the refusal was well-founded under the law of the foreign state. - (g) A person who, without reasonable excuse, refuses to comply with a lawful order of the Supreme Court, or who having refused pursuant to (e), continues to refuse notwithstanding admission into evidence that the refusal is not well-founded, commits contempt of court and may be punished accordingly. - (h) A search warrant shall be in the usual form issued in the Republic, varied as necessary. - (i) No seized document or thing ordered to be sent to a foreign state shall be sent until the Attorney General is satisfied the foreign state has agreed to comply with any imposed terms or conditions. - (j) The Supreme Court is authorized to adopt, recognize and enforce foreign court orders certified or under seal, which shall have the rebuttable presumption of validity. - Section 10. Foreign requests for consensual transfer of detained persons: - (a) Where Attorney General approves a request to have a person detained in the Republic transferred to a foreign state to give evidence or assist in an investigation or proceeding, an authorized person may apply to the Supreme Court for a transfer order. - (b) The Supreme Court may order transfer if documents or information establish that the detained person consents to the transfer. - (c) A transfer order shall: (1) set out name and current place of confinement; (2) order delivery into custody of a designated person or class of persons; (3) order transport to the foreign state and return to a specified place of confinement in the Republic on return; (4) state the reasons for the transfer; (5) fix the period by which the detained person must be returned, unless varied by the Attorney General. - (d) Time spent in custody pursuant to a transfer order shall count toward any sentence, so long as the person remains in such custody. - Section 11. Detention of persons transferred to the Republic: - (a) Attorney General may by written notice authorize: (1) temporary detention in the Republic of a person in detention in a foreign state who is to be transferred from the Republic pursuant to a request under section 7(f), for such period as may be specified; and (2) the return of the person to the custody of the foreign state when his or her presence is no longer required. - (b) While notice is in force: (1) the person may enter and remain in the Republic for the purposes of the request and is required to leave when no longer required, notwithstanding any Republic law to the contrary; and (2) while in custody in the Republic for the purposes of the request, the person is deemed to be in lawful custody. - (c) The Attorney General may vary a notice at any time and may require immediate departure if determined to be in the best interest of the nation; if the foreign state requests release, the Attorney General shall direct release accordingly, subject to that proviso. - (d) Any person who escapes from lawful custody while in the Republic pursuant to a request under section 7(f) may be arrested without warrant by any authorized person and returned to the authorized custody. - (e) Where a foreign country has requested that a person be detained in the Republic in the course of transit between the foreign country and a third country and the Attorney General grants the request, the provisions of this section shall apply. *Italic: Source: _cr0909 - Section 4. Amendment.* ### Section 12. Safe conduct guarantee ### Section 12. Safe conduct guarantee ### Safe conduct guarantee (Section 12) - (a) Where a person, whether or not a detained person, is in the Republic in response to a request by the Attorney General to a foreign state under this Act for such person to give evidence in a proceeding or to assist in an investigation, prosecution or related proceeding, the person shall not, while in the Republic, be detained, prosecuted or punished or subjected to civil process, in respect of any act or omission that occurred before the person’s departure from the foreign state pursuant to the request. - (a) proviso: This section shall not preclude the person by voluntary agreement and consent, from entering into a stipulated settlement or resolution of any criminal charges pending in the Republic, or of any civil or criminal matter. - (b) Subsection (a) ceases to apply to the person when the person leaves the Republic, or has had the opportunity to leave, but remains in the Republic for 10 days after the Attorney General has notified the person in writing that he or she is no longer required for the purposes of the request. ### Key legal effect - Safe conduct immunizes persons brought from foreign states to give evidence or assist investigations from detention, prosecution, punishment, or civil process for acts or omissions that occurred before departure, subject to voluntary waiver or stipulated resolution and the 10-day post-notification rule. --- ### Section 13. Foreign requests for Republic restraining orders ### Restraining orders on property (Section 13) - (a) Where a foreign state requests the Attorney General to obtain a restraining order against property, except clan, lineage, or family land, or any interest held by a legitimate bona fide purchaser or owner without notice of an illegal interest in the property; and where criminal proceedings have begun in the foreign state in respect of a serious offense, and there is probable cause to believe that the property relating to the offense or belonging to the defendant or the defendant’s coconspirators is located in the Republic; the Attorney General may apply to the Supreme Court for a restraining order. - (b) Upon application of the Attorney General, the Court may make a restraining order in respect of the property, as if the serious offense that is the subject of the order had been committed in the Republic. --- ### Section 14. Requests for enforcement of foreign confiscation or