By Scott Radway

KOROR, Palau, (Pacific Daily News, Nov. 20) - Despite a promise of a veto override, President Tommy Remengesau yesterday struck down a controversial banking bill that opponents say would create loopholes for money laundering and risk international sanctions.

Both the United States and Japan formally expressed concerns to Palau leaders about the proposed banking law changes. The United States went as far to advise Congress that it would consider issuing an advisory on Palau banks if the bill became law.

"If the international community sanctioned Palau, it would bring our economy to a halt," Remengesau said.

Palau's Congress maintains the bill is aimed only at "lowering the bar" for two homegrown banks saddled by regulations suited for developed nations reopening their doors.

Prior to the veto, congressional representatives said that there are enough votes in Congress to override a veto.

But Remengesau said, in continued meetings with senators and delegates, that he has secured enough support to sink an override effort. Remengesau was expected to refer the bill back for changes, rather than risk an override showdown.

As required by law, Remengesau has called a special session today to provide Congress the opportunity to override the veto. Congress today also might override a second veto yesterday of a bill that would legalize casino gambling in a southern main island.

Palau, in 1999, was one of three Pacific Island countries targeted by the international banking community because of suspected money laundering activity possibly involving the Russian mafia.

A stunned Palau discovered some foreign groups attempting to exploit its lack of regulations with varying degrees of success and responded by writing banking regulations enacted in 2001. The two local banks, Palau Central Bank and the Melekeok Government Bank, though could not meet the new regulations and were closed down in late 2002.

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

Remengesau said the new bank law changes would give all the illegitimate foreign banks that were ousted from the country after the 1999 controversy the legal ground to regain licenses.

Remengesau added that submitting financial information and the minimal capital requirements foster transparency and fiscal stability that is meant more to protect Palauan depositors from losing their money in mismanaged banks.

"This is about protecting our people," Remengesau said.

November 20, 2003

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