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Singapore – MAS To Designate Tax Crimes As Money Laundering Predicate Offences.

4 April, 2013

 

Legal News & Analysis – Asia Pacific – Singapore – Regulatory & Compliance

 

INTRODUCTION 


On 9 October 2012, the Monetary Authority of Singapore (“MAS”) issued a consultation paper to seek feedback on the designation of tax crimes as 
money laundering predicate offences in Singapore, which will come into effect on 1 July 2013. The consultation closed on 9 December 2012. MAS has now published a response to the feedback received on its consultation paper.

 
MAS’S RESPONSE


Parity with other money laundering predicate offences 


It appears that some respondents might have interpreted the original MAS consultation as intending to require financial institutions (“FIs”) to develop and implement a separate set of controls for anti-money laundering/countering the financing of terrorism (“AML/CFT”) just for tax crimes. In its published response, MAS has clarified that what is proposed is only the inclusion of tax crimes as predicate offences in parity with existing money laundering predicate offences and that the supervisory expectation is the same for all types of predicate offences. 


FIs are not expected to determine if their clients are fully compliant with all their relevant tax obligations globally. Rather, FIs must assess if there are reasons to suspect that a client’s assets are the proceeds of serious offences, eg fraudulent or wilful tax evasion and if so, to take appropriate measures. 


MAS also announced that amendments will be made to its AML/CFT Notices later in 2013, to give effect to the revisions to the revised Recommendations of the Financial Action Task Force (“FATF”). 


Serious foreign tax offence 


MAS also noted that some respondents have queried whether FIs were required to apply their risk assessments and mitigation controls to detect and deter the proceeds arising from foreign offences of fraudulent or wilful tax evasion, if the foreign taxes evaded were of a type which Singapore did not impose. 


MAS has responded to clarify that in line with the FATF standards, the concept of dual criminality also applies to tax crimes designated as money laundering predicate offences. The requirement of dual criminality means that to constitute a predicate offence under Singapore law, the foreign tax offence must be such that, if committed in Singapore, an offence under Singapore tax law would also have been made out. 


However, MAS did emphasise that the requirement of the dual criminality principle does not absolve FIs from having to comply with MAS’s AML/CFT Notices and to observe MAS’s supervisory expectations generally. Thus, a foreign tax offence might still constitute a foreign serious offence within the meaning of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation and Benefits) Act (“CDSA”) 

 

and if this is indeed the case, the duty to file a suspicious transaction report (“STR”) will still be triggered. 

Commencement of STR filing 

 

Respondents had also enquired as to whether the STR filing obligations were limited only to suspected acts of tax evasion committed after 1 July 2013 (the date when tax crimes will be added as predicate offences under the CDSA). 


To this, MAS responded to say that FIs would be required to file STRs on any assets which it holds as at 1 July 2013, if it knows or has reasonable grounds to suspect, that such assets are proceeds of the tax offences designated under the CDSA. 


Prior to 1 July 2013, FIs would be expected to internally maintain a list of such accounts, keep proper records and file STRs where necessary. 


This response is significant and would seem to imply that the STR filing obligation is not limited to tax offences committed after 1 July 2013. Instead, after 1 July 2013, FIs should re-examine their existing accounts to check whether STR filings are called for. 


Applying a risk based approach 


The manner in which a risk based approach is to be applied has always been a matter of uncertainty within the financial sector, with many FIs having concerns as to whether MAS will second-guess or overrule risk assessments that are made by FIs. 


In response to queries on this, MAS has reiterated that the risk based approach was to be applied in accordance with the FATF standards and that the FI should document and be able to substantiate the basis for its risk-assessment, taking into account all relevant risk factors, including exposure to tax-risks, and the attendant vulnerabilities of particular business activities to money laundering abuse. 


The response from MAS still seems vague but it does seem to imply that MAS will be unlikely to overrule an FI’s own risk assessment provided that there are objective and defensible grounds for the FI’s own assessment. 


Tax crimes-specific guidance 


Some respondents requested for tax crimesspecific guidance, such as: 

 

 

  • (a) red-flag indicators that FIs should look out for; 
  • (b) additional information which FIs should request from a client in order for the FI to assess a client’s tax-risk profile; 
  • (c) whether a client’s declaration of his tax return status would be sufficient; and 
  • (d) what enhanced due diligence measure should be performed in relation to taxrisks. 


To this, MAS responded to say that that FIs should assess and understand their client’s tax-risk profile, with the extent of due diligence measures being determined by using a risk based approach. Thus, it is not the case that the FI will be required to obtain additional information from each and every client. 


MAS also gave the following examples of red-flag indicators: 

 

  • (a) the use of complex structures; and 
  • (b) reliable negative tax-related reports on the client or on the client’s jurisdiction of domicile or tax residence. 


MAS further emphasised that FIs had to take into account institution-specific factors, such as, their product offerings and clientele and consider if additional parameters might be pertinent for the conduct of their tax-risk assessments and due diligence checks. 


Review of existing accounts 


Some FIs also requested for more time to complete the review of their existing accounts, which they are required to conduct to assess the tax legitimacy of assets booked. 


In response, MAS has said that FIs were permitted to use a risk based approach to organise and prioritise the sequence of review of existing accounts. However, for accounts assessed as presenting high tax-risks, the review must be completed by 30 June 2013 and for all other remaining accounts, the review must be completed by 30 June 2014. 


REFERENCES


Please click here to access MAS’s response.

 

 

For further information, please contact:

 

Eric Chan, Director, Drew & Napier 

eric.chan@drewnapier.com

 

Regulatory & Compliance International Law Firms in Singapore

 

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