restraining orders ### Entry and enforcement by Supreme Court (Section 14) - (a) Where a foreign state requests the Attorney General to arrange for the enforcement of a foreign restraining order or foreign confiscation order, the Attorney General may apply to the Supreme Court for entry and enforcement of the order. - (b) The Supreme Court shall enter and enforce a foreign restraining order, if the Court is satisfied that at the time of entry and registration, the order is in force in the foreign state. - (c) The Supreme Court shall enter and enforce a foreign confiscation order which is legally capable of enforcement in the Republic, if the Court is satisfied that: - (1) at the time of entry and enforcement, the order is in force in the foreign state and is not subject to appeal; and - (2) where the person the subject of the order did not appear in the confiscation proceedings in the foreign State, that: - (A) the person was given sufficient notice of the proceedings; or - (B) the person had absconded or had died before such notice could be given, and if the person died, the decedent’s estate was given fair notice of the proceedings. - (d) A statement contained in the foreign request that the elements provided in subsection (c) is prima facie evidence of those facts, without proof of the signature or official character of the person appearing to have signed the foreign request. - (e) Where a foreign restraining order or foreign confiscation order is entered for enforcement, a copy of any amendments made to the order in the foreign state (whether before or after entry and enforcement), may be entered and enforced in the same way as the order, but shall not have effect for the purposes of the Money Laundering and Proceeds of Crime Act of 2001, until they are so entered and enforced. - (f) The Supreme Court shall, on application by the Attorney General rescind entry of: - (1) a foreign restraining order, if it appears to the Court that the order has ceased to have effect. - (2) a foreign confiscation order, if it appears to the Court that the order has been satisfied or has ceased to have effect. - (g) A facsimile copy of a duly authenticated foreign restraining or confiscation order, or amendment made to such an order, shall be regarded as the same as the duly authenticated foreign order for 21 days, but entry and registration effected by means of a facsimile ceases to have effect at the end of the 21 days unless a duly authenticated original of the order has been entered and registered. ### Key procedural points - Prima facie weight is given to foreign statements satisfying subsection (c). - Facsimile authentication is temporary: 21 days validity pending original. --- ### Section 15. Foreign requests for the location of proceeds of crime - Where a foreign state requests the Attorney General to assist in locating property believed to be the proceeds of a serious crime, the Attorney General may authorize any application of the Money Laundering and Proceeds of Crime Act of 2001, for the purpose of acquiring the information sought by the foreign State. --- ### Section 16. Sharing confiscated property with foreign states - The Attorney General may enter into an arrangement with the competent authorities of a foreign state, in respect of money laundering and proceeds of crime, for the reciprocal sharing with that state of such part of any property realized in the foreign state as a result of action taken by the Attorney General or in the in the Republic as a result of action taken in the Republic. --- ### SUBCHAPTER III - MISCELLANEOUS ### Section 17. Privilege for foreign documents - (a) A document sent to the Attorney General by a foreign State in accordance with a request pursuant to this Act is privileged and no person shall disclose to anyone the document, its purport, or any part of the contents, before the document, in compliance with the conditions on which it was so sent, is made public or disclosed in the course of and for the purpose of any proceedings under this Act. - (b) Except to the extent required under this Act to execute a request by a foreign state for mutual assistance in criminal matters, no person shall disclose the fact that the request has been received or the contents of the request. - (c) Violation of this section is a felony offense, punishable by imprisonment for a maximum of ten years or a maximum fine of $50,000, or both, provided, however, in the case of a corporation, company, commercial enterprise, commercial entity or other legal person, the maximum fine shall be increased to $250,000. ### Section 18. Restriction on use of evidence and materials obtained by mutual assistance - No information, document, article or other thing obtained from a foreign state pursuant to a request made under this Act shall be used in any investigation or proceeding other than the investigation or proceeding disclosed in the request, unless the Supreme Court so permits, after considering input from the foreign state on the other usage. ### Section 19. Deposit of confiscated proceeds of drug crime - Any proceeds of drug-related crime which have been: - (a) confiscated in a foreign state pursuant to a request by the Republic under section 7(d); - (b) confiscated in the Republic pursuant to a request by a foreign state under section 14(a), to the extent available under any sharing of confiscated property arrangement referred to in section 16, or otherwise, shall be deposited in accounts of the Republic as follows: - (1) 55% in the Fund for Drug Abuse Prevention and Control, established under the Controlled Substances Act, 34 PNC Division 4; - (2) 30% in the Retirement Fund, 41 PNC 731, for payment in equal proport5ions of old age insurance benefits, 41 PNC 753, and disability insurance benefits, 41 PNC 754; - (3) 15% in an account for use by the Palau National Olympic Committee. --- ### Section 2. Effective