In recent years, money laundering and terrorism financing have increasingly come under the international spotlight — with Singapore, given its financial hub status, never far from centrestage.

The global dragnet around scandal-hit Malaysian state investment fund 1MDB saw regulators in at least 10 countries, including the United States, Switzerland and Singapore, launching investigations to crack down on accounts involved in the alleged misappropriation of funds.

The probes have resulted in million-dollar penalties and the revoking of licences of banks found to have breached anti-money-laundering and countering the financing of terrorism (AML/CFT) requirements.

Earlier this week, the Monetary Authority of Singapore (MAS) ordered the shutdown of Swiss-based Falcon Private Bank. The action came less than five months after the central bank revoked the licence of another Swiss bank, BSI. So far, other banks — including Singapore bank DBS — have been fined, while three individuals have been charged in court.

But as regulators around the world tighten their watch on banks and financial institutions to prevent money-laundering and terrorism-financing offences, culprits are shifting their illicit activities away from the financial sector and into unsuspecting — and often less-regulated — areas such as metals trading, property deals, charities and even schools.

The International Monetary Fund (IMF) describes money laundering as the process by which proceeds from a criminal activity are disguised to conceal their illicit origin. Terrorist financing, on the other hand, involves the solicitation, collection or provision of funds with the intention to use these to support terrorist acts or organisations. Funds may stem from both legal and illicit sources.

Just two months ago, Christian charity organisation World Vision saw its Gaza operations manager Mohammad El Halabi arrested and charged after being accused of funnelling about US$7.2 million (S$9.99 million) a year to support Palestinian militant group Hamas.

In its report on Emerging Terrorist Financing Risks published in October last year, the Financial Action Task Force (FATF) — an inter-governmental body that develops and promotes policies for AML/CFT — also cited a case in southern Thailand, where an Islamic school was used as a shelter for terrorists. A search of the school by Thai authorities uncovered guns that were later proved to have been used in several terrorist incidents. They also found proof of forged receipts for stationery and other teaching items that were used to receive reimbursement from the authorities.

Such incidents pile additional pressure on governments globally to keep regulations relevant in order to counter threats that have morphed with the emergence of new technologies, and the increasing sophistication and complexity of transnational crimes.

The 1MDB scandal is an example of how Singapore can be entangled in the complex global web of transnational money laundering. As a key financial centre housing more than 1,500 financial institutions of varying sizes and S$2.6 trillion worth of assets under management — the majority of which are foreign sourced — experts say it is inevitable that the Republic would fall victim to money-laundering attempts.

Mr Kwok Wui San, regulations leader at PwC Singapore, said: “I suspect it is actually getting more difficult than before to launder money through Singapore because of the increased sophistication of our authorities and controls at financial institutions, (but) obviously, criminals will continue to find innovative and more complex ways to do so.”

This means that Singapore cannot rest on its laurels, and there is more work to be done to strengthen the AML/CFT regime here, especially when it is situated in a region where several terrorist groups operate actively, said the FATF in a report last month that called on the Republic to do more to pursue cross-border offenders in complex transnational cases.

This year alone, four Bangladeshi workers were convicted of raising money here to fund terror attacks in their home country, and two others were convicted for laundering bribes on behalf of former Papua New Guinea Prime Minister Michael Thomas Somare. The eldest son of former Bangladesh Prime Minister Khaleda Zia was also convicted in Bangladesh for laundering money through a Singapore bank account.

Singapore has been busy buttressing its defences — drafting new laws and rolling out new measures to curb the scourge. Away from the banking sector, lawyers and accountants are also getting in on the act, with industry associations setting out guidelines and organising workshops. However, significant gaps remain, say experts, who added that fighting the problem requires nothing short of a whole-of-nation effort, right down to individuals being alert in their work transactions. The challenge is in getting the man in the street to realise the damaging impact that money laundering will have on the country in the long term.

AN EVOLVING THREAT

The United Nations (UN) estimates that 2 to 5 per cent of global gross domestic product (GDP) — or US$800 billion to US$2 trillion — is laundered worldwide every year, underlining the seriousness of an issue that governments have pledged to address.

The FATF, a 37-member organisation set up by the G7 Summit in Paris in 1989, has drawn up international standards in the fight against money laundering and terrorism financing. As part of its work, the taskforce examines money-laundering techniques and trends, and sets out measures that need to be taken to clamp down on such crimes. The FATF also monitors the progress of its member countries in implementing necessary measures and conducts in-depth evaluations focusing on the robustness of their legal and regulatory frameworks for combating illicit financing, as well as how effectively they are being implemented.

