In this issue, Andy Yeo of Allen & Gledhill revisits 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. Andy proposes 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. It's a confident proposal for building on the changes already in place.

I attended the Fraud and Corruption Summit, 2007 in Copenhagen, Denmark on 14-16 March. The Summit included some real-life case studies and I spoke on the prevention, detection and investigation of fraud and overcoming cross-border issues with Peter Helle, partner at Wistrand's Stockholm office in Sweden. If you would like copies of the handouts, please contact me at info@antifraudnetwork.com.

Nick Burkill

The Monetary Authority of Singapore
Anti-Money Laundering Notices and Guidelines:
Proposals for Change

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.

In the March 2007 issue of the AFN Newsletter, Andy Yeo of Allen & Gledhill summarised 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 this 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.

Although a welcome development, there are a number of flaws in the Revised Notices and Guidelines.

The Limited Scope of the Underlying CDSA to which the Notices and Guidelines Pertain Allows the Laundering of Proceeds of Non-scheduled Offences

The Original Notices (as well as the Revised Notices and Guidelines) were intended to supplement the CDSA, and the CDSA thereby supplies the underlying legislative force to compel compliance with the Revised Notices and Guidelines. Under the CDSA, the laundering of proceeds from drug trafficking offences and the serious crimes specified in Schedule 2 (collectively the CDSA Offences) constitute "money laundering offences." This means, however, that the laundering of proceeds from other offences which fall outside the category of CDSA Offences are not considered money laundering offences. This leads to the uncomfortable conclusion that the laundering of proceeds from, inter alia, tax evasion and people smuggling are not money laundering offences under the CDSA and that consequently financial institutions are not required to prevent such transactions from taking place. This is an undesirable state of affairs, and the correction by Parliament of this lacuna in the CDSA would be most welcome.

Insufficient Clarity on the Penalties for Breach of the Revised Notices and Guidelines

In the hierarchy of legislative and regulatory documents, the Revised Notices and Guidelines fall within the categories of notices and guidelines, and are therefore not deemed to be statutes or even subsidiary legislation. Nor do the Revised Notices and Guidelines spell out the criminal consequences for breach of the requirements. Therefore, it would appear that consequences for breach of the Revised Notices and Guidelines only arise where such breach leads in turn to a breach of the CDSA or the Terrorism (Suppression of Financing) Act or other legislation dealing with money laundering or terrorism financing. In other words, the enforcement of the Revised Notices and Guidelines must rely on external legislative documents, which dilutes their direct regulatory force. It may even be said that the Notices and Guidelines lack bite in that there are little or no consequences if they are breached.

That said, the MAS has highlighted that the degree of observance with MAS guidelines (including the Revised Notices and Guidelines) by an institution or person may have an impact on the MAS' overall risk assessment of that institution or person. Under the MAS Act, Chapter 186 of Singapore Statutes, the MAS has the power, if it thinks it in the public interest, to request information from and make recommendations to such financial institutions as the Authority may determine. The Authority may also issue directions for the purpose of ensuring that effect is given to any such request or recommendation. It would therefore also be most welcome if the MAS were to announce the sanctions to be imposed on financial institutions that breached the Revised Notices and Guidelines. If instances of breach and subsequent punishment were publicised as a form of public shaming, these could have a clear salutary deterrent effect on recalcitrant financial institutions. It would also demonstrate the determination of MAS to crack down on cases of money laundering and terrorism financing.

The Effectiveness of the Risk-based Approach May Be Compromised by the Lack
of Uniform Enforcement

The risk-based approach appears to strengthen the AML/CFT regulatory regime by allowing financial institutions to concentrate their CDD resources on their areas of greatest vulnerability and on their more high-risk customers.

However, in practice, the effectiveness of the risk-based approach is compromised by the difficulty of identifying politically exposed people (PEP) and other high-risk customers if they take the elementary precaution of entering into financial transactions under fictitious identities or through nominee accounts operated through financial institutions with weak compliance structures. In light of this shortcoming, the introduction of the risk-based approach still does not fundamentally alter the current landscape of the AML/CFT regulatory regime, and more revolutionary measures should be implemented.

As a starting point, greater emphasis should be given to transactions involving amounts of money over a substantial sum and transactions involving financial institutions of dubious or unauthenticated backgrounds. Going forward, FATF could consider conducting a grading of financial institutions based on their compliance structures and internal practices, and establish a transparent set of international benchmarks for the compliance with the FATF recommendations. These could, in particular, include the identification of PEPs and other high-risk customers. Such a ranking could also consider whether institutions have substantially complied with the suggested international AML/CFT compliance standards outlined by the FATF.

Lack of Incentive for Whistle-Blowers

Compliance with the Revised Notices and Guidelines necessarily entails financial institutions turning away some potential customers on the basis of failing to satisfy the CDD requirements. This represents a very real loss of income and business for financial institutions, and the temptation may exist for an institution to implicitly encourage its employees to relax CDD requirements in practice so as to retain as many customers as possible.

At the same time, there is little incentive for employees of financial institutions to blow the whistle on suspicious customers and transactions; indeed, they may be subject to retaliation by the suspicious client or by their own employer for rejecting lucrative business, and the Revised Notices and Guidelines do not contain any provisions that protect whistle-blowers from such retaliation. This is a real dilemma.

The MAS should therefore consider, as a first step, the introduction of subsidiary legislation that establishes protection of whistle-blowers from retaliatory measures akin to that afforded under UK and U.S. whistle-blowing legislation.

Furthermore, to encourage employees of financial institutions to report suspicious customers and transactions to the authorities, the MAS should reward employees who provide information that leads to a successful enforcement action against money laundering or terrorism financing with a percentage of the monies that would otherwise have been laundered or gone to finance terrorism.

Please see the panel on the right for links to the full text of the Notices and Guidelines.

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