There has been a growing global effort to combat money laundering and to counter the financing of terrorist activities, and Singapore has taken an active role in the fight. In 1992, Singapore signed on as a member of the Financial Action Task Force (“FATF”), the global standard setter for anti-money laundering (“AML”) and counter-terrorism financing (“CTF”) measures, and since then, much legislation and regulation has been implemented to meet its obligations. Singapore was assessed by FATF in 2008 to have a rigorous AML/CFT regime and Singapore’s next assessment by FATF is tentatively fixed for the 4th quarter of 2015.
On 11 May 2015, Parliament passed amendments to the Monetary Authority of Singapore (“MAS”) Act to maintain Singapore’s commitment to meet standards set by FATF and the Basel Committee on Banking Supervision. The MAS’ revised Notices on AML and CTF for financial institutions, which were issued in April 2015, still apply to enhance measures taken by financial institutions to detect and deter illicit funds.
With the increased scope of AML and CTF obligations, it is perhaps timely for organisations in Singapore to reflect on the basics of money laundering and terrorism financing and how best to handle such challenges within their operations.
Money laundering activities may sometimes be difficult to detect, as the financial structures and schemes behind such activities have gotten increasingly complex and sophisticated. It is thus important to understand the basics of money laundering.
Money laundering is the process by which criminals attempt to conceal the true origin and ownership of the proceeds of their criminal activities, thereby providing a legitimate cover for their source of income. Money laundering often consists of three stages:
- Placement: This is the physical disposal of proceeds (usually cash) from, or for criminal activities.
- Layering: This is the process of separating illicit proceeds from the sources of crime by creating complex layers of financial transactions to disguise the audit trail.
- Integration: This is where the illicit funds are brought back into the legitimate system as “clean” or legitimate money.
Through this process, the illicit funds are moved into the legitimate economy in such a way as to conceal its origins.
Terrorist financing provides funds for terrorist activity. This may involve funds raised from both legitimate as well as criminal sources.
Terrorists often use techniques similar to those of money launderers to hide the identity of the sponsors and the ultimate beneficiaries of the funds. Although the financial transactions tend to be in smaller amounts, it is no less vital to identify and prevent the movement of such funds.
Methods used to conduct terrorist financing include the use and purchase of legitimate businesses, cash smuggling and placement, trade linked schemes, dealings in precious stones and metals and online or ATM transfers.
AML and CTF Obligations
In keeping with Singapore’s efforts to uphold the FATF standards in AML and CTF, numerous obligations have been imposed on organisations in Singapore. As stated above, a series of revised notices for financial institutions regarding AML and CTF were released in April 2015.
- MAS Notice 626 relating to Banks
- MAS Notice 1014 relating to Merchant Banks
- MAS Notice 824 relating to Finance Companies
- MAS Notice 3001 relating to Holders of Money-Changer’s Licence and Remittance Licence
- MAS Notice 314 relating to Direct Life Insurers
- MAS Notice SFA04-N02 relating to Capital Markets Intermediaries
- MAS Notice SFA13-N01 relating to Approved Trustees
- MAS Notice FAA-N06 relating to Financial Advisers
- MAS Notice TCA-N03 relating to Trust Companies
- MAS Notice PSOA-N02 relating to Holders of Stored Value Facilities
- MAS Notice 626A relating to Credit Card or Charge Card Licensees
Although the specific AML and CTF obligations may differ, the general concepts are largely similar. The preventive measures which organisations are required to take cover a few key areas:
Risk Assessment: Organisations must conduct risk-assessment in relation to their customers or counterparties, the countries or jurisdictions they have operations in, and their products, services or transactions.
This involves taking a comprehensive look at the organisation’s operations to determine where the risk of money laundering or terrorist financing may occur. In particular, the organisation should be aware of points of contact with third parties, particularly where the movement of monies is involved.
Due Diligence: Organisations must then conduct due diligence in relation to their customers or counterparties. This includes verifying the identities of individuals, and verifying the beneficial owners of entities.
A large part of managing the AML and CTF risks involves understanding the individuals or entities the organisation is dealing with and the transactions being undertaken. As illicit activities will always involve a certain degree of deception and concealment, sufficient checks should be conducted to ascertain the veracity of the information presented. The level of due diligence required depends on whether the customer or counterparty is of a low or high risk.
Record Keeping: Organisations must retain and maintain all records of the documents, data and information which they have used to satisfy themselves of their AML and CTF obligations. This is not only for internal reference, but also to evidence that the proper AML and CTF standards have been complied with.
Suspicious Transaction Reporting: Where suspicious transactions have been identified, organisations must report such suspicious activity to the relevant authorities. The relevant investigative bodies will then be able to more thoroughly assess and inspect the reported risks.
Internal Policies: Organisations are required to develop adequate internal policies, procedures and controls in relation to AML and CTF. This involves setting out a consolidated and actualized AML and CTF system.
It would thus be beneficial for organisations to design their own AML and CTF policies. Employees should receive proper regular training on these policies, and audits should be conducted to ‘stress-test’ procedures designed to ensure compliance with regulatory requirements.
AML and CTF processes are a necessary part of all commercial operations. With the enhanced scope of AML and CTF regulations in Singapore, it is all the more important for organisations to develop specific and comprehensive systems and policies.
Singapore has demonstrated a firm commitment to FATF, and it is likely that audits may be conducted on certain organisations to assess the level of compliance across various industries. Organisations should thus be prepared for potential reviews of their AML and CTF procedures.