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Closing loopholes to combat financial crimes

New legislation likely to deal with opaque structures that obscure beneficial ownership


MONEY-LAUNDERING and terrorist-financing (MLTF) risks are low in Singapore due to strong laws and tough enforcement, the government said yesterday.

Still, there are areas where controls need to be strengthened and one of them is corporate service providers (CSPs) such as lawyers and accountants who help companies set up opaque structures and the government is looking at additional legislation to deal with beneficial ownership information.

Singapore's openness as an international transport hub and financial centre exposes it to inherent cross-border MLTF risks, and the more vulnerable sectors include banks and private banks, trust companies, remittance agents, money-changers, casinos and CSPs such as lawyers and accountants.

In its inaugural national risk assessment report, the government said that many sectors have in place a robust regime to combat money laundering and terrorist financing.

"The regime is grounded in tough regulations, rigorous supervision, and effective enforcement," said a joint statement from the Ministry of Home Affairs, Ministry of Finance and the Monetary Authority of Singapore.

The report is the culmination of a government-wide exercise over the last two years and covers 14 financial sub-sectors and eight non-financial sectors in Singapore. The assessment takes into account Singapore's economic and geographical environment; its legal, judicial and institutional framework as well as crime trends. Emerging risks have also been identified for further study.

"The more vulnerable sectors include those that are internationally-oriented and cash-intensive," it said.

These sectors are where preventive measures against money laundering and terrorist financing are most needed. For many of them, such as banks and casinos, the relevant controls are in place.

These controls include customer due diligence, record keeping, ongoing transaction monitoring and rigorous supervision. In addition, Singapore has established an extensive international cooperation network for supervision and law enforcement to better combat transnational crime.

Singapore is ranked by the International Monetary Fund as one of 25 systematically important financial centres in the world.

The large size of the financial sector, high volume of transactions and wide international reach inevitably expose Singapore to its share of the MLTF risks, the report said.

"Full banks face higher inherent risks, owing to their larger customer volumes and the international nature of their transactions," it said.

The private banking industry in Singapore has also grown significantly over the past decade, boosted by the rising wealth in Asia.

"This industry is traditionally associated with higher money laundering risk due to the more high value and bespoke services that can be offered, which has warranted additional due diligence on customers," it said.

"Overall, anti-money laundering and countering the financing of terrorism (AML/CFT) controls in banks are most developed, but there is scope for improvement in the areas of trade finance and correspondent banking."

The report also highlighted a number of sectors where controls are relatively less robust. These include remittance agents, money-changers, Internet-based stored value facility holders, CSPs and pawnbrokers.

In particular, it said CSPs have been identified as a sector with a higher level of risk owing to the companies that they help to incorporate for international customers.

"While CSPs generally do not handle large amounts of cash, there is a risk that the companies that they help to incorporate may be abused by criminals to set up complex and opaque structures for illicit purposes."

The Accounting and Corporate Regulatory Authority has proposed new legislation to regulate CSPs, which is expected to come into effect this year, to ensure that concerns relating to customer due diligence and beneficial ownership are adequately addressed.

"Relevant government agencies will be strengthening the legislative and supervisory framework through the year to address the risks in these sectors more effectively," the report said.

As technology evolves and criminals become more sophisticated, several areas have also been identified for further study. These include virtual currencies, precious stones and metals dealers, and the Singapore Freeport.

"(The) authorities will seek to better understand how money laundering and terrorist financing can be carried out through these channels, as well as review international best practices, to determine whether any safeguards and mitigating measures are needed."