Palau's parliament has passed banking law changes that opponents say create loopholes for money laundering and risk adverse action from abroad.
The United States and Japan have already expressed concern about the bill, which Palau's Congress maintains is aimed at helping two home-grown banks re-open their doors.
The bill is now before the President, Tommy Remengesau, who has opposed the changes, but is facing a veto if he strikes it down outright.
The President said Palau could be blacklisted or penalized because of the bill.
Palau was one of three Pacific Island countries targetted by international banks in 1999 because of suspected money laundering by the Russian mafia.