Suspicious Transaction Reports and the Indonesia Tax Amnesty

Transcription

1 DISPUTE RESOLUTION Suspicious Transaction Reports and the Indonesia Tax Amnesty Introduction Recent statements by the Monetary Authority of Singapore ( MAS ) have cast the spotlight on the need for banks to file a Suspicious Transaction Report ( STR ) in respect of clients who participate in the Indonesia tax amnesty programme. The Indonesian Tax Amnesty Bill was passed on 1 July Under the tax amnesty contemplated under Tax Law 11/2016, participating taxpayers would have their tax liabilities (including administrative and criminal sanctions) waived upon payment of a redemption charge, which would depend on the timeframe within which declaration is made, whether the declared assets are onshore or offshore and whether the offshore assets are repatriated to Indonesia (see Rajah & Tann Singapore: Client Update for July 2016, The 2016 Indonesia Tax Amnesty ). Recent media reports have cited the Commercial Affairs Department ( CAD ) of the Singapore Police Force, as having told banks last year that they must file an STR whenever a client takes part in a tax amnesty scheme. This recommendation was backed by an MAS statement made on 15 September 2016 that banks are required to adhere to the Financial Action Task Force standard of filing an STR when handling tax amnesty cases, similar to the practice in other jurisdictions. In this update, we examine the proposition that an STR is required whenever a client takes part in a tax amnesty scheme. A close reading of the applicable statutory provision suggests that the mere fact of participation in a tax amnesty programme may not in and of itself trigger an obligation to lodge an STR under section 39 of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act ( CDSA ). The Law Under section 39 of the CDSA, it is mandatory for a person to lodge a Suspicious Transaction Report if he knows or has reasonable grounds to suspect that any property represents the proceeds of, was used in connection with, or is intended to be used in connection with, an act that may constitute drug trafficking or criminal conduct, and the person s knowledge or suspicion is based on information that came to his attention in the course of his business or employment. Contravention of section 39(1) of the CDSA exposes the offender to criminal liability. If found guilty, such offenders may be liable to a fine of up to S$ 20,000 (section 39(2), CDSA). Banks will also have to comply with MAS Notice 626 Notice on Prevention of Money Laundering and Countering the Financing of Terrorism - Banks (paragraph 14 of which refers to Suspicious Transactions Reporting and the provisions in the CDSA) and its corresponding Guidelines. Pertinently, section 39(1) of the CDSA does not impose an obligation to report the substantive offence per se. Rather, the obligation to lodge an STR arises only when a person knows or has reasonable grounds to suspect that some identifiable property represent the proceeds of (in whole or in part, directly or indirectly), or is/was or is/was intended to be, connected with criminal conduct. Criminal conduct is in turn defined at Section 2 of the CDSA. In essence, criminal conduct means doing or being concerned in, whether in Singapore or elsewhere, any act constituting a serious offence or a foreign serious offence. 1 A serious offence includes any of the offences specified in the Second Schedule of the CDSA. The offences of tax evasion (section 96 of the Income Tax Act (Cap. 134) ( ITA )) and serious fraudulent tax

2 DISPUTE RESOLUTION evasion (section 96A of the ITA) were included in Part XII of the Second Schedule as serious offences with effect from 1 July A foreign serious offence is defined in section 2 of the CDSA as (a) an offence (other than a foreign drug dealing offence) against the law of a foreign country or part thereof that consists of or includes conduct which, if the conduct had occurred in Singapore, would have constituted a serious offence and (b) includes a foreign serious tax offence. The definitions of foreign serious offence and foreign serious tax offence in the CDSA were included by way of Act No. 21 of 2014 and took effect on 1 September The standard of reasonable grounds to suspect under section 39(1) of the CDSA is determined via the application of a partly subjective and partly objective test, namely, whether a reasonable person with the accused person s experience and knowledge would have reasonable grounds to suspect that the property he was dealing in represented the proceeds of criminal conduct (PP v Rahmad bin Ibrahim [2007] SGDC 349 at [73]). There are reasonable grounds to suspect where there were facts which would have caused a reasonable person with the accused person s experience and knowledge to have a positive feeling of actual apprehension or fear that the property he was dealing in represented the proceeds of criminal conduct (PP v Rahmad bin Ibrahim [2007] SGDC 349 at [75]). Analysis Based on the applicable law, the mere fact of participation in a tax amnesty programme may not necessarily trigger an obligation to lodge an STR under s39, CDSA. Arguably, there must be some connection or link between some identifiable property and alleged criminal conduct. While there may be ground for suspicion that a client, by participating in the Indonesian tax amnesty programme, may be linked to offences relating to tax evasion in Indonesia, section 39 does not impose an obligation to report suspicion of any criminal conduct, but suspicion of property linked to such criminal conduct. The circumstances and context in which the relevant knowledge giving rise to the suspicion is acquired are important. If a client takes the extra effort to notify the bank that he is participating in the Indonesian tax amnesty programme, this arguably may give rise to suspicion as to his assets being held with the bank since there would presumably be no reason for him to notify the bank as such. Otherwise, it may not be unjustifiable for the bank to seek further information on the client s assets and, in particular, whether these assets are affected in any way by or linked in any way to tax-related offences or the client s participation in the tax amnesty programme, before deciding to lodge an STR. Further, as the tax evasion-related offences were only included in the Second Schedule with effect from 1 July 2013, such obligation to lodge the STR would likely only apply to suspected property held or continuing to be held with the bank from 1 July 2013 onwards. Any blanket requirement to report an STR with the CAD in Singapore on account of participation in a tax amnesty programme in Indonesia must be examined closely and critically. Ultimately, such a requirement would mean that the mere participation in the programme (which is intended to allow the waiver of criminal sanctions for the primary offence of tax evasion in Indonesia) may expose the individual to the risk of liability for the offence of money-laundering in Singapore (as there is no guarantee that they will not be prosecuted in Singapore for the same). Aside from principles of international comity, this may bring to question the issue of whether the objectives of the anti-money-laundering laws are fulfilled by imposing such a blanket requirement. As money-laundering is in essence a process intended to mask the benefits derived from criminal conduct, it is counter-intuitive that an individual cooperating with authorities to declare such benefits in order to bring to light such criminal conduct should be prosecuted in another jurisdiction on account of such cooperation. 2 Ultimately, it is not a straightforward question whether the relevant threshold is crossed for the lodgement of an STR. Each case will need to be assessed based on its own facts and the relevant parties should consult their internal or external counsel for advice, where appropriate.

3 Contacts Hamidul Haq Partner D (65) F (65) hamidul.haq@rajahtann.com Istyana Ibrahim Senior Associate D (65) F (65) istyana.ibrahim@rajahtann.com Please feel free to also contact Knowledge and Risk Management at eoasis@rajahtann.com ASEAN Economic Community Portal With the launch of the ASEAN Economic Community ( AEC ) in December 2015, businesses looking to tap the opportunities presented by the integrated markets of the AEC can now get help a click away. Rajah & Tann Asia, United Overseas Bank and RSM Chio Lim Stone Forest, have teamed up to launch Business in ASEAN, a portal that provides companies with a single platform that helps businesses navigate the complexities of setting up operations in ASEAN. By tapping into the professional knowledge and resources of the three organisations through this portal, small- and medium-sized enterprises across the 10-member economic grouping can equip themselves with the tools and knowhow to navigate ASEAN s business landscape. Of particular interest to businesses is the "Ask a Question" feature of the portal which enables companies to pose questions to the three organisations which have an extensive network in the region. The portal can be accessed at 3

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