The IMF, UN Office on Drugs and Crime (UNODC) and the World Bank also conduct assessments on members and offer technical assistance to countries to strengthen their AML/CFT frameworks.

Singapore is a member of the FATF and adopts a whole-of-government approach to combat money laundering and terrorism financing, led by the National Steering Committee for Combating Money Laundering and Terrorism Financing. The committee includes the permanent secretaries of the Ministry of Home Affairs and Ministry of Finance, as well as the managing director of the MAS.

In recent years, the Republic has strengthened the regulatory oversight of the financial sector, as well as at-risk non-financial sectors involving lawyers, accountants, corporate services providers, pawnbrokers and real-estate salespersons.

Examples of AML/CFT framework enhancements include requiring real-estate agents since 2013 to lodge suspicious transaction reports if they have reasons to suspect that any transaction may be connected to illicit funds or terrorism. The agents also need to screen clients against UN lists of terrorists, terrorist organisations and other designated entities. Since last year, corporate services providers are required to conduct better customer due diligence and enhance record keeping.

More recently, the MAS had set up an AML department to streamline responsibilities for regulatory policies relating to money laundering and other illicit-financing risks. The central bank also established a dedicated supervisory team to monitor these risks and to carry out on-site supervision of how financial institutions manage these risks.

Although laws have been tightened and regulators are becoming more intrusive in governing the various at-risk segments, criminals can always fall through the cracks, experts told TODAY. This is especially so with the advancement of technology, which has given birth to virtual currencies such as Bitcoin — a concept that regulators around the world are still grappling with but that is reportedly being used by extremist groups such as the Islamic State — and new channels to move and raise funds.

According to the FATF report, Russia, for instance, saw a group of individuals raise funds under the pretext of collecting donations for Syrian refugees, people in need of medical and financial aid, and for the construction of mosques, schools and kindergartens.

Collected funds were moved through a chain of transfers involving credit card accounts and e-wallets, and were withdrawn in cash to be further transported by couriers to the intended terrorists and their families.

Technology is not the only factor keeping regulators on their toes. Globalisation and freer movement of goods around the world have also opened up new avenues for financial crimes and increased the complexity of mitigating such risks.

Assistant Professor Johan Sulaeman, from the Department of Finance at the National University of Singapore’s Business School, said: “It is difficult to have a system that is 100 per cent (secure), so there is always a possibility of (incidents) falling through the cracks. Regulators should not only punish such mistakes, but also identify why they happen.”

He added: “Humans are ingenious and they will always be able to find cracks in the system.”

He suggested that an anonymous whistleblowing hotline may be one way to close the gap. “However, this will end up requiring a lot of resources to weed out irrelevant and spurious reports that lack substance. Incentivising whistleblowers when their reports turn out to be useful, following the United States’ practice, for example, may generate more credible and detailed reports from whistleblowers,” he added.

LAWYERS, ACCOUNTANTS GETTING IN ON THE ACT

The Republic’s financial institutions — in particular, banks — have been at the frontline of the nation’s AML/CFT programme. But as awareness of AML/CFT in the financial sector increases, criminals will find it harder to launder their money through banks and will look for alternative conduits such as lawyers and accountants.

Mr S Suressh, who chairs the Law Society’s anti-money laundering committee, told TODAY: “In the course of the discharge of our professional services, lawyers have occasions to handle funds on behalf of our clients. There is a risk that, in so doing, we will inadvertently assist criminals. Accordingly, there is an onus on the legal profession to recognise the kind of activities that lend themselves to money laundering, and to make due enquiries in respect of the same.”

He added that such enquiries include verifying the identity of clients, understanding transactions that lawyers handle and establishing the source of clients’ funds. If enquiries raise suspicions, lawyers are obliged to make a suspicious transaction report to the Commercial Affairs Department (CAD).

The Law Society has been conducting AML training and inspecting law firms to ensure compliance since 2008. Mr Suressh said the level of awareness and preparedness among law firms in Singapore is generally good.

Accountants and auditors, whose responsibilities include deep involvement in entities’ money flows and controls, are also seen as key gatekeepers of the integrity of Singapore’s financial system.

