Jurisdiction - Singapore
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Singapore – Tax Crimes To Be Designated As Money Laundering Predicate Offences.

17 October, 2012

 

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 (“Consultation Paper”). The closing date for feedback is 9 December 2012.

 

BACKGROUND AND RELEVANT LEGISLATION

 

The Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (“CDSA”) is the primary instrument in Singapore to criminalise the laundering of benefits derived from corruption, drug trafficking and other serious offences, as well as to allow for the investigation and confiscation of such benefits.

 

The list of “serious offences” is contained under the second schedule of the CDSA, and these “serious offences” may be termed “money laundering predicate offences” in that the proceeds of these “serious offences” may become the subject of a money laundering offence.

 

DESIGNATED TAX CRIMES

 

From 1 July 2013, it is proposed that serious tax offences be designated as money laundering predicate offences, with such serious tax offences to be included under the second schedule of the CDSA. In the Consultation Paper, MAS has indicated that this designation is to align Singapore’s money laundering regime with the recent revisions to the Financial Action Task Force (“FATF”) recommendations of February 2012 and the new FATF requirement to designate tax offences as money laundering predicate offences.

 

The tax offences to be designated are those under section 96 and section 96A of the Income Tax Act (“ITA”) and section 62 and section 63 of the Goods and Services Tax Act (“GSTA”).

 

Sections 96 and 96A of the ITA respectively pertain to the following:

 

(a) the offence of “tax evasion”, including omitting income from a tax return under the ITA, the making of false statements in a tax return under the ITA, or the giving of false answers to requests for information made in accordance with the provisions of the ITA; and

(b) the offence of “serious fraudulent tax evasion”, including preparing or maintaining false books of accounts or records. 

 

Sections 62 and 63 of the GSTA respectively pertain to the following:

 

(a) the offence of “tax evasion”, including the omitting, understating or overstating of input tax in a tax return made under the GSTA, the making of false statements in a tax return under the GSTA, the giving of false answers to requests for information made in accordance with the provisions of the GSTA, or preparing or maintaining false books of accounts or records; and

(b) the offence of “improperly obtaining refund” where the person committing the offence causes the tax authorities, whether directly or indirectly, to refund an amount in excess of that which should properly be refunded to him.

 

IMPLICATIONS

 

Once this designation has come into effect, financial institutions (“FIs”) must apply the full suite of the anti-money laundering and countering the financing of terrorism measures as contained in the relevant MAS Notices, to prevent the laundering of proceeds from serious tax offences.

 

In the Consultation Paper, MAS provided further guidance as to what should form part of a FI’s compliance framework, given the inclusion of these new categories of money laundering predicate offences.

 

Identifying and assessing tax-related risks

 

MAS has proposed that existing client due diligence measures should be supplemented with the following measures, in order for a FI to understand and assess a client’s tax-risk profile:

 

(a) obtaining additional information and, where necessary, verifying the information/representations made by the client;

(b) identifying and incorporating tax-specific red-flag indicators and any other additional parameters pertinent for the FI to conduct a tax-risk assessment and to identify high-risk clients;

(c) undertaking a critical review for all existing accounts to assess the tax legitimacy of assets booked and identifying high-risk accounts; and

(d) conducting enhanced due diligence for clients assessed to present a high risk of wilful or fraudulent tax evasion.

 

Managing and mitigating tax-related risks

 

In the Consultation Paper, MAS proposed that FIs should take the following measures to manage and mitigate tax-related money laundering risks:

 

(a) applying control measures including escalation/approval policies (senior management approval where appropriate) commensurate with a client’s assessed tax-risks;

(b) instituting on-going monitoring procedures for the detection of transactions that may be related to tax predicate offences and adopting appropriate risk mitigation for high-risk client accounts;

(c) filing a suspicious transactions report if the FI suspects or has reasonable grounds to suspect that assets are the proceeds of wilful or fraudulent tax offences;

(d) maintaining proper records of due diligence performed to assess the tax legitimacy of assets accepted, including supporting bases and documentation for account acceptance/retention and other related decisions; and

(e) ensuring that staff adhere to all internal control and compliance policies and procedures and are provided adequate training to fulfil the requirements under the new tax crimes regime.

 

IMPACT ASSESSMENT

 

The inclusion of tax crimes as money laundering predicate offences is very much in line with the revised international standards on prevention of money laundering issued by FATF. However, while the compliance measures specified in the Consultation Paper does provide some guidance, it is likely that more specific guidance might be required by FIs, particularly so at the client due diligence stage when an FI is required to assess whether the client is a high-risk client from the tax perspective. Perhaps the true bite of the new measures may apply at the on-going transaction monitoring stage. FIs may no longer sit back and do nothing if they have knowledge or suspicion that client assets may be connected with wilful or fraudulent tax offences.

 

REFERENCES

 

Please click here to refer to the Consultation Paper.

 

 

For further information, please contact:

 

Gary Pryke, Managing Director, Drew & Napier 

gary.pryke@drewnapier.com 

 

Eric Chan, Director, Drew & Napier 

eric.chan@drewnapier.com

 

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