Digital payment token service providers at higher risk of facilitating terrorism financing
Money remittances remain at ‘high risk’, while cross-border online payments are flagged as a potential new channel in latest national risk assessment report
THE risk of digital payment token (DPT) service providers facilitating terrorism financing was raised from “medium-low” to “medium-high” as part of the latest refresh of Singapore’s terrorism financing national risk assessment.
The risk assessment, which was last conducted in 2020, highlighted similar terrorism financing risk areas, the Ministry of Home Affairs, Ministry of Finance and Monetary Authority of Singapore said on Monday (Jul 1).
While DPT service providers were identified to be at a higher risk of facilitating terrorism financing, the risk assessment noted that there was no strong evidence suggesting that DPTs are widely used in South-east Asia. DPT service providers would include the likes of companies that provide crypto services.
“The higher terrorism financing risks are driven by the anonymity, speed, and cross-border nature of transactions facilitated by DPT service providers.
“Furthermore, there is a risk of licensed DPT service providers engaging with unregulated or inadequately regulated DPT service providers beyond Singapore’s jurisdiction,” the report said.
DPT service providers in other jurisdictions were found to have run afoul of the law in recent months.
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In April this year, cryptocurrency exchange Binance’s former chief executive Zhao Changpeng was sentenced to four months in prison after he pleaded guilty to violating US money laundering laws.
The company was found to have turned a blind eye to transactions that supported different crimes, including terrorism, illegal drug trade and child sex abuse.
The agencies also highlighted risks from foreign online crowdfunding, flagging that it could be an emerging way in which terrorists raise funds.
The agencies further noted that key terrorism financing threats could arise from terrorist groups, as well as self-radicalised individuals sympathetic to their cause.
“Far-right extremism is also a growing security concern in many countries. While it has not gained significant traction in South-east Asia, we cannot rule out that its anti-Islam and anti-immigration rhetoric may resonate with some individuals,” the agencies said.
In this latest report, money remittances remained at “high risk”, while cross-border online payments were flagged as a potential new channel for terrorism financing activities.
Meanwhile, banks remained at “medium-high risk”, with new cross-border fast payment systems potentially serving as new channels for terrorism financing activities.
Non-profit organisations, cross-border cash movements and precious stones, metals and products remained at “medium-low” risk.
Robson Lee, partner at Kennedys Law, said that the updated risk assessment reflects the government’s ongoing regulatory development. In particular, he noted that the seamless and borderless nature of DPTs makes it difficult for any single jurisdiction to detect and enforce actions against criminal activities funded via such tokens.
He added: “The risk level has been heightened in this most recent update to raise public awareness that criminals are increasingly using the digital realm to circumvent guard rails and laws that are not yet commensurate with the speed and covertness of digitalisation, which is increasingly the preferred mode of terrorism financing and other money laundering activities.”
He also said that Singapore will likely continue to work with other Financial Action Task Force (FATF) members to synchronise their different laws and regulations, and to institutionalise due processes between them.
FATF was founded in 1989 by the Group of Seven to combat money laundering. Its mandate was later expanded in 2001 to counter terrorism financing.
Meanwhile, TSMP Law joint managing partner Stefanie Yuen Thio noted that Singapore has one of the highest penetrations of digital payments in the world, as well as a large migrant population that uses remittance services.
“New modes of financial transfers such as DPTs, which are even harder to conduct (know-your-customer processes) on, increase the risks,” she said.
She expects know-your-customer, or KYC, processes to become more stringent. However, she believes that they should be done smartly and not simply create more administrative work that falls short of identifying risks effectively.
“We need to balance stringency in KYC against making Singapore too tough a place for legitimate capital to do business,” she said, adding that other cities such as Dubai and Hong Kong have “rolled out the red carpet” to foreign money.
Furthermore, it is also important for the general public to be educated on these risks, she said.
“The man on the street is probably not sensitised to this threat and not on the lookout for a radicalised person.”
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