The Association of Chartered Certified Accountants’ (ACCA) Asia-Pacific head of policy Chiew Chun Wee said that other than the skills to detect signs of financial crimes, accountants need to have the “ethical core to do the right thing”.

“That underlines everything that accountants and auditors do, and if that ethical core falls away, everything will collapse,” he said.

Mr Lee Fook Chiew, chief executive of the Institute of Singapore Chartered Accountants (ISCA), said incidents of money laundering and terrorism financing encountered by accounting firms in Singapore are still fairly rare. However, as criminals become more sophisticated, firms should step up customer due diligence processes to ensure they are not involved, directly or indirectly, with criminal organisations.

While the legal and accounting fraternities have largely taken to their roles in Singapore’s fight against money laundering and terrorism financing, awareness in other non-financial sectors may be lacking.

The FATF’s recent assessment of the Republic’s AML/CFT framework concluded that, while regulations are generally sound, some enhancements are needed in specific areas such as precious stones and metals dealings. There have been examples overseas of these areas being used as conduits to launder money, particularly as a store of value to move illicit proceeds.

Since October 2014, a cash transaction regime has been implemented in Singapore for precious stones and metals dealers, requiring them to — among other things — file a report with the CAD within 15 business days when they conduct any cash transaction exceeding S$20,000 or the equivalent in foreign currencies.

The real-estate sector, whose AML/CFT requirements were also fairly nascent, also needs time to instil greater awareness among its stakeholders, property agents told TODAY. An agent, who wished to be known only as Alvin, said: “We have CEA (Council for Estate Agencies) guidelines to follow, but I think the majority of property agents in Singapore focus on serving the domestic population, so many of us don’t come in contact with suspicious deals, or we won’t be inclined to think they’re suspicious. More guidance on the risks and how to be more vigilant will help.”

As the country’s AML/CFT requirements for some of the non-financial sectors only came into effect as recently as last year, they will need time to adapt and grow capabilities in this area, noted Mr Lem Chin Kok, head of forensic at KPMG in Singapore.

“It is reasonable to expect that the (non-financial) industry has room to improve in their understanding of money laundering and terrorism-financing risks, and the implementation of more robust frameworks to mitigate such risks. Also, some may not be as well-resourced as the bigger financial institutions, and the demand for AML subject matter experts in the industry exceeds the supply,” Mr Lem said.

“Similar to how it took financial institutions years to get to their level of maturity in AML/CFT, non-financial business professions could also take some time to enhance their capabilities,” he added.

All these are works in progress for the Singapore authorities, who have pledged to study the FATF assessment report and will take further steps to strengthen the framework here.

WHAT’S AT STAKE

Even though money laundering may seem like a distant concept that does not immediately affect the lives of ordinary Singapore residents, the strategies and channels for money laundering can be easily turned to illegal purposes, in particular terrorist financing — the reason the two topics are often dealt with together, Mr Suressh noted.

Apart from national security, Singapore’s reputation as a clean financial centre is also at stake. More importantly, the Republic does not want to be the weak link in the global fight against financial crimes.

Professor Sum Yee Loong, from the School of Accountancy at Singapore Management University, said: “Singapore, being an international financial centre, an international trading hub and aviation hub, is extremely vulnerable to the effects of terrorism. This is because acts of terrorism in Singapore will immediately affect the confidence and reputation of the country as a safe and trusted international financial centre, an international trading hub and aviation hub.”

He added: “It is important that Singapore is not only rigorously enforcing the fight against money laundering and terrorism financing, it is also very important to be seen by the world at large that Singapore is extremely serious in (this fight) … Often times, it is the perception that is just as important as the actual enforcement.”

ISCA’s Mr Lee reiterated that, apart from social and political stability, a country’s business reputation can also be damaged if money laundering and terrorism financing related crimes rise, “making it less attractive to international investors”, he said.

In the long term, the economy will be damaged, noted UOB economist Francis Tan. Any financial crime uncovered in Singapore will first hit those directly related to the company involved as the withdrawal of licence and financial penalties may put employees at risk of losing their jobs. Over the longer term, more of such cases may result in weaker job prospects and wage growth, which can in turn hurt Singapore and Singaporeans.

“If we connect the dots, putting our guard down on AML/CFT can have quite serious repercussions in the long term, so we need to make sure that we don’t go down that road,” Mr Tan said.

Source:
courtesy of TODAY

by LEE YEN NEE

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