Anti-Money Laundering and Anti-Terrorist Financing Laws: The Singapore Experience Andy Yeo Partner Litigation & Dispute Resolution 12 July 2007 Allen & Gledhill LLP. Allen&Gledhill ADVOCATES & SOLI A bit of history... Anti-money laundering law in Singapore 1992 Criminal offence to launder proceeds from drug trafficking Criminal offence to launder proceeds from drug trafficking, corruption and criminal conduct (serious offence) Allen&GledhillA bit of history... Anti-terrorist financing law Is this simply an American problem? September 14 Allen&Gledhill A bit of history... law London bombing Allen&GledhillA bit of history.. ‘Anti-terrorist financing law 14 Sept 2001 28 Sept 2001 29 & 30 Oct 2004 13 Nov 2001 ‘Terrorist attacks in US UN Security Council adopted UN Security Councit Resolution 1373 — called upon member States to implement "measures against terrorism and terrorist financing FATE 8 Recommendations to combat terrorist fnancing (9" Recommendation updated on 22 Oct 2004) United Nations (AnU-Terrorism Measures) Regulations ~ first Singapore legislation to criminal'se laundering funds {or the use of terrorist act and provision of direct or indirect assistance to terrorists [Zao Fans"] Mor leglston possedtasvengten efi to counter EN sehercest aia Allen&Gledhill AML vs CFT Anti-money laundering | Anti-terrorist financing Clean money ee, Front co Clean money Allen&Gledhill Terrorist activitiesAML vs CFT + Processes are somewhat different + Calls for a similar attitude in approach to counter these activities Allen&Gledhill Anti-money laundering law Allen&GledhillSources of law + Statute f> : 34 — Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (*‘CDSA”) ~ applies to any person — individual or corporation (corporation deemed to be liable for conduct of its director, employee or agent if the conduct was engaged within his scope of actual or apparent authority) Allen&Gledhill Sources of law * “Soft” law ~ MAS Notices / Guidelines on Prevention of Money Laundering (“MAS Notices”) Allen&GledhillCDSA + Criminalise laundering of benefits from: drug trafficking; and = “criminal conduct” (include corruption, forgery, criminal breach of trust, cheating, misappropriation of property, insider trading, market manipulation, market rigging etc) committed in or outside Singapore Allen&Gledhill Basic money laundering offences + Assisting to retain illegal proceeds + Concealing or transferring illegal proceeds + Acquiring illegal proceeds for no or inadequate consideration + Tipping-off * Failing to disclose knowledge andor suspicion that any property is illegal proceeds (if knowledge and/or suspicion arose in the course of trade, profession, business or employment) Allen&GledhillPenalties for money laundering a offences Max fine $$200,000 and/or max imprisonment for 7 years Max fine $$30,000 and/or max imprisonment for 3 years Max fine $$10,000 Allen&Gledhill Assisting to retain illegal proceeds Concealing or transferring illegal proceeds Acquiring illegal proceeds for no or inadequate consideration Tipping-off Falling to disclose knowledge and/or suspicion that any property is illegal proceeds Basic money laundering offences Allen&Gledhill Not necessarily syndicated activities One-off “concealment”, “conversion” or “transfer” of illegal proceeds constitutes an offence These offences can impact individualsWhen does suspicion arise? + Need not tie the proceeds to specific criminal conduct + Need to familiarise with money laundering red flags, Examples * Transactions that do not make economic sense + Corporate / trust customers ~ having difficulties and detay in obtaining copies of accounts or documents of incorporation * Customers who deal with you in cash or cash equivalent rather than through banking channels. Allen&Gledhill MAS Notices + MAS Notices supplement CDSA + Prescribe detailed steps to detect and deter money laundering Allen&GledhillMAS Notices + Must implement procedures for 4 important areas: ~ customer identification (through conducting Customer Due Diligence ("CDD") measures) Reporting officer) = retention of financial transaction documents — compliance and training Allen&Gledhill — reporting of suspicious transactions (Compliance / Breach of MAS Notices * Guilty of an offence punishable with fine Example * Holder of capital markets services licence may be liable to: — max fine = S$50,000 ~ continuing offence, max fine = S$5,000 per day after conviction + Administrative action by MAS under section 28(5) of Monetary Authority of Singapore Act Allen&GledhillWhen something fishy happens + Disclose knowledge