The world has no borders and distance is negligible for the technologically savvy criminal. Individuals with illicit funds to launder or terrorist activities to finance can, with the latest technology, transfer high volumes of money around the globe almost instantaneously and seek to conceal the origin or the destination of the funds.
Singapore, though it boasts one of the lowest crime rates in the world1, is not immune to inherent crossborder money laundering and terrorist financing (ML/TF) risks. Ranked by the International Monetary Fund as one of the 25 systemically important financial centres in the world, Singapore’s openness as an international financial centre and transport hub with a high volume of transactions and wide international reach exposes it to inherent ML/TF risks, the bulk of which originate overseas. Singapore’s reputable financial infrastructure could ironically be targeted as a transit point or safe haven for illicit funds.
Keeping the hounds at bay
Singapore makes persistent efforts to address its ML/TF risks by maintaining a rigorous legal and regulatory anti- 1 United Nations Office on Drug s and Crime, Report on International Statistics on Crime and Justice (2010) money laundering and counter-terrorist financing regime.
The two primary ML/TF laws are the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act, Chapter 65 (CDSA) and the Terrorism (Suppression of Financing) Act, Chapter 325 (TSFA). The CDSA deals primarily with money laundering, while the TSFA deals with terrorism financing. The Financial Investigation Group of the Commercial Affairs Department (CAD) is the lead Singapore enforcement authority for ML/TF investigations.
The Monetary Authority of Singapore (MAS) is the institution that plays a prominent role in addressing ML/ TF risks. MAS regulates financial institutions through licensing requirements and constant supervision. It is empowered by the Monetary Authority of Singapore Act, Chapter 186 (MAS Act) to request information from and issue directions to financial institutions if MAS determines it necessary, among other things, for the prevention of ML/TF.
Beyond MAS, the Singapore government is proactive in addressing ML/TF risks outside the sphere of financial institutions. It published a National Risk Assessment Report (NRA Report) in January 2014 to consider the potential risk areas for ML/TF in Singapore. The NRA Report sought to inform the prioritization and allocation of resources to enhance the anti-money laundering and counter terrorist financing regime in Singapore.
The NRA Report concluded that many sectors have in place robust regimes to combat money laundering and terrorist financing, but also identified several areas of high risk and other areas that need further enhancement.
High risk sectors
The sectors most vulnerable to ML/TF risks are international cash-intensive institutions. Banks face high inherent risks as they offer a wide range of products and services that involve cash-intensive, often international transactions. They serve high volumes of customers, including a broad spectrum of corporate and individual customers, who might include higher-risk clients such as politically exposed persons. With the expansion of both physical and electronic financial infrastructure, ML/TF activities are becoming increasingly sophisticated and difficult to detect as money and valuables can move across borders with greater ease.
Singapore, as a strong financial centre that aims to appeal to businesses by reducing bureaucratic red tape, can be a particularly attractive conduit for ML/ TF funds.
In several recent instances, Singapore’s financial structures have been used for the placement or integration of illicit funds. In one case, a woman in Singapore received approximately US$2.08 million from two men. Those funds were later determined to have been fraudulently transferred to the two men from the United States. She, in turn, remitted the funds out of Singapore, to a man in Indonesia. The woman was convicted and sentenced to nine months imprisonment for assisting another in the retention of the benefits of criminal conduct.
In another case, the son of the former prime minister of Bangladesh transferred into Singapore bank accounts more than S$2.7 million of alleged bribes received in connection with a project to build a mooring containment terminal at a port in Bangladesh. The Singapore authorities responded to a mutual legal assistance request by Bangladesh and temporarily froze approximately US$1.9 million in assets to return to Bangladesh.
These occurrences demonstrate that, despite stringent controls put in place by the Singapore authorities, Singapore remains highly susceptible to ML/TF risks from abroad.
In response, MAS implemented new efforts to crack down on money laundering. MAS took steps to strengthen its regulatory control over financial institutions and other entities at risk for criminal or non-transparent financial transactions. A part of these efforts is a recent decision to stop issuing new S$10,000 notes in order to control large cash transactions. MAS is also in the process of amending its regulations for financial institutions to enhance Singapore’s capability for international cooperation on ML/TF issues, in line with FATF recommendations and extend antimoney laundering and counter-terrorist financing regulations to cover financial holding companies. MAS has further proposed regulatory changes that emphasise its position that anti-money laundering and counter-terrorist financing obligations, in particular customer due diligence obligations, will continue to take precedence over Singapore’s newly-enacted data privacy laws.
In a similar vein, MAS announced that it will issue new regulations requiring cryptocurrency traders to verify the identity of customers and report any suspicious activity to mitigate the risk that digital currencies, such as Bitcoin, could be used for illegal transactions. With this move, Singapore keeps pace with a number of other jurisdictions that have announced different strategies to regulate or selectively ban the use of digital currencies.
