Jurisdiction - Singapore
News
Doing Business In Singapore: The Impact Of Money Laundering And Terrorist Financing Laws

Doing Business in ASEAN: Legal Considerations – Singapore Chapter

 

June, 2014

 

Introduction  

Laws on money laundering and terrorist financing have grown in significance and impact over the last twenty years. Developed economies all over the world have found it necessary to update their legal systems to include robust legal rules to combat money laundering and terrorist financing. The latter of course gained prominence in the minds of law makers all over the world after the terrorist attacks in New York on 11 Sep 2001.  
 Today, worries over potential money laundering and terrorist financing concern not only financial institutions and government enforcement authorities, but also directly affect businesses in the way they operate on a day-to-day basis. To protect its reputation as a major international financial centre, Singapore has found it necessary to have on its statute books, laws to combat money laundering and terrorist financing that closely match leading international standards.   

These laws may impact businesses in various ways. In some cases, the laws apply directly to companies and businesses in requiring them to do or to refrain from doing certain things. In other cases, the laws apply only to financial institutions, but the manner in which financial institutions comply with the laws will affect the way in which they are able to serve their clients and customers who are companies or businesses.  
 
The international standard on laws to combat money laundering and terrorist financing are set by an inter-governmental body known as the Financial Action Task Force (“FATF”) which was first established by the G-7 Summit in 1989. The avowed objectives of the FATF are to set standards and promote the effective implementation of legal, regulatory and operational measures to combat money laundering, terrorist financing and other related threats to the integrity of the international financial system. To this end, it has developed a series of Recommendations (the “FATF Recommendations”) that are today recognised as the international reference standard for combating money laundering and the financing of terrorism. The FATF currently comprises 34 member jurisdictions and two regional organisations, representing all major financial jurisdictions and strategically important economies around the world.  
 
In Singapore, the main statutes implementing the FATF Recommendations into local law are:  
 
  • the Corruption, Drug-Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap. 65A) (“CDSA”), which is the principal statute on money-laundering; 
  • the Terrorism (Suppression of Financing) Act (Cap. 325) (“TSOFA“), which is the principal statute on the financing of terrorism.  
 

Money Laundering  

 
One of the key principles of the FATF Recommendations is that the offence of money laundering should be considered to be an offence separate and distinct from the underlying offence that generates the proceeds that are being laundered. In FATF terminology, the offence from which the act of money laundering is predicated is known as the money laundering predicate offence.  
 
Part VI of the CDSA contains a series of provisions that make it an offence for one person to assist another person to retain the benefits or proceeds from a money laundering predicate offence. The money laundering offences defined under Part VI are relatively serious offences, being punishable upon conviction with a fine of up to SGD 500k, imprisonment of up to 7 years, or both. Where the offender is not an individual, the penalty is a fine of up to SGD 1m. As at the time of writing, the Singapore Government has presented a Bill to Parliament to propose increasing the imprisonment term to 10 years, in line with the TSOFA (which we would discuss below).  
 
Singapore has adopted a list approach for defining what offences under Singapore law are money laundering predicate offences. These are set out in the First and Second Schedules. Thus, the offence of money laundering is committed if the benefits or proceeds of crime relate to an offence specified in the First or Second Schedules to the CDSA. Significantly, until relatively recently (1 July 2013), tax offences were not money laundering predicate offences under Singapore law.  
 
What is more directly relevant for the business community and which is often overlooked is section 39(1) of the CDSA. This provision establishes the legal regime in Singapore for reporting suspicious transactions, and is worded as follows:  
 

Duty To Disclose Knowledge Or Suspicion  

 
39.​(1)​Where a person knows or has reasonable grounds to suspect that any  
property —  (a)​in whole or in part, directly or indirectly, represents the proceeds of;  (b)​was used in connection with; or  (c)​is intended to be used in connection with,   

any act which may constitute drug trafficking or criminal conduct, as the case may be, and the information or matter on which the knowledge or suspicion is based came to his attention in the course of his trade, profession, business or employment, he shall disclose the knowledge or suspicion or the information or other matter on which that knowledge or suspicion is based to a Suspicious Transaction Reporting Officer as soon as is reasonably practicable after it comes to his attention.  

 

Thus, section 39(1) of the CDSA imposes an obligation on any person to lodge, as soon as is reasonably practicable, a suspicious transaction report (commonly called an STR) to the police authorities (specifically, the Suspicious Transaction Reporting Office of the Singapore Police Force’s Commercial Affairs Department) (“STRO“) if that person knows or suspects that any property represents the proceeds or is used or intended to be used in connection with any act which may constitute drug-trafficking or criminal conduct. To encourage reporting and to shield the person against consequences arising from the reporting, section 39(6) expressly provides that where an STR is lodged in good faith, the person is deemed not to be a breach of any restriction against disclosure imposed by law, contract or rules of professional conduct. 
 
In the case of reporting persons who are employees, it is also provided by section 39(7) that the employee need only refer the matter to another person in accordance with the procedure established by his employer. This provision is significant in that it means that if an organisation has established policies and procedures on transaction report for suspected money laundering, it suffices for the employee to refer the matter up through the corporate hierarchy in accordance with established organisational procedures. Where no such procedures exist, then it would be advisable for the employee to report the matter directly to STRO.  
 
In this regard, it is interesting to note that the FATF itself did not contemplate that the obligation to report suspicious transactions should be placed on all classes of persons. Thus, Singapore has gone slightly beyond the international standards in imposing the duty to report on all persons. The threshold for the duty to apply is also quite low. In November 2007, the CDSA was amended to make clear that it was not necessary for the person to connect the property to a specific money laundering predicate offence. The duty to report is triggered so long as the person has reasonable grounds to suspect that any property “may be” connected.  
 