Date - This Act shall take effect upon its approval by the President of the Republic, or upon becoming law without such approval, except as otherwise provided by law. - PASSED: June 19, 2001 - Approved this ___ day of June, 2001. - Tommy E. Remengesau, Jr., President Republic of Palau --- ### Extradition and Transfer Act of 2001 — Selected provisions ### Title and purpose (Chapter 10.1, Sections 1–2) - Section 1. Short title: “Extradition and Transfer Act of 2001.” - Section 2. Purpose: - facilitate extradition procedures between the Republic of Palau and foreign states; - promote rehabilitation and effective reintegration of criminal offenders by transferring convicted citizens to their home countries to serve a criminal sentence; - declare that the Republic shall have an obligation to extradite any person who has committed an extraditable offense in an extradition country, no matter what their nationality or citizenship, where the requirements of this Act have been met, and where there is no valid impediment to extradition under this Act; - promote mutual cooperation in law enforcement in the Pacific region and internationally to bring fugitives to justice; - declare that this Act should be liberally construed, together with the Mutual Assistance in Criminal Matters Act; the Money Laundering and Proceeds of Crime Act; and the Foreign Evidence Act. ### Supersession (Section 3) - This Act shall not supersede the extradition provisions of the Compact of Free Association; those provisions shall be deemed an extradition treaty for the purposes of this Act. - Any extradition treaty or international agreement to which the Republic was a party before the effective date remains in force and shall be deemed an extradition treaty for purposes of this Act. - In case of conflict, the provisions of the extradition treaty shall take precedence over the provisions of this Act. ### Definitions (Section 4) — selected definitions preserved verbatim where technical - (a) “Attorney General” means the Attorney General of the Republic of Palau; - (b) “Comity Country” means a foreign state granted or seeking a courtesy or a special privilege to be granted with respect to extradition or the transfer of a convicted person notwithstanding the fact that such foreign state does not otherwise qualify under the Act as an extradition country because of its status as a Forum country or a treaty country; - (c) “Document” means any material on which data is recorded or marked and which is capable of being read or understood by a person, computer system, or other device, and any record of information, and includes, but is not limited to. anything on which there is writing, marks, figures, symbols, or perforations having meaning for persons qualified to interpret them, anything from which sounds, images or writings can be produced, with or without the aid of anything else, a map, plan, drawing, photograph or similar thing; - (d) “Extradition country” means any treaty country with which the Republic has entered into an extradition treaty; - (e) “Extradition request” means a written petition made by one country to another country for the surrender of a particular person for purposes of prosecution or punishment for a criminal offense; - (f) “Extradition treaty” means a written pact, protocol, agreement, convention, or covenant, entered into or ratified by the Republic that relates wholly or partly to the surrender of persons accused or convicted of criminal offenses; - (g) “Foreign escort officer” means an official representative of the foreign state to which a person is to be surrendered or transferred for service of the person’s sentence, conditional sentence, or conditional release; - (h) “Foreign state” means any country other than the Republic and every constituent part of such country which administers its own laws relating to criminal offenses; - (i) “Forum country” means a member of the Pacific Islands Forum; - (j) “Interpol” means the International Criminal Police Organization; - (k) “Judge” means a person who has been duly appointed as a judge or justice of the Supreme Court of the Republic, unless otherwise noted; - (l) “Law enforcement officer” means a member of the Bureau of Public Safety, Ministry of Justice of the Republic of Palau; - (m) “Person” means and includes any natural or legal person sought for extradition; - (n) “Political offense” means any charge or conviction based on a person’s political beliefs or affiliation where the conduct involved does not otherwise constitute a violation of that country’s criminal laws; - (o) “Prison” means any place for the confinement or custody in the course of the administration of justice, and includes a jail, police cell, or any place where the personal liberty of a person to voluntarily depart is restricted; - (p) “Proceeding” or “proceedings” means any procedure conducted by or under the supervision of an authorized judicial officer of any country, and includes an inquiry, investigation, or preliminary or final determination of facts; - (q) “Proceeds of crime” means any property derived or realized directly or indirectly from a serious offense or an extraditable offense and includes, on a proportional basis, property into which any property derived or realized directly from the offense was later successively converted, transformed, or intermingled, as well as income, capital, or other economic gains derived or realized from such property at any time since the offense; - (r) “Property” means currency and all other real or personal property of every description, wherever situated, whether tangible or intangible, and includes an interest in any such property but does not include any clan, lineage, or family land located in the Republic, nor any interest held by a legitimate bona fide purchaser or owner of property, real or otherwise, without notice of any illegal interest, in