or suspicion to compliance officer / reporting officer ~ clarify suspicion with customer — tipping-off? ~ reject customer's business — tipping-off? + Compliance officer / reporting officer discloses knowledge or suspicion to STRO you may enter into the contract Allen&Gledhill + If STRO asks you to enter into the contract, When something fishy happens What happen if you have such knowledge or suspicion, after you have entered into a financial services contract with your client? + Disclose your knowledge or suspicion, on your own initiative, as soon as it is reasonable for you to make the disclosure Allen&GledhillProtection accorded by law * Anonymity to those making disclosure of a suspicion or belief that property, funds or investments are derived from drug trafficking or criminal conduct + Disclosure does not breach banking secrecy rule Allen&Gledhill Case study 1 Allen&GledhillCase study 2 Allen&Gledhill Anti-terrorist financing law Allen&GledhillSources of law + Terrorism (Suppression of Financing) Act ~ came into force on 29 January 2003 — supplemented by + United Nations (Anti-Terrorism Measures) Regulations (w.e.f. 13 November 2001) + MAS (Anti-Terrorism Measures) Regulations 2002 (w.e.f. 30 September 2002) ~ applicable to financial institutions only Allen&Gledhill Basic terrorist financing offences + Key offences: — providing and collecting property / services for terrorist acts / purposes = _ using or possessing property for terrorist purposes — dealing with terrorists’ property — failure to disclose information relating to terrorists’ property / acts of terrorist financing Allen&GledhillAdditional duties under anti-terrorist financing law + Strict liability offences — Terrorism (Suppression of Financing) Act incorporates a list of specific individuals/organisations/entities identified positively as “terrorist” or “terrorist entities” = need to develop a good terrorist risk assessment model + Direct personal reporting obligation to police Allen&Gledhill Case study 1 Allen&GledhillCase study 2 Allen&Gledhill, Recent development to anti-money laundering and anti- terrorist financing law and enforcement in Singapore Allen&GledhillRevisions to MAS Notices + MAS conducted two rounds of consultations on proposed revisions to MAS Notices in January 2005 and August 2006 and a public consultation on the Guidelines in August 2006 + Consultation has ended and Revised Notices and Guidelines were issued on 29 December 2006 + All the Notices and Guidelines took effect on 1 March 2007 save for the Notices and Guidelines applicable to trust companies, which took effect on 1 April 2007 Allen&Gledhill Revisions to MAS Notices Separate Notices and Guidelines for the following entities: + Banks (MAS Notice 626 and Guidelines to MAS Notice 626); + Merchant banks (MAS Notice 1014 and Guidelines to MAS Notice 1014); + Finance companies (MAS Notice 824 and Guidelines to MAS Notice 824); + Life insurers (MAS Notice 314 and Guidelines to MAS Notice 314); + Capital markets services licensees (MAS Notice SFA04- N02 and Guidelines to MAS Notice SFA04-NO2); Allen&GledhillRevisions to MAS Notices Separate Notices and Guidelines for the following entities: + Financial advisers (MAS Notice FAA-NO6 and Guidelines to MAS Notice FAA-NO6); + Approved trustees, namely, trustees for collective investment schemes authorised under the Securities and Futures Act (Cap 289) (MAS Notice SFA13-NO1 and Guidelines to MAS Notice SFA13-NO1); + Holders of money changer’s licence and remittance licence (MAS Notice 3001 and Guidelines to MAS Notice 3004); and + Trust companies (MAS Notice TCA-N03 and Guidelines to MAS Notice TCA-NO3). Allen&Gledhill Revisions to MAS Notices Key changes: + To extend coverage of MAS Notices to terrorist financing * More rigorous CDD measures to verify identities of customers * Risk-based approach for CDD measures + Measures to deal with “politically exposed persons” (PEPs) * Include originator information in cross-border wire transfers exceeding S$2,000 Allen&GledhillRevisions to MAS Notices + To extend coverage of MAS Notices to terrorist financing ~ in view of the developments in Singapore law to legislate terrorism financing and the FATF (Financial Action Task Force) recommendations. ~ financial institutions will be required to adopt the measures set out in the MAS Notices for the purpose of preventing money laundering and countering terrorism financing Allen&Gledhill Revisions to MAS Notices * More rigorous CDD measures - must complete CDD measures before establishing business relations unless the following conditions