Another sector identified by the NRA Report as requiring strengthened controls involves Corporate Service Providers (CSPs). CSPs are business entities and people that provide a range of services such as corporate advisory, office hosting, corporate secretarial services and statutory filings of documents with the Accounting and Corporate Regulatory Authority (ACRA). CSPs are not currently regulated, but ACRA has proposed control measures to remedy concerns relating to customer due diligence or the engagement of CSPs to set up complex or unusual structures to conceal the beneficial ownership of corporations.
Standing on a firm base
As mentioned, Singapore’s efforts to address ML/TF risks are supported by two main pieces of legislation, the CDSA and the TSFA.
The CDSA and TSFA impose three principal obligations: (1) not engaging in money laundering or terrorism financing; (2) reporting information relating to money laundering activity or terrorism financing; and (3) not ‘tipping off’ a person or entity that they may be the subject of an investigation. Individuals who violate the CDSA or the TSFA can be subject to a fine of up to S$500,000 and/or 7 years’ imprisonment, if the offender is a corporate entity, the fine may be up to S$1 million. The CDSA and TSFA both have extraterritorial effect and can apply outside of Singapore.
In Singapore, the funds derived from crimes listed as one of the 424 serious offences under the CDSA are considered proceeds of crime which may be laundered. One notable recent addition to this list is tax evasion.
Corporations, in addition to individuals, may also be liable for money laundering or terrorist financing offences. Although the burden of proof has been traditionally difficult to discharge at common law, the CDSA specifies that it is sufficient for the prosecution to show that a director, employee or agent of the corporation, acting within the scope of his or her employment, had the state of mind necessary to engage in the prohibited acts. This test lightens the prosecutorial burden in proving corporate criminal liability.
Singapore’s progressive approach on addressing ML/TF risks stems, in part, from the challenges it has faced in the past and the need to maintain its reputation as a well-regulated financial centre in the future.
In 2000, the OECD issued a report entitled ‘Towards Global Tax Cooperation: Progress in Identifying and Eliminating Harmful Tax Practices’ (OECD Report) that identified a number of jurisdictions as potentially harmful preferential tax regimes. These jurisdictions were considered to lack transparent tax and regulatory systems and mechanisms to engage in effective exchange of information. The OECD Report revealed a ‘white’ list of countries which implemented an agreed upon standard, a ‘black’ list of 35 non-cooperative tax havens and a ‘grey’ list of countries that were tax havens or ‘other financial centres’ that had committed to the internationally agreed tax standards but had not yet substantially implemented them.
Placement on the grey list posed a challenge for Singapore in its effort to be viewed as a reputable financial centre. Singapore took immediate steps to address this issue by signing a series of tax information exchange agreements with other countries that the OECD Report identified as meeting its tax haven criteria and operating in an effective manner. After signing a series of Avoidance of Double Taxation Agreements with various countries, in November 2009, Singapore signed its twelfth such agreement with France to incorporate the OECD standard for the effective exchange of information. Following the signing of this protocol, Singapore was removed from the grey list and placed on the white list.
Moving forward, Singapore would be prudent to stay on the white list and take all necessary steps to satisfy the OECD and other anti-money laundering organisations, like the Financial Action Task Force (FATF), that its regime adequately addresses the ML/TF risks that are posed. In light of an impending review from the FATF, Singapore’s efforts to assess its risk and strengthen its controls are both timely and forward-looking.
A balancing act
Singapore has made persistent efforts to address existing and emerging ML/ TF risks which demonstrate a highly progressive approach to controlling illicit funds and are an appropriate response to the surrounding threats.
However, Singapore must remain cautious as it continues to roll out new legislation and implement regulations. Some of the efforts to regulate international financial institutions with offices in Singapore may potentially lead to conflicts with the obligations these institutions have in other countries. Requirements that MAS may impose on certain financial institutions could conflict with foreign data privacy or state secrecy laws. Under MAS Notice 626, which applies to any company which carries on banking business in Singapore, MAS has the mandate to inspect the books, accounts and transactions of each bank in Singapore. Thus if a bank is incorporated in a foreign jurisdiction but has a presence in Singapore, MAS might require that it discloses documents which disclosure could potentially violate that bank’s obligations elsewhere.
While it introduces new controls and considers how to respond to emerging challenges, Singapore must remain cognisant of the reasons businesses have chosen to operate in Singapore.
The anti-money laundering and counter-terrorist financing regime in Singapore must continue to undergird the country’s ambition to be businessfriendly while, at the same time, effectively mitigating ML/TF risks, meeting international standards and taking heed of the regulatory regimes of other countries. That would be a tightrope that Singapore needs to carefully walk.
The article first appeared on Compliance Complete, a Thomson Reuters Accelus product.