In this issue, Andy Yeo of Allen & Gledhill summarises the changes to the anti-money laundering regulatory regime in Singapore introduced by the revised Monetary Authority of Singapore (MAS) Notices and Guidelines on Prevention of Money Laundering and Countering the Financing of Terrorism.

In next month's issue, Andy goes on to propose that the criminal offences covered under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act, Chapter 65A of Singapore Statutes (CDSA), should be broadened, that sanctions imposed for breaches of the Notices and Guidelines should be clarified, and that whistle-blowers should be rewarded financially for exposing breaches of the Notices and Guidelines.

Finally, we would like to invite all members and newsletter recipients to contribute a review of any of the following titles Information Security and Employee Behaviour; Money Laundering; Information Risk and Security; Vetting and Monitoring Employees; Fraud and Corruption; Countering Terrorist Finance; Digital Identity Management; or Estimating Risk. If you are interested in reviewing any of these books, please contact us at www.antifraudnetwork.com.

Nick Burkill

The Monetary Authority of Singapore Anti-Money Laundering Notices and Guidelines:
Recent Developments

Between February 2000 and December 2005, the Monetary Authority of Singapore (MAS) issued Notices on Prevention of Money Laundering (the Original Notices) which were directed at the financial institutions regulated by the MAS.

The Original Notices were intended to supplement the anti-money laundering provisions in the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act, Chapter 65A of Singapore Statutes (CDSA). They were based on the international standards imposed by the Financial Action Task Force (FATF), an inter-governmental body that develops and promotes policies to combat money laundering.

There have since been new developments in the area of anti-money laundering regulation. In 2003, FATF revised its Forty Recommendations on Money Laundering and in 2004, issued its Nine Special Recommendations on Terrorist Financing. On 29 December 2006, the MAS issued a revised set of Notices on Prevention of Money Laundering and Countering the Financing of Terrorism and a set of Guidelines to these Notices (known together as the Revised Notices and Guidelines), which are intended to incorporate and reflect the latest developments in anti-money laundering and countering the finance of terrorism (AML/CFT).

A separate set of Revised Notices and Guidelines was issued for each of the financial sectors regulated by the MAS. They include banks, merchant banks, finance companies, money changers and remitters, life insurers, capital markets intermediaries, financial advisers, approved trustees, and trust companies. The Revised Notices and Guidelines are similar in substance and structure, subject to variations to adapt to the needs of each sector. All of the Revised Notices and Guidelines took effect on 1 March 2007, except for the Revised Notices and Guidelines applicable to trust companies, which will take effect on 1 April 2007.

Key Change:
Extending Coverage to Countering of Terrorism Financing

The Revised Notices and Guidelines have been extended to counter terrorism financing as well as prevent money laundering. This is a timely extension of the scope of the AML/CFT regulatory regime in Singapore, given the rise in global terrorist activity in recent years.

Key Change:
More Rigorous Customer Due Diligence Requirements

The Revised Notices and Guidelines require the financial institutions to perform more rigorous customer due diligence (CDD) measures compared to the Original Notices:

Authorisation and Identity of Representatives

Under the Original Notices, a financial institution had to establish that any person claiming to act as a representative of a customer was authorised to do so. Under the Revised Notices and Guidelines, the financial institution must verify the authority of the representative and verify the identity of the representative as though the representative were a customer.

Verification of Directors and Partners

Under the Original Notices, where the customer is an unlisted company or a partnership, and none of the directors or partners were already known to the financial institution, the financial institution was obliged to perform CDD on one or more of the principal directors, partners or shareholders of the customer. Under the Revised Notices and Guidelines, under the same circumstances, the financial institution must perform CDD on all the directors or partners of the company or partnership as if each director or partner were a customer.

Enquiring into Underlying Beneficial Owners

Under the Revised Notices and Guidelines, a financial institution must inquire if there exists any beneficial owner in relation to a customer. Where there is one or more beneficial owner, the financial institution must perform CDD measures on all of them. This was not an express or mandatory requirement under the Original Notices.

These new guidelines are seemingly more demanding as they impose revised or increased CDD requirements. These are likely to impose greater compliance expenses on financial institutions in terms of inquiry costs, record-keeping costs, and loss of revenue from potential customers that have to be turned away.

Nevertheless, the increased rigour of the enhanced CDD requirements is a welcome development, as it closes certain egregious loopholes in the AML/CFT regulatory regime. For example, it is no longer possible for a person of dubious reputation or a politically exposed person (PEP) to conceal his interest in a transaction merely by entering into a partnership with another person or appointing that person as his representative. This is because the Revised Notices and Guidelines require the financial institution to perform CDD on all the partners of a partnership and to perform CDD on all beneficial owners.

Key Change:
Introduction of a Risk-based Approach

The most significant change made by the Revised Notices and Guidelines is the introduction of a risk-based approach to the AML/CFT regulatory regime in Singapore.

Under the Revised Notices and Guidelines, simplified CDD measures may be performed on customers posing low risks in relation to money laundering and terrorist financing. These include the following situations:

• where reliable information on the customer is publicly available to the financial institution;
• where the customer is a listed company that is subject to regulatory disclosure requirements;
• where the financial institution is dealing with another financial institution whose AML/CFT controls it is familiar with by virtue of a previous course of dealings; or
• where the financial institution is dealing with another financial institution which is subject to and supervised for compliance with AML/CFT requirements consistent with standards set by the FATF.

Conversely, enhanced CDD measures must be performed on PEPs, their immediate family members and their close associates. By definition, a PEP is someone who is or has been entrusted with a prominent public function in a foreign country. These include roles undertaken by a head of state, a head of government, government ministers, senior civil servants, senior judicial or military officials, senior executives of state-owned corporations and senior political party officials. For obvious reasons, these categories of people are to be considered high-risk because they have easier access to public funds and are therefore more likely to be targeted for bribery or corruption.

Enhanced CDD measures must also be performed on other customers whom the financial institution considers to present a higher risk of money laundering and terrorist financing. Financial institutions may take into account certain factors when assessing the risk of money laundering and terrorist financing. These could be the type of customer, the type of product or service that the customer purchases, and the geographical area of operation of the customer's business.

Compared to the risk-insensitive, across-the-board approach under the Original Notices, the risk-based approach adopted by the Revised Notices and Guidelines appears to be an improvement to Singapore's AML/CFT regulatory regime. By allowing financial institutions to concentrate their CDD resources on their areas of greatest vulnerability and on their high-risk customers, the risk-based approach will improve their chances of detecting and monitoring suspicious transactions. It will also reduce the chances that Singapore's financial system will be penetrated by money launderers or terrorism financers.

The author would like to extend his thanks to Delphie Gomez and Joseph Wong for their invaluable contribution to this article. Andy Yeo is a Partner in Allen & Gledhill's Litigation & Dispute Resolution Department. He has particular experience in white-collar criminal law where he advises and handles matters involving corruption, fraud, risk management, money laundering, insider trading, asset tracing and recovery as well as securities and banking compliance. Contact Details: T: + 65 6890 7833 E: andy.yeo@allenandgledhill.com