such real property located in the Republic, - (s) “Requesting country” means a foreign state that is seeking the surrender of a person for purposes of prosecution or punishment for a criminal offense allegedly committed in such foreign state; - (t) “Serious offense” means a violation of any law of the Republic which is a criminal offense punishable by a term of imprisonment for more than one year, or a criminal law of the requesting country, in relation to acts or omissions, which had they occurred in Republic would have constituted a criminal offense punishable by a term of imprisonment for more than one year; - (u) “Supreme Court” means the Supreme Court of the Republic and all its divisions; - (v) “Surrender” means the act by which public authorities deliver a person charged with or convicted of a crime and who is found within their jurisdiction to the authorities within whose jurisdiction it is alleged that the crime was committed; - (w) “Surrender warrant” means an official authorization; issued by a judge ordering the surrender of a person to a requesting country, requiring any person having custody of the person to relinquish custody to the officer possessing the warrant, authorizing handing the person over to the custody of a foreign escort officer, and authorizing the foreign escort officer to transport the person to the requesting country for purposes of prosecution and punishment for a criminal offense; - (x) “Tainted property” means property used in, or in connection with, the commission of a serious or extraditable offense or the proceeds of crime; - (y) “Treaty country” means a foreign state with which the Republic has entered into an extradition treaty, and which is listed in regulations promulgated under this Act; - (z) “Writing” includes facsimiles, electronic mail, and any other means of communication that is capable of being reproduced in printed form. - (aa) A reference in this Act to the law of the Republic or any foreign state or country, includes the law of any part of the Republic or any part of that foreign state or country. ### Extraditable offenses (Section 5) - (a) An extraditable offense is an offense which occurred in the requesting country and is or would be a criminal offense under the laws of both the requesting country and the Republic or the receiving country and the transferring country, or their political subdivisions, punishable by imprisonment or other deprivation of liberty for over one year. - (b) In determining whether an offense is an extraditable offense under this Act, terminology and categorization are not dispositive, and the totality of the acts or omissions alleged shall be considered in determining the constituent elements of the offense. Any part of such act, failure to act, or omission may be taken into account. - (c) Where there is no statutory penalty, the level of penalty that can be imposed for the offense by any court shall be taken into account. - (d) An offense may be an extraditable offense if it relates to taxation, customs duties, or other revenue matters or relating to foreign exchange control of a foreign state even if the Republic does not impose a duty, tax, tariff, or control of that kind, provided such offense would not be unconstitutional under the laws of the Republic. ### Extradition objections (Section 6) - An extradition objection arises automatically where: - (a) the offense is a political offense; - (b) substantial grounds suggest that the prosecution or punishment is due to race, religion, nationality, political opinion or affiliation, gender, or status, or that the proceedings are prejudiced because of any of these factors; - (c) the offense arises under a foreign state’s military law but is not a criminal offense in the Republic; - (d) the person has been convicted of the offense in the Republic and has not escaped or breached any condition of release; - (e) the person is immune from prosecution or punishment due to lapse of time, amnesty, or any other reason under the requesting country’s laws; - (f) the person has been acquitted, pardoned, or duly punished for the offenses, in the Republic or the foreign state; - (g) judgment was entered in the person’s absence, and the requesting country’s law does not entitle the person to raise any defenses upon his or her return; - (h) a prosecution for the offense is pending in the Republic; - (i) the offense was not committed in the requesting country and the Republic has no jurisdiction over that offense committed in similar circumstances outside of the Republic; - (j) the offense was committed, even partially, within the Republic, and the Attorney General confirms that prosecution will be instituted; - (k) the offense is punishable by death, and there are insufficient assurances that the death penalty will not be imposed or carried out; - (l) the person is likely to be tried or sentenced by a court not authorized by law; - (m) the person is likely to be subjected to torture or cruel and inhumane treatment or punishment, including inhumane prison conditions. Conditions in countries that have acceded to the United Nations Convention against Torture and other Cruel, Inhuman and Degrading Treatment of Punishment adopted on December 10, 1984, or the International Covenant on Civil and Political Rights, adopted on December 16, 1966, are presumed humane, but can be rebutted by clear and convincing evidence. - (n) If the requesting government is either authoritarian in nature or non-democratic in form, no citizen of Palau or person of Palauan ancestry shall be extradited to that country. - (o) If the offense is punishable by death, no citizen of Palau or person of Palauan ancestry shall be extradited to that country. *Content extracted from the provided sections of the Mutual Assistance in Criminal Matters Act of 2001 and the Extradition and Transfer Act of 2001.