are satisfied: + essential for banks not to interrupt the normal conduct of business operations + risks of money laundering and terrorist financing have been effectively managed by financial institutions Allen&GledhillRevisions to MAS Notices + Wide definition of “customer” ~ financial institutions are advised to perform CDD as widely as possible on persons whom they deal with ~ extends to persons whom the financial institution “undertakes or intends to undertake any transaction without an account being opened” | Allen&Gledhill Revisions to MAS Notices * Risk based approach for CDD measures ~ simplified measures allowed, for e.g. + where reliable information is publicly available; + where the customer isa listed company that is subject to regulatory disclosure requirements; + where dealing with another financial institution whose anti money laundering / countering the financing of terrorism controls it is familiar with by virtue of a previous course of dealings; + where the financial institution is dealing with anciher franca instituien which is subject to and supervised for compliance consistent with standards set by the FATF; or + where the financial institution is supervised by the MAS (other than a holder of a money changer’s licence or a holder of a remittance licence, Allen&Gledhill 19Revisions to MAS Notices + Risk based approach for CDD measures ~ enhanced measures for high risk customers: + PEPs and their immediate family members and close associates + other high-tisk categories, dependent on: — type of customer; the type of product or service that the customer purchases; and — the geographical area of operation of the customer's business. Allen&Gledhill Revisions to MAS Notices + Risk based approach for CDD measures: ~ the financial institutions are to give particular attention to business relations and transactions with any person from or in countries and jurisdictions known to have inadequate anti money laundering and countering the financing of terrorism measures. + as determined by the financial institutions; or + as notified to the financial institutions by the MAS or other foreign regulatory authorities. Allen&Gledhill 20Revisions to MAS Notices + Dealing with PEPs and high-risk customers ~ additional requirements — implement appropriate internal policies, procedures and controls to identify a PEP; — obtain approval from senior management to establish or continue business relations; ~ establish, by appropriate and reasonable means, the source of wealth and source of funds; and ~ conduct, during the course of business relations, enhanced monitoring of business relations. Allen&Gledhill Revisions to MAS Notices + Cross-border wire transfers exceeding S$2,000 ~ to be in line with the FATF’s Special Recommendation Vil ‘on Wire Transfers — applies to banks, finance companies, merchant banks, money changers and holders of remittance licence, which are the ordering Institutions in a cross-border wire transfer ~ to include in the message or payment instruction that accompanies or relates to the wire transfer the originator's: + name; + account number (or unique identification number assigned by the ordering institution where no account exists); an + address, unique identification number, or date and Place of birth = come into operation on 1 July 2007 Allen&Gledhill 21Key take-aways Allen&Gledhill Detecting money laundering and a terrorist financing activities Need to develop a risk assessment model ~ High risk countries - non-cooperative countries and territories identified by FATF - High risk businesses - remittance - import / export - cash intensive (e.g. casino) ~ certain charities (terrorist financing) Allen&Gledhill 22Detecting money laundering and terrorist financing activities + Need to develop a risk assessment model ~ high risk products ~ bearer instruments - PEPs - Charles Taylor (former Liberian President) Allen&Gledhill Conclusion * Difficult to create a perfect terrorist risk assessment model + World-Check, British-based banking compliance database to which 62 banks have encrypted access, listed 15 of the 19 September 11 hijackers as terrorist suspects before the attack Allen&Gledhill 23Conclusion + Need for culture change + Public duty must be paramount + Need for software assistance + Need to have an experienced compliance officer Allen&Gledhill Conclusion We have to be vigilant today as it can avert injury or harm to ourselves or to our loved ones tomorrow Allen&Gledhill 24Questions? Allen&Gledhill Thank You ‘Andy Yoo ‘Smaaar oe Faeke estas res wal gay yolevaesedt cm Allen&Gledhill 25