How do financial institutions spot and flag suspicious transactions?
SINGAPORE is known to have anti-money laundering regimes imposed on financial institutions that operate here.
But an anti-money laundering bust involving some S$1.8 billion in cash and assets has thrown up questions about how potentially suspicious transactions could have slipped through the cracks.
The Business Times takes a look at the rules and regulations that financial institutions such as banks have to comply with to deter bad actors from “washing money”.
How do banks identify dubious transactions? What happens when suspicious activities are flagged? And what more can be done to strengthen anti-money laundering measures?
Knowing who you’re dealing with
One way that banks can check if a customer is legitimate is through their Singpass account.
For example, when an individual applies for a new bank account or for a loan, the bank is granted access to his or her Singpass account to view personal details. These include, for example, the individual’s salary information, address and occupation, which can give the bank a better understanding of the person’s background.
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Those without a Singpass account are required to fill in an application form manually.
There are several factors that a financial institution may take into account. These include, for example, the country or jurisdiction the customer comes from. Special attention is paid to individuals from countries listed on the Financial Action Task Force (FATF) list of high-risk countries.
Another factor is the individual’s sources of wealth. Individuals may be flagged, for example, if they are not employed in Singapore, or have businesses registered outside Singapore.
Banks also require persons with significant sources of wealth to submit documents to ascertain the origin of that wealth. These include shareholder equity, returns from investments in property or other assets, and inheritance.
The bank also considers, via the documents submitted, whether it is plausible that the individual can accumulate such levels of wealth. This is especially so for wealthier individuals with a significant amount of assets.
Suspicions arise with individuals who are evasive when questioned on the transaction, are eager to expedite the transfers, or who avoid in-person contact, such as if they seek to communicate only through a middleman.
What happens when the bank flags a suspicious transaction?
Banks file Suspicious Transaction Reports (STRs) when they detect a suspicious transaction or fund flow. For example, this happens when the financial institution is unable to verify the source of wealth, or has suspicions or doubts about the transaction.
Compliance officials who spoke to BT said this can happen when a bank’s client is unable to fully account for a sum of money. This typically applies when an individual is unable to explain where a larger-than-usual amount of money comes from, or what it is being used for.
Instead of turning away the client, financial institutions accept the transaction, so that the bad actor would not be alerted to the suspicions raised, and also to give the authorities time to gather information.
The financial institution then proceeds to flag the transaction and file a report, which is then sent to the Suspicious Transaction Reporting Office (STRO) under the Commercial Affairs Department.
In 2020, the total number of STRs filed was 33,882, going by figures from the Singapore Police Force. This figure was higher than the 32,660 STRs filed in 2018 and 32,022 in 2019, but lower than the 35,471 in 2017.
However, the grounds on which these reports are filed could be subjective. It requires bank officers to make a judgement call when the occasion arises.
Can financial institutions be expected to do more?
The Monetary Authority of Singapore (MAS) announced this year that it was developing a new digital platform so that financial institutions can “securely share” information on potentially suspicious customers with each other.
The platform has been named Cosmic, short for Collaborative Sharing of Money Laundering/Terrorism Financing Information & Cases.
MAS said that the platform would enable financial institutions to share information on customers with multiple red flags, which may indicate potential financial crime concerns, “if stipulated thresholds are met”.
Currently, Singapore’s Banking Act mandates that regulated financial institutions and their officers uphold confidentiality when handling customer information.
With the new platform, financial institutions can request or provide information, and alert other banks to unusual activity, and be granted protection from civil suits arising out of such sharing.
Cosmic is expected to be rolled out in phases from the second half of 2024.
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