The failure to do so has fairly drastic consequences – a person who contravenes section 39(1) commits an offence punishable on conviction with a fine of up to SGD 20k.  
 

While financial institutions may well take such a requirement in their stride since they are already required by the Monetary Authority of Singapore (“MAS”) (under legal instruments that are separate from the CDSA) to conduct extensive due diligence before taking on new customers and thereafter to continuously and carefully monitor customer transactions for unusual or suspicious transactions and activities, the reporting obligation under the CDSA may come as a shock to businesses that are not specifically licensed or regulated. The difficulties may be especially acute for small and medium enterprises that already have to struggle to manage their operating costs.  

 

Financial institutions also have the benefit of specific guidance from MAS as to what to look out for. For banks, the regulatory instrument under which MAS requires banks to undertake due diligence checks on customers and to monitor customer transactions is MAS Notice to Banks No. 626 (“MAS 626”). In the accompanying Guidance to MAS 626 (“MAS 626 Guidance”), the MAS has in an Appendix given examples of various types of transactions and activities which ought to raise a red flag. While most of the examples in the MAS 626 Guidance pertained to banking, some would still be apt and relevant for other types of businesses. For instance:  
 
  • transactions that do not make economic sense or are inconsistent with what is known of the customer’s usual business;  
  • transactions involving a large amount of cash particularly when the customer is from an industry not known to be cash-intensive.  
  • U-turn” transactions, where funds or goods received from one person in one country are immediately remitted back to another person in the same country.  
 
It may be that the risk of a commercial enterprise being made use of for the purpose of money laundering is less acute than for a financial institution. However, there may be specific segments of the non-financial sector that might be just as vulnerable. The FATF itself recognises that apart from financial institutions, certain other non-financial businesses should be obliged to report suspicious transactions. As of now, these include casinos, real estate agents, dealers in precious metals and stones, lawyers, notaries and accountants, and finally trust and company service providers. Singapore is in the process of imposing additional anti-money laundering requirements on some of these non-financial businesses. 
 
The other significant aspect of the anti-money laundering regime that one should note is the offence of tipping off. Under section 48(1) of the CDSA, the offence of tipping off is committed when a person, knowing or having reasonable grounds to believe that there is or there would be an investigation under the CDSA, discloses to any other person information which is likely to prejudice the investigation or proposed investigation. Under section 48(2) of the CDSA, the offence of tipping off is also committed when a person, knowing or having reasonable grounds to believe that an STR is or has been lodged, discloses to any other person information which is likely to prejudice any investigation that might be conducted following the lodgment of the STR. In each case, upon conviction, the offender is liable to a fine of up to SGD 30k or to imprisonment of up to 3 years or to both.  
 
Financing Of Terrorism  
 
The financing of terrorism raises concerns similar to those with respect to money laundering. However, unlike money laundering (where it is a predicate crime that generates the proceeds so that the proceeds can thereby be said to be tainted), in terrorist financing, the funds might be entirely derived from legitimate sources but the taint is attached because the intended use of such funds is objectionable.  
 

In relation to terrorist financing, the counterpart statute to the CDSA would be the TSOFA. Part II of the TSOFA creates a group of offences for actions and omissions that support terrorist purposes. In particular, section 6(1) makes it an offence for a person in Singapore to deal in any property which he knows or has reasonable grounds to believe is owned or controlled by or on behalf of a terrorist or terrorist entity. Terrorism financing offences are grave, with the offender being liable to a fine of up to SGD 500k, imprisonment of up to 10 years, or both. Where the offender is not an individual, the penalty would be a fine of up to SGD 1m.  

 

The TSOFA also creates a mandatory reporting regime whenever terrorist financing activities are suspected. Sections 8(1) of the TSOFA requires any person who has possession, custody or control of any property belonging to a terrorist or terrorist entity, or has information about any transaction or proposed transaction in respect of thereof to inform the police authorities. Procedurally the process is aligned with that under the CDSA, and both types of reports are generally referred to as suspicious transaction reports (“STRs”) to be lodged with STRO. Failure to comply with section 8(1) is an offence punishable upon conviction with a fine of up to SGD 50k or imprisonment for up to five years or both.  
 
The TSOFA goes further in section 10(1), to compel a person who has information which he knows or believes may be of material assistance in either preventing a terrorism financing offence or in securing the apprehension, prosecution or conviction of a person in Singapore for a terrorism financing offence, to disclose the information to the police authorities. Failure to do so likewise carries a similar penalty of either a fine of up to SGD 50k or imprisonment of up to five years or both.  
 
Correspondingly, the TSOFA also provides in section 10B for a tipping-off offence in terms substantial identical to similar to that in section 48 of the CDSA.  
 

Practical Implications For The Business Community  

 

In recent times, many of the large global banks have suffered significant reputational damage as a result of enforcement action taken against them by government regulators and enforcement authorities for deficient anti-money laundering controls.  

 

Businesses run a similar risk of suffering enormous damage to their good will if they are somehow implicated in serious criminal investigations. For this reason alone, many large international corporations have voluntarily assumed anti-money laundering controls and procedures even if they are not strictly bound by law to do so.  
 
Large corporations might have the resources to effectively implement such controls and procedures and police compliance with them. The same cannot be said for small and medium enterprises, many of which already find themselves stretched coping with existing economic challenges to their financial bottom-lines. In the end, many businesses might just have to run the risks without having internal risk mitigation measures in place.  
 
Shook Lin Bok LLP
 
For further information, please contact:
 
Eric Chan, Partner, Shook Lin & Bok
 

 

Comments are closed.