* ### Section 7. Obligation to extradite ### _cr0909 - Section 7. Obligation to extradite ### Obligation to extradite (Section 7) - When surrender of a person who is not a Palauan citizen or national or of Palauan ancestry is sought for an extraditable offense and where the requirements of this Act have been satisfied and no valid and legally sustainable extradition objections preclude surrender, the Republic has an obligation to extradite the person. - Neither the Republic nor any extradition country shall be bound to extradite its own citizens or nationals, but may grant extradition if, in the discretion of the court, after notice to the party sought to be extradited and a hearing, extradition is deemed proper. - If the requested government denies extradition solely on the basis of citizenship or nationality, it shall submit the case to its competent authorities for purposes of prosecution. - This chapter shall be liberally construed to effect the purposes of this Act. ### Authority of the Minister of Justice (Section 8) - The Minister of Justice or his or her designee is authorized to: - receive extradition requests directly from foreign states or Interpol; - determine, pursuant to this Act, whether and what action to take on an extradition request; - determine whether the requesting country is an extradition country, and if not, whether to designate or certify it as such; - impose conditions on the requesting country for the treatment of the person; - apply to the Supreme Court for warrants of arrest, provisional arrest, surrender, and for applications for re-extradition; - appear at hearings authorized by this Act on behalf of a requesting country; - institute extradition proceedings; - take any action authorized in this section on behalf of a requesting country, upon receiving notice of an extradition request or an intent to make an extradition request in the immediate future, and the person is believed to be physically present or about to enter the Republic in the foreseeable future; - take any other legal action deemed necessary in furtherance of the purposes of this Act. ### Extradition requests (Section 9) - Formal requirements: - Requests shall be made in writing, in the English language, and be accompanied by the necessary supporting documents. - Processing and notification: - Upon receipt of the extradition request, the Minister of Justice or his or her designee shall notify the President, review and consider the request, determine whether the request meets this Act’s requirements, and promptly communicate the determination to the requesting country, providing a written statement of any deficiencies in the request. - Conditions for instituting extradition proceedings (Minister shall not institute unless all listed conditions are met): - (1) the requesting country has issued an arrest warrant for the extraditable offense; - (2) the person named in the warrant is physically present or about to enter the Republic in the foreseeable future; - (3) the requesting country is an extradition country; - (4) the requesting country has produced or will produce in the immediate future the necessary supporting documents; - (5) no extradition objections or other law precludes the person’s surrender; - (6) no other valid and legally justifiable cause exists to preclude surrender of the person. - Provisional proceedings: - Where the request meets some but not all requirements, the Minister may provisionally institute extradition proceedings and take any necessary action authorized in Section 8 provided the Minister is satisfied that any defect or deficiency is readily curable and that the requesting country will immediately act to cure such defect or deficiency. - Reciprocity: - The President or his or her designee may refuse any request from a country that does not offer substantially similar privileges to the Republic. ### Multiple extradition requests (Section 10) - Where two or more extradition requests for the same person are received concurrently: - The Minister has discretion to decide the order in which to consider the requests. - The Minister shall notify each requesting country of the multiple requests and shall communicate the order in which the requests will be considered. - The Minister shall consider all circumstances, particularly: - (1) the relative seriousness of the offenses; - (2) the time and place of each offense; - (3) the person’s citizenship, national status, and country of usual residence; - (4) the likelihood of the denial of an extradition request for any reason; - (5) the possibility of re-extradition of the person to a third foreign state. ### Supporting documents (Section 11) - Required accompanying documents for an extradition request: - (1) as accurate and complete a description of the person as possible, including information on identity, nationality, and location; - (2) a detailed statement of the acts or omissions constituting the extraditable offense, including details of the time and place of commission; - (3) the text of the law creating the offense, including any applicable statutes of limitations; - (4) the text of the law prescribing the maximum penalty for the offense, or if the penalty is not prescribed by statute, a statement defining the maximum penalty that can be imposed. - Additional document rules: - For a person charged but not yet convicted: original or an authenticated copy of the arrest warrant and a description of the evidence providing probable cause. - For a person convicted: original or authenticated copy of the arrest warrant, original or authenticated copy of the judgment of conviction, evidence establishing identity of the convicted person, and a statement of whether the sentence has been imposed and if imposed, a copy of the sentence and a statement showing the portion of the sentence remaining to be served. - For convictions in absence: in addition to subsection (c) documents, a