Tougher MAS action against tainted money amid 1MDB scandal

Singapore

THE "no-nonsense" regulator that is the Monetary Authority of Singapore (MAS) has pledged more intrusive supervision and tougher action against financial institutions, as the 1MDB scandal reveals malignant spots on Singapore's financial sector and has hurt Singapore's reputation.

MAS will also make public its sanctions against financial institutions that run afoul of anti-money laundering rules "persistently or egregiously", said its managing director Ravi Menon on Monday.

The greater disclosure marks a new tack from MAS's typically private approach in most supervisory exercises, with the regulator now seeing benefits from "judiciously" naming and shaming banks that fail anti-money laundering standards, he said.

MAS will now conduct more inspections that include surprise visits and checks on documents such as minutes of meetings, to ensure these institutions toe the line, said Mr Menon.

The ongoing probe into financial transactions related to Malaysia's embattled state fund 1MDB is a stark reminder that risks from money laundering and illicit financing are real, Mr Menon said. The financial sector is particularly vulnerable to such risks, he added, calling it "part of our karma" as an international financial hub.

"There is no doubt that the recent findings have made a dent in our reputation as a clean and trusted financial centre," said Mr Menon, adding MAS is "disappointed" that lapses in controls, and breaches of regulation against money laundering and countering financing of terrorism, have been found among financial institutions.

"MAS is determined to fix the problem."

This comes as the US Department of Justice (DOJ) last week launched a lawsuit claiming more than US$3 billion was allegedly misappropriated from 1MDB and laundered through US financial institutions. The Wall Street Journal was among the media that reported some US$700 million from the investment fund had been allegedly siphoned into Malaysian Prime Minister Najib Razak's personal bank account - a charge he has consistently denied for the past year. The DOJ lawsuit referred to fund transfers to a "Malaysian Official 1".

A day after the DOJ statement, MAS publicly rapped DBS, Standard Chartered Singapore and UBS Singapore for "control failings" over flows of funds from 1MDB. MAS also said Falcon Private Bank failed to, among other things, file suspicious transaction reports. More banks are being investigated, but Mr Menon declined to give details on the ongoing probe, following the "unprecedented" statements from MAS last week.

"We have already said a lot more publicly than we usually do when investigations and reviews have not been completed yet."

Given that Singapore's anti-money laundering rules follow international standards, more rules are unlikely in this area, said Mr Menon, noting that the problem has been a failure to comply with rules, and poor judgment.

He also said most of MAS's dealings with financial institutions are kept private, so that management can have a "candid and open" conversation with the regulator. For that reason, MAS will not make public such inspection reports, finding it counterproductive, he said.

Mr Menon acknowledged transactions meant to move illicit funds are coming through complex layers, and that banks are challenged to spot suspicious flows. Some US$1.5 billion per year has been spent by Asian banks for anti-money laundering compliance, a study from LexisNexis Risk Solutions showed, with costs expected to go up. Dirty money is also flowing through other financial centres.

But Mr Menon dismissed the complexity as an excuse for any control lapses. He drew a parallel with developments in cybersecurity: with those on the other side getting smarter and more sophisticated, risk management must improve in lockstep with the rising threat.

"We may not be any worse than other jurisdictions. But that is no consolation. We have not met the high standards we have set for ourselves," said Mr Menon. "MAS is a no-nonsense regulator."

DBS, StanChart and UBS said last week they had voluntarily reported suspicious transactions to the authorities. But MAS had noted the "undue delay" in these reports.

Mr Menon said banks should be filing reports the moment fishy transactions are spotted, adding the banks do not have to be sure that a crime has been committed, before reporting them to the regulator. As it is, MAS also investigates every whistleblowing letter that it gets, said Ong Chong Tee, head of financial supervision at MAS, at the briefing.

From August, MAS will have dedicated units to monitor money-laundering risks and to boost enforcement action. This enforcement unit will look into all breaches of MAS regulations, including market conduct offences under the Securities and Futures Act, with the MAS exploring the use of machine learning algorithms to identify manipulative trading behaviour in the capital markets, or to detect patterns across suspicious money laundering transactions.

Even as MAS streamlines its regulatory enforcement and dials up its supervision over financial institutions, there has already been a six-fold jump in MAS inspections in recent years. From 2013 to 2016, MAS conducted 608 onsite inspections on financial institutions, a jump from 108 inspections about three years ago.

MAS has asked for senior management to be replaced in a couple of cases that showed ineffective management oversight in these areas.

In the last three years, MAS has imposed financial penalties on 27 financial institutions for offences linked to money laundering and terrorism financing, and has stripped licences of BSI Bank and some remittance agents for serious breaches of anti-money laundering rules. It has also been sending supervision results of foreign banks to the head office and the parent regulator, said Mr Menon.

"We will work hard with the industry to ensure that Singapore offers neither safe haven nor safe passage for tainted money from anywhere."

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