New Acra anti-money laundering rules musn’t hamper ease of doing business in Singapore, say industry players

CORPORATE service providers said they welcome upgrades to Singapore’s anti-money laundering (AML) regime, but hope regulators would bear in mind that the system is “not broken”.

Singapore already has several restrictions and requirements in place that are working as intended, they added, pointing to the recent arrest of 10 individuals who are allegedly part of a web of money launderers.

Following the charge of those individuals in court, the government said the Accounting and Corporate Regulatory Authority (Acra) will strengthen its AML regime for corporate service providers.

The Business Times (BT) understands that the Monetary Authority of Singapore has also reached out to a number of corporate service providers amid the ongoing AML probe. Corporate solutions offered by these companies include corporate secretarial and business registration services.

Corporate service providers who spoke to BT said tougher regulation is necessary to safeguard Singapore’s reputation as a financial hub.

They warned, however, that further legislation must not be a “knee-jerk reaction” to recent events, and hoped the new rules would not excessively hamper legitimate business flows and foreign investments.

Eric Chin, group chief business development officer at Singapore-headquartered corporate service provider InCorp Global, said the AML regime “needs upgrades to keep up with the times” but is “not broken”.

InCorp’s internal policies require due diligence be conducted on all customers, he said. The group’s sales, compliance and technology teams are also tasked with checking client names against established databases, assessing each case and investigating cases for further action.

Chin noted that this may not be the case for all other corporate service providers in Singapore, however, as the industry has a low barrier to entry. Mandatory guidelines would therefore ensure each provider has an acceptable level of compliance with AML and counter-terrorism financing (CFT) policies.

Another service provider, BoardRoom Group, said direct sanctions on registered filing agents would be a significant step towards establishing individual accountability.

Singapore already has restrictions on who is allowed to incorporate a company, and foreigners are required to engage a registered filing agent for this. Filing agents must conduct due diligence on customers and look out for potential money-laundering activities.

Chester Leong, BoardRoom’s Asia managing director of tax and accounting, said: “(These new sanctions) will not only strengthen the effectiveness of our regulatory framework for corporate service providers but also ensure that the sanctions imposed are fair, proportionate to the violations, and serve as a strong deterrent.”

Acra last year launched a public consultation on proposed amendments to its regulation. The proposed changes are in line with recommendations of the Financial Action Task Force (FATF), a global AML watchdog.

Regulatory enhancements include the introduction of a S$100,000 fine on directors or owners of corporate service providers that breach AML and CFT obligations.

These service providers are to implement groupwide AML and CFT policies, and file suspicious-transaction reports with Acra.

The consultation also addressed risks presented by the misuse of nominee arrangements. These occur when bad actors aim to create shell companies that facilitate money laundering.

The proposed changes will require individuals who act as nominee directors to be qualified persons, which means they should satisfy the requirements of being a filing agent. Examples of qualified individuals include Supreme Court advocates and solicitors, registered public accountants and members of various accounting institutions.

The regulator is expected to table its framework for corporate service providers in early 2024.

Leong, who is also BoardRoom’s country head for China, said recent trends indicated a “significant increase” in the misuse of nominee directorship arrangements, which shell-company owners have used to facilitate money laundering activities.

“This issue is often attributed to providers that, when offering nominee directorship services, sometimes appoint individuals lacking the necessary qualifications for this critical role,” he said.

The amendments are likely to prevent potential abuse of nominee directorship arrangements and elevate the calibre of individuals serving these roles, Leong added.

Higher costs

While the proposed amendments could be critical, industry watchers flagged the downside of higher costs.

InCorp’s Chin said corporate service providers would have to spend more on technology and hire more staff to meet the additional requirements. To maintain margins, such costs may have to be passed on to customers.

Chenthil Kumarasingam, dispute resolution partner at law firm Withers KhattarWong, said the new rules may also have the knock-on effect of driving out smaller providers.

These generally serve the smaller local companies, and may not have the resources to upgrade their AML/CFT compliance measures.

He suggested the amendments take into account smaller corporate service providers so that they are not priced out of the market. “In that regard, it may be necessary to have a two-tier system with fewer regulations for companies that deal in a smaller quantum of funds,” he said.

With these additional checks, business owners should also be prepared for longer onboarding times.

On the upside, Kumarasingam said the stricter standards may help financial institutions.

“Financial institutions may find better documentation being provided to them from the outset, thus lowering their own AML burden,” he said.

Kennedys Legal Solutions partner Robson Lee said it is good that regulation is being tightened “in light of recent transgressions or worldwide developments elsewhere”.

Bringing Singapore’s regulatory framework up to the same standards as the recommendations proposed by FATF is therefore consistent with such a principle, he added.

He nevertheless cautioned against prescriptive legislation as a “knee-jerk response” to the recent money-laundering arrests.

Said Lee: “No country has an impenetrable iron dome of laws and regulations that can effectively shield its market from money-laundering activities.”