statement defining the legal means available to the person to prepare defenses and to have the case retried in the person’s presence if surrendered. - Where substantial likelihood exists that the person may flee unless arrested, a facsimile or electronically transmitted copy of the arrest warrant or judgment may be substituted, provided that the requesting country produces an original or authenticated copy within 10 business days. - All supporting documents shall be in English or accompanied by an authentic translation into English, and shall be consistent with the Palau Constitution and all evidentiary and procedural provisions of the Palau National Code. - If supporting information or documentation is defective or deficient, the Minister may request additional information and specify a reasonable time for its receipt. ### Search, seizure and transit (Subchapter IV: Sections 32–33) - Application of other laws (Section 32): - In addition to procedures in this Act, provisions of chapter 3 of title 18 of the Palau National Code and the Money Laundering and Proceeds of Crime Act shall apply to any search, seizure, arrest, confiscation, or other activity authorized under this chapter. - Any action authorized by the Money Laundering and Proceeds of Crime Act shall be authorized under this Act, including confiscation of tainted property, pecuniary penalties, search and seizure of tainted property, the issuance of restraining orders and production orders, and realization of property. - Search for and seizure of tainted property in relation to foreign offenses (Section 33): - Where an extradition country requests assistance with the location or seizure of property suspected to be evidence or tainted and related to an extraditable offense, the Money Laundering and Proceeds of Crime Act shall apply, provided the Minister has authorized the giving of assistance to the foreign state under the Mutual Assistance in Criminal Matters Act. - Subsection (a) applies regardless of whether an extradition request has already been made or received. ### Effective date - This Act shall take effect 120 days after promulgation of regulations and after approval by the President of the Republic. - PASSED: June 19, 2001 - Approved this 19th day of June, 2001. Tommy E. Remengesau, Jr., President Republic of Palau *Source: _cr0909 - Section 7. Obligation to extradite* ### Section 44. Quality of administrators. ### _cr0909 - Section 44. Quality of administrators. ### Quality of administrators - All persons elected or appointed as administrators of a financial institution must be of good repute and must meet the criteria established by regulation of the Commission regarding qualifications, experience, and integrity. ### Secrecy (Section 47) - (a) Present and past administrators, employees, and agents of a financial institution shall keep secret, and not to use for personal gain or gain by other than the financial institution that they serve or have served, or permit to be examined by others, any non-public information that they obtained in the course of their services to the financial institution. - (b) The information described in subsection (a) may be disclosed where required by law to the Commission, including the auditors appointed by it, and when the protection of the financial institution’s own interest in legal proceedings requires disclosure. ### Prevention of money laundering (Section 48) - (a) No financial institution shall conceal, convert, or transfer cash or other property, knowing that such property is derived from criminal activity, for the purpose of concealing or disguising the illegal origin of the property or shall knowingly assist any person who is involved in such activity to evade the legal consequences of his or her action. - (b) The knowledge described in subsection (a) may be inferred from objective factual circumstances. ### Reporting of suspicious transactions and compliance with money laundering and counter terrorism financing standards (Section 49) - (a) A financial institution shall not carry out a transaction that appears to have an unlawful purpose or it suspects to be related to a serious criminal activity until it submits a confidential written report regarding the transaction that provides information as to the origin and destination of the money, the purpose of the transaction, and the identity of the transacting parties to the FIC and the Financial Intelligence Unit (FIU). - The FIU may give instructions not to execute the transaction. - Where a transaction is suspected to be related to a serious criminal activity and where a delay in carrying out the transaction is impossible or is likely to frustrate efforts to pursue the beneficiaries of such transaction, the financial institution shall inform the FIC and the FIU in writing immediately afterwards. - For purposes of this Section, “serious criminal activity” includes any felony or other crimes of moral turpitude and such other activities as the FIU may determine by regulation. - The FIC shall regularly examine all financial institutions Anti-Money Laundering and Counter Financing of Terrorism (“AMLCFT”) procedures and reporting standards. Such examinations may, in the sole discretion of the FIC, be conducted as an on-site or offsite examination, or both. - Any additional costs resulting from the examination shall be borne by the financial institution. - In the event that a Financial Institution’s AMLCFT procedures and reporting has been assessed either by a private entity acceptable to the FIC or by a governmental entity acceptable to the FIC, the FIC may accept such report in lieu of its report. - (b) With regard to any information provided to or requested by the FIU or the FIC for the purposes of complying with the MLPCA or any money laundering or financing of terrorism law of the Republic of Palau, or information disclosed in relation to a