On 27 September 2016, the Financial Action Task Force (FATF) issued its Mutual Evaluation Report (MER) of Singapore Anti-money laundering (AML) / Countering the financing of terrorism (CFT) measures, following a review which was conducted between 17 November 2015 and 3 December 2015. FATF’s last Mutual Evaluation for Singapore was conducted in 2008, with a follow-up conducted in February 2011. The report can be found here.
Generally, the FATF assessment team found Singapore to have a reasonable understanding of its money-laundering (ML) risks with a strong legal and institutional framework for combating ML, terrorism-financing (TF) and proliferation-financing (PF). However, the team pointed to various gaps in the effectiveness of Singapore’s implementation of the FATF Standards. The FATF team’s findings on the following issues are of particular interest:
Gaps in Singapore’s assessment of ML risks: The FATF team found that Singapore could do better to articulate the nexus between transnational threats and specific vulnerabilities in Singapore as an international transportation / trade hub and financial centre. For instance, the team pointed to the fact that Singapore’s 2014 National Risk Assessment (NRA) failed to assess trade in services vulnerability to ML and tax evasion, which it considered likely to be of high risk given Singapore’s role as a financial hub, the ease of setting up companies in Singapore and its exposure to international ML. The FATF team also pointed to a deficiency in Singapore’s national risk understanding, noting that Singapore’s understanding reflects a disproportionate focus on domestic predicate ML and smaller-scale forms of transnational ML. The team concluded that this may be a reason why Singapore’s prosecution transnational ML cases so far have been limited to offenders involved in smaller-scale and less complex forms of ML offences (unlicensed money-lending and money mule cases). It recommended that Singapore pursue more complex ML cases more aggressively.
Gaps in assessment of TF risks: On the TF front, the FATF team criticised Singapore’s assessment of its TF risks as being “low to medium” for domestic-source TF risk and “medium” for foreign-source TF risk. In this regard, the FATF team pointed out that Singapore failed to clarify what it meant by “low”, “medium” and “low to medium” TF risk and how it arrived at its conclusions, especially since Singapore is in close proximity to a number of countries with high TF risks. The FATF team also noted that Singapore takes the view that criminal investigations of TF are not an appropriate response within its national security framework. In this regard, the FATF team recommended that Singapore consider engaging in parallel investigations on TF matters and to establish a clear strategy between the various law enforcement agencies and the Internal Security Department on managing TF matters, and deciding whether to use criminal justice measures and/or alternate measures when confronting TF cases.
Failing to sufficiently identify and pursue complex transnational ML cases: The FATF team charged that Singapore failed to demonstrate that it was effectively using its investigative framework to combat ML as it did not appear to be adequately identifying or investigating the more complex and sophisticated forms of ML, particularly relating to foreign predicates, which is expected of a sophisticated financial centre and trade/transportation hub such as Singapore. In this regard, the FATF team observed that all of Singapore’s foreign predicate ML convictions since 2011 were for shell companies and money mules involved in foreign wire transfer fraud. The FATF team also noted that Singapore’s results on tackling ML related to foreign corruption are not commensurate with its risk profile.
Confiscation of criminal proceeds not a strategic priority: The FATF team observed that the confiscation of criminal proceeds was not demonstrated as a strategic priority in Singapore’s criminal justice regime. This, it felt, was partly due to a lack of an overarching strategic direction on this front. In this regard, the FATF recommended that law enforcement agencies in Singapore consider using the civil confiscation regime established under Singapore’s new Organised Crime Act, which allows for the confiscation of criminal benefits without the need for it to be the subject of any criminal proceedings and which proceedings are based on the civil standard of burden of proof. The FATF team also recommended that Singapore this yet-to-be-tested regime be expanded beyond merely organised crime to allow law enforcement agencies to target proceeds that are not linked to organised crime, for e.g. corruption.
Gaps in implementation of preventative measures: In relation to preventative measures, the FATF team found that Financial Institutions (FIs) and Designated Non-Financial Business Professionals (DNFBPs) had a less developed understanding of the risk of illicit flows of funds into and out of Singapore and on TF risks. From the perspective of customer due diligence, the FATF team also found gaps in the FIs’ understanding of geographical risks relating to proceeds of corruption entering Singapore.
Divergence in sector risk-assessment in the NRA and individual FIs’ risk assessment: The FATF team expressed its concern about the divergence in sector risk assessment and Monetary Authority of Singapore’s (MAS) risk assessment of the individual FIs, pointing to the example of how direct insurance was given an overall sectorial risk-rating of low given that half of the insurers assessed were rated in the top two categories of risks.
Lack of enforcement action taken against senior management of FIs: The FATF team noted that there was a lack of direct action taken against senior management in FIs at the time of their assessment, despite MAS’ repeated mention of senior management accountability/responsibility in its various Notices and Guidelines. The team pointed out that there was at least one example of enforcement action shared with them that gave rise to concerns about senior management oversight. However, the MER noted that action has since been taken against BSI and its senior management in relation to the Swiss-bank’s breaches of AML/CFT controls and measures in a transnational money-laundering/corruption case.
Singapore issued a rejoinder on the same day the MER was issued. In a joint statement issued by MAS, the Commercial Affairs Department and the Ministry of Finance, Singapore countered the FATF team’s assessment on Singapore TF measures, pointing out that the team failed to take into consideration Singapore’s recent prosecution of six individuals under the Terrorism (Suppression of Financing) Act. Singapore also stated that it would carry out follow-up actions to improve its AML/CFT regime by embarking on measures including strengthening FIs’ risk understanding and controls, pursuing more cases of complex transational ML offences and more proactively targeting and pursuing confiscations of criminal proceeds. The joint statement can be accessed here.
Looking over the horizon
Recently, Singapore’s reputation as a clean global financial hub has taken a hit with the revelation that FIs in Singapore were implicated in complex transnational ML investigations. This led to the closure of BSI Bank in Singapore and more recently, that of Falcon Bank, another Swiss private bank. These developments, coupled with FATF’s MER, suggest that the Singapore authorities will need to do more in its fight against ML-TF if Singapore wants to maintain its reputation as a clean financial hub.
In this regard, recent enforcement activity, including the referral of senior management at BSI Bank and Falcon Bank to the Public Prosecutor for prosecution, and the various statements of intent by the MAS* certainly suggest a willingness on the part of the authorities to go hard on ML-TF activities and safeguard Singapore’s reputation. These prominent enforcement activities aside, the MAS has also stepped up its inspection and audits of FIs and become more interested in the role of senior supervisory personnel. It is likely the authorities in Singapore will also will take heed of the FATF team’s recommendation and ill-gotten funds in Singapore.
* See for example, MAS’s press release on its direction to Falcon Bank to cease operations in Singapore.