MAS tightens the screws on money laundering

Singapore

SOME three weeks after the Monetary Authority of Singapore (MAS) ordered the shutdown of the BSI Bank for the worst case of gross misconduct to date, the regulator has publicly set out plans to create departments dedicated to fighting money laundering and to strengthen regulatory enforcement.

In doing so, the MAS is dialling up supervision over financial institutions and the potential illicit financing that these firms may engage in.

Ravi Menon, managing director of MAS, said in a statement: "As our financial centre grows in scale, sophistication and connectivity, so does the risk of criminal elements abusing our financial system.

"We will strengthen our supervision of financial institutions' controls to combat money laundering and illicit financing. And we will enhance our enforcement capability to deter poor controls or criminal behaviour in the industry. The MAS is resolved to ensure that Singapore remains a clean and trusted financial centre."

The changes, to take effect from August, will centralise existing regulatory work in these areas.

With its new anti-money laundering department, the MAS will streamline existing responsibilities for regulatory policies relating to money laundering and other illicit financing risks. A dedicated supervisory team would be formed to monitor these risks and carry out on-site supervision of how financial institutions manage these risks, bringing together functions now carried out by different departments in the MAS.

This follows the regulator's move last month to order BSI Bank to draw its shutters in Singapore, calling it the "worst case of control lapses and gross misconduct" ever seen in the Singapore financial sector. The bank has been embroiled in investigations into scandal-ridden 1Malaysia Development Bhd.

It was the first time since 1984 that the MAS had ordered a bank to close, and followed at least three inspections of the Swiss private bank. The "more intrusive" third inspection in 2015 revealed multiple breaches of anti-money laundering regulations and "a pervasive pattern of non-compliance". The MAS also referred to the public prosecutor six members of BSI Bank's senior management and staff, for an assessment into whether they have committed criminal offences.

The MAS told The Business Times that in the last few years, it has been progressively intensifying its supervision of financial institutions' controls against money laundering and illicit financing; the latest move was a natural progression of such efforts.

An MAS spokeswoman said: "This was necessary in view of the strong growth of the financial sector, including the wealth-management business." She added that the MAS has also imposed higher penalties on financial institutions for lapses in their controls against illicit financial flows.

"The impetus for the setting up of the dedicated AML (anti-money laundering) department therefore predates the recent action against BSI Bank and the ongoing review of other financial institutions with respect to suspicious transactions and relationships. But these recent developments have indeed underscored the merits of bringing together supervisory resources from across the MAS to give a centralised focus on combating money laundering."

Shashi Nathan, a Withers KhattarWong partner in the criminal-litigation practice, said it is too early to know whether the MAS' move would lead to more intrusive supervision. But he suggested having dedicated departments would help it better handle the increasing complexities of transactions, which can be "mired in technicalities".

"The creation of a specialist department is a really good step for the country. It shows that Singapore takes AML seriously," he said. "Singapore is not the same place as it was 10 years ago. You've got two casinos, and the influx of high-net-worth individuals."

The MAS said it is not possible to prevent regulatory breaches and misconduct even with intrusive supervision. "A strong enforcement capability is necessary to conduct rigorous investigations of suspected violations and misdemeanours and to take swift actions to establish culpability and punish as appropriate the institutions or individuals who have breached MAS regulations."

The new department will be responsible for enforcement actions arising from breaches of MAS's banking, insurance and capital markets regulations and investigate capital markets misconduct offences with the Commercial Affairs Department.

Meanwhile, terrorism financing has also grown in sophistication. A late-2015 report by the Financial Action Task Force showed Al Qaeda in Iraq had used spreadsheets and standardised financial accounting reports to maintain a system of revenue sharing between sub-units.

But it is not as if terrorists need much money to inflict terror. The Charlie Hebdo attack was likely funded by 6,000 euros (S$9,180) in consumer loans (obtained with forged documents), proceeds from the sale of a used car and the sale of counterfeit goods, the report said.