suspicious transaction, a financial institution shall not disclose to any person, other than a court or other person authorized by law, that information has been transmitted to or requested by the Commission, the FIU or other authorities, that an investigation is being carried out, or that instructions not to execute a transaction are being carried out. - (c) When a financial institution provides information that is referred to in subsection (b) in good faith, the financial institution shall be exempted from liability of any kind for complying with this section and/or for breach of any restriction on disclosure of information, except as provided in subsection (b), regardless of the result of the communication. - (d) For the purposes of this section, “financial institution” includes the administrators, employees, and shareholders of a financial institution. ### Reports and examination (Section 61) - (a) The Commission shall regularly conduct on-site examinations of the operations and affairs of every financial institution, and where the Commission so specifies, foreign branches of any Palau financial institutions, by examiners of the Commission or auditors appointed by the Commission. No one shall attempt to harass, intimidate, or exert undue influence on an examiner of the Commission or the auditors appointed by it. - (b) The primary purpose of any audit or examination under subsection (a) shall be to determine whether: - (1) a financial institution is in a safe and sound financial condition; - (2) the requirements of this Act, rules and regulations adopted by the Commission, and other applicable laws are being observed by the financial institution; and - (3) the business of the financial institution is being operated in a lawful and prudent manner. - (c) For the purpose of determining the condition of a financial institution and its compliance with this Act and regulations adopted by the Commission in the course of an examination made under subsection (a), the Commission may cause an examination to be made of any affiliates of the financial institution in the Republic of Palau to the same extent that an examination may be made of the financial institution. ### Production of records and information for examiners and auditors (Section 62) - (a) Every financial institution and every affiliate of such financial institution shall, pursuant to an examination conducted under section 61, produce for the inspection of any examiner or auditor duly authorized by the Commission to examine the financial institution, at such times and in such places as the examiner or auditor may specify (being times and places which, in the opinion of the examiner or auditor, would not be detrimental to the conduct of the normal daily business of such financial institution), all books, minutes, accounts, cash, securities and investments, documents and vouchers in their possession or custody, relating to their business and shall supply all information concerning their business as may reasonably be required by such examiner or auditor within such time as the examiner or auditor may specify. - Any request for records regularly maintained at a home office outside the Republic of Palau must be produced within 30 days from the date of the request. - (b) If any documents are not produced or requested information is not supplied in accordance with subsection (a), the defaulting financial institution or affiliate, or both, as the case may be, shall be subject to a penalty of five thousand dollars ($5,000) for each day in which it fails to produce or supply each such document or information. - (c) If any information supplied or document produced under subsection (a) is materially false, the financial institution or affiliate, or both, as the case may be, shall be guilty of an offense and liable to a penalty of Ten Thousand Dollars ($10,000) for each such false document or information. ### Infractions, penalties, remedial measures (Chapter VII, Section 63) - (a) Remedial measures and penalties shall be determined in particular cases by the Commission and shall be imposed subject to the provisions of the Administrative Procedure Act, 6 PNC Chapter 1, unless otherwise provided by law. - (b) If the Commission finds that an administrator or employee of a financial institution, or the financial institution itself acting through any authorized person, has committed violations (including but not limited to violation of this Act, refusal to comply, willful neglect of duties, breach of trust or fiduciary duty, fraudulent or questionable practices, refusal to submit to examination, conducting business in an unsafe or unauthorized manner, or violating license conditions), the Commission shall give written notice, call a meeting of directors, demand discontinuance, and may take the following actions: - (1) issue written warnings; - (2) conclude a written agreement with the bank providing for a program of remedial action; - (3) issue an order to cease and desist; - (4) impose fines on the financial institution or corporation, or on its administrators or principal shareholders in an amount of up to ten thousand dollars ($10,000) per day for each day that the violation continues; provided, however, that fines shall be of similar amount for comparable financial institutions or corporations, with comparable total assets for the same type of violation; - (5) suspend temporarily or dismiss administrators from positions in a financial institution or corporation; - (6) impose restrictions on the operations of the financial institution or corporation; - (7) revoke the license of the financial institution or corporation; - (8) order the financial institution or corporation dissolved; or - (9) revoke the license of a Palau financial institution or the Palau branch of a foreign financial institution and appoint a receiver for the financial institution under this Act. - (c) Classes