Singapore’s stronger stance on AML

Bovill

Since the 2016 FATF Mutual Evaluation, the MAS has increased its focus on money laundering and terrorist financing prevention, including increased fines and even closing banks that have not met its expectations. Working with industry stakeholders and the Commercial Affairs Department, the MAS has created the AML / CFT Industry Partnership (ACIP) to enhance public and private sector co-ordination in tackling financial crime. The first output has been two best practice papers, on legal persons and trade based money laundering, outlined below.

Joint task forces seem to be the direction that regulators are heading in. Regulators in the UK and in Hong Kong have similarly identified the benefit of public-private co-operation. In the last couple of years the UK established the Joint Money Laundering Intelligence Taskforce (JMLIT) and Hong Kong established the Fraud and Money Laundering Intelligence Taskforce (FMLIT), both created to access the collective expertise available at financial institutions (FIs) and improve intelligence sharing to detect emerging risks and intercept criminal activity faster.

ACIP has already prepared two papers detailing critical typologies and sophisticated red flag indicators to help FIs identify illicit activity.

Misuse of legal persons

Legal persons can be abused through disguising the beneficial ownership of proceeds of crime. The ML / TF risk assessment of legal persons was highlighted as one of the deficiencies in the recent Mutual Evaluation. Singapore was shown to have deficiencies in the implementation of mitigating controls in this high risk area. ACIP’s work aimed to rectify these deficiencies by focusing on the ML / TF risks associated with legal persons. One of the findings identified is that Suspicious Transaction Reports (STRs) filed regarding Personal Investment Corporations (PICs) were more highly represented when compared to their share in the total population of legal persons, possibly reflecting the higher risks associated with PICs; suggesting they should be an area of higher focus for FIs in managing financial crime risk.

Typical high risk activities associated with legal persons:

  • pass-through transactions (transactions passing through the legal person for no economic reason other than to create an appearance of legitimate transactions)
  • round-tripping activities
  • use of non-bank intermediaries
  • physical movement of cash across borders
  • hidden relationships – use of nominee shareholders / complex structures
  • emerging risks associated with Private Investment Funds (PIFs)
  • use of similar name entities to create false sense of legitimacy
  • indications of tax avoidance / evasion.

Trade Based Money Laundering

As a large trading hub, Singapore is especially vulnerable to Trade Based Money Laundering (TBML). These transactions can be exploited and used as a medium for money launderers to transfer large values across borders. The transactions can also be used for terrorism and / or proliferation financing.

Red flags identified by ACIP:

  • payments received prior to financing
  • inability to reconcile and validate source of funds
  • use of offshore companies to receive and remit funds
  • inability to verify and identify parties involved in the transaction
  • transactions involving the use of front / shell companies
  • trade counterparties engaged in different business activities
  • ‘return’ of funds from suppliers
  • shipment routes involving a sanctioned country (transhipments)
  • discrepancies in the information provided for the transaction
  • complex transaction flows with no economic rationale.

How Bovill can help

The MAS has indicated that it will be starting a series of thematic financial crime reviews, including one that focuses on the abuse of Legal Persons. Whether you expect to be part of one of these reviews, or just want to make sure your systems and controls are as effective as they could, Bovill can:

  • provide AML training for staff regarding misuse of legal persons and trade finance
  • conduct AML controls testing with particular focus on the implementation of best practice guidance given my ACIP in their recent papers
  • assist with the remediation of relevant KYC files
  • develop policies and procedures to counter money laundering in use of legal persons and trade finance transactions
  • conduct gap analyses of your current processes against regulatory expectations.
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