By Scott Radway

KOROR, Palau, (Pacific Daily News, Nov. 18) –The United States and Japan have expressed concern in letters to Palau about a banking measure they say could open the door to money laundering in the Pacific state.

The bill, recently passed by the Palau legislature, is now before President Tommy Remengesau, who has opposed the changes but is facing a veto override if he strikes down the bill outright.

Congress has "to understand that there are serious ramifications that come with relicensing two banks. We could be blacklisted or penalized," said Remengesau, noting the heightened global concern with money laundering following Sept. 11 terrorist attacks has made governments less tolerant.

In a letter sent directly to congressional leadership from the U.S. Charge d'Affaires to Palau, Ronald Harms wrote: "If the proposed amendment ... were passed into law, the United States government, through the Department of Treasury, would consider issuing a financial advisory instructing U.S. banks to pay special attention to all transactions to/from financial institutions in Palau."

The Japanese Charge d'Affaires to Palau, Kiyoshi Suwa, said in a letter sent to Remengesau: "Since Japan has long been attaching importance on anti-money laundering, it can't help but express grave concerns on the parliamentary movement to pass the bill weakening such measures."

Del. Joel Toribiong said the changes are meant to "lower the bar" for the two local banks -- the Palau Central Bank and Melekeok Government Bank -- because they are unfairly being asked to meet banking standards dictated by wealthy, developed nations.

The standards have the net effect of strangling Palauan-owned banks struggling to come of age in a young economy, Toribiong said. Using an baseball metaphor, Toribiong added: "It's like putting a little league team in a big league game. You have to give Palau time to catch up."

The changes center on the minimum capital requirement for banks, lowering it from $500,000 to $250,000. The changes would also provide greatly expand time frames for banks to submit financial information and immediately relicense all banks that failed to meet new banking requirements after Dec. 1, 2001.

Palau, in 1999, was one of three Pacific Island countries targeted by the international banking community because of suspected money laundering activity involving the Russian Mafia. Nauru was named as the main player, but Palau, which did not yet have effective banking regulations, was later sited by the Bank of New York as funneling $1.7 billion through some of its banks during an 18-month period.

A stunned Palau responded by writing banking regulations enacted in 2001. Palau Central Bank and the Melekeok Government Bank could not meet the new regulations and were closed in late 2002.

November 18, 2003

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