of violations, penalties, remedial measures, and procedures shall be set forth in rules and regulations adopted by the Commission and shall not be subject to appeal under the Administrative Procedure Act, 6 PNC Chapter 1, except for the procedure set forth for cease and desist orders. - Cease and desist orders: at the directors’ meeting provided for in subsection (b), or within thirty calendar days thereafter, the Commission shall serve a written order to cease and desist and to take affirmative corrective action. The order shall be effective upon issuance if immediate and irreparable harm is threatened; otherwise effective not less than ten calendar days after delivery or mailing. A copy shall be entered upon the minutes of the directors who must certify in writing that each has read and understood the order. All copies of notices, correspondence or other records of the Commission relating to an order to cease and desist shall be confidential and shall not be publicized except in authorized lawsuits or lawful order or authority. The Administrative Procedure Act shall not apply to orders to cease and desist issued hereunder. - (d) For Palau banks whose capital is determined by the Commission to be less than the required minimum capital, the Commission may require the bank to adopt a capital restoration plan satisfactory to the Commission that provides for the bank to attain capital adequacy within a specified time-frame as may be acceptable to the Commission. - (e)(1) The penalties described in subsection (b) may be applied to any person who violates any of the provisions of section 3. - (e)(2) The Commission shall also be authorized to liquidate the business of such person under Chapter IX of this Act if it finds the financial institution to be insolvent. - (f) It shall be a criminal offense punishable by a fine of not less than one thousand dollars ($1,000) nor more than double the amount of credit sought or imprisonment of not less than one year nor more than ten years, or both, for a person to willfully make a misstatement of material fact or fail to state a fact material to an application for credit. - (g) The measures and penalties provided in this section shall not preclude application of other civil penalties or criminal penalties as provided by other laws of the Republic of Palau. - (h) Any fines imposed in accordance with subsection (b)(4) or proceeds in accordance with subsection (d)(2) shall be paid to the National Treasury. - (i) No civil or criminal liability or professional sanctions may be imposed against the bank or its directors, officers, employees, agents, or attorneys who used due diligence for good faith compliance with the requirements of this Act. ### Regulatory and supervisory powers of the Commission (Section 79) - (a) The Commission shall be empowered to issue such regulations, orders, or guidance, to visit such offices of financial institutions, and to examine such accounts, books, documents and other records as the Commission shall deem necessary or advisable to give effect to the provisions of this Act. ### Selected provisions from Palau National Code (PNC) — Criminal Code excerpts - § 101. Classification of crimes. - A felony is a crime or offense which may be punishable by imprisonment for a period of more than one year. Every other crime is a misdemeanor. - § 102. Aiding and Abetting. - Every person is punishable as a principal who commits an offense against the Republic or aids, abets, counsels, commands, induces, or procures its commission or who causes an act to be done, which, if directly performed by him, would be an offense against the Republic. No distinction is made between principals in the first and second degrees, and no distinction is made between a principal and what has heretofore been called an accessory before the fact. - § 103. Accessories. - Every person who, knowing that an offense against the Republic has been committed, receives, relieves, comforts, or assists the offender in order to hinder or prevent his apprehension, trial, or punishment, is an accessory after the fact. An accessory after the fact shall be imprisoned not more than one-half the maximum term of imprisonment or fined not more than one-half the maximum fine prescribed for punishment of the principal, or both; or if the principal is punishable by life imprisonment, the accessory shall be imprisoned not more than 10 years. - § 104. Attempts. - (a) Except as otherwise provided in subsection (b) of this section, every person who shall unlawfully attempt to commit any of the crimes named in this title, or in any other title of this Code, which attempt shall fall short of actual commission of the crime itself, shall be guilty of attempt to commit the said crime, and where no separate provision is made by law for punishment upon conviction of such attempt, a person so convicted shall be punished by imprisonment for a term not exceeding one-half of the maximum term of imprisonment which may lawfully be imposed upon conviction for commission of the offense attempted, or by a fine in an amount not exceeding one-half of the fine which may lawfully be imposed upon conviction for commission of the offense attempted, or by both such fine and imprisonment. - (b) Every person who shall unlawfully attempt to commit murder, which attempt shall fall short of actual commission of the crime itself, shall be guilty of attempted murder, and shall be sentenced as follows: - (1) for attempted murder in the first degree, imprisonment for a term of 30 years; and - (2) for attempted murder in the second degree, imprisonment for a term of not less than 30 months nor more than 30 years. *Source: Sections of the Financial Institutions Act of 2001, as amended in 2007; Palau National Code (PNC) excerpts provided in the source content.* --- _Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2009/_cr0909.pdf_