INTRODUCTION TO MONEY LAUNDERING AND TERRORISM FINANCING FOR KEY EXECUTIVE OFFICERS

Transcription

1 INTRODUCTION TO MONEY LAUNDERING AND TERRORISM FINANCING FOR KEY EXECUTIVE OFFICERS 27 JULY 2015

2 CONTENT What is Money Laundering/Terrorism Financing Singapore s role in FATF Singapore s AML/CFT regulations Vulnerabilities / Methods of Abuse of the Real Estate Sector What is a Suspicious Transaction Report? Keys to Combat Misuse

3 WHAT IS MONEY LAUNDERING (ML)? Shopping Victim Criminal A s Account Criminal s Account Casino Predicate offence MONEY LAUNDERING Cleaning dirty money Proceeds (E.g. money) from a criminal activity Disguised to hide their illegal origins Criminals can enjoy proceeds without fear of detection or prosecution

4 WHAT IS TERRORISM FINANCING (TF)? Fertilizer Criminal A s Account Terrorist TERRORISM FINANCING (TF) Provide financial support to fund terrorism acts Disguise use to evade detection Bus Bomb

5 MONEY LAUNDERING VS TERRORISM FINANCING MONEY LAUNDERING Shopping Criminal A s Account Criminal s Account Casino TERRORISM FINANCING Criminal A s Account Terrorist

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7 WHY SHOULD REAL ESTATE AGENTS BE CONCERNED WITH ML/TF? DETRIMENTS TO COMMUNITY MONEY LAUNDERING (ML) TERRORISM FINANCING (TF) Criminals allowed to enjoy the fruits of their illegal activities Encourage / reward crime Affect our personal safety Undermine societal fabric Terrorists allowed to continue their acts of horror Destruction of lives and property Affect our personal safety Cost in rebuilding society

8 WHAT FATF DOES Financial Action Task Force (FATF) Inter-governmental body created in 1989 Purpose : Develop and promote national and international policies to fight money laundering, the financing of terrorism (and financing of proliferation from 2008)

9 4 key areas of work: WHAT FATF DOES i. Identify and analyse money laundering, terrorist financing (ML/TF) and other threats to the integrity of the financial system ii. iii. iv. Develops and refines the international standards for fighting ML/TF, and most recently financing of proliferation Assesses and monitors members compliance with its standards Identify jurisdictions with serious deficiencies in their national regimes and engages them to improve their regimes

10 SINGAPORE S INVOLVEMENT Member since 1992 Why Singapore Needs to Do Well Damaging to reputation of: Being a trusted financial centre and global business hub Having a tough stance on crimes FATF requires application of countermeasures against high-risk countries Financial institutions, businesses and individuals based in Singapore subject to enhanced scrutiny when carrying out financial transactions with other countries Dampening effect on the conduct of business in and through Singapore, and flow of funds through Singapore

11 AML LEGISLATION Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) 400+ drug dealing and serious offences ( predicate offences ) Singapore s main Anti-Money Laundering statute Criminalizes self-laundering and third-party laundering Any person who Conceals or disguises that property Converts, transfers or removes that property from jurisdiction Acquires, possesses or uses that property Maximum $500,000 fine, or 10 years imprisonment, or both (corporation $1 million fine)

12 CFT LEGISLATION Terrorism (Suppression of Financing) Act (T(SOF)A) Singapore s main Counter-Terrorism Financing statute Criminalizes terrorism financing Prohibits the dealing of property or the provision of services for the purpose of committing or facilitating a terrorist act; or relating to a terrorist or terrorist entity This Act has extra-territorial application Maximum $500,000 fine, or 10 years imprisonment, or both (corporation $1 million fine)

13 REAL ESTATE SECTOR VULNERABILITIES TO ML/TF Large Value Quantum Price Fluctuation/ Speculation Ability to Generate Clean Income Possibility of Concealing Ownership

14 METHODS OF ML IN THE REAL ESTATE SECTOR Misuse of Real Estate Agents Monetary Instruments Use of Third Parties & Corporate Vehicles Rental Income to Legitimise Illicit Funds Manipulation of the Valuation of a Property Renovations and Improvements to Property

15 CASE STUDY: MISUSE OF REAL ESTATE AGENT S PROFESSION Trust A Approach Real Estate Agent to assist to buy property in Country X Approach bank for loan Bank B Members of the board of Trust A with links to terrorist organization Trustee Real Estate Agent Misuse of Real Estate Agent s Profession Using a Trust and a Designated Non-Financial Business Profession Deliberate attempt to disguise the identity of the beneficial owner of the real estate

16 CASE STUDY: USE OF THIRD PARTIES & CORPORATE VEHICLES Company A, owned by a family member Leasing of of B Real Estate Bought a property in Company A s name Source of payments Company C, limited information Individual B, Manager of Company A Real Estate Agent Individual D, Financial Fraud Injected criminal proceeds into Company C Use of Third Parties & Corporate Vehicles Disguise the origins of funds, beneficial ownership, purpose, activities and financing related to criminal activities Intermingling of legitimate income with illegal criminal proceeds

17 CASE STUDY: MANIPULATION OF THE VALUATION OF A PROPERTY Shell companies beneficially owned by Individual A, leader of a criminal organization USD 1mil USD2mil USD3mil USD3mil Shell Company A Shell Company B Shell Company C Overvaluation/Undervaluation, Successive Sales and Purchases Buying or selling a property above or below its market value Successive sale or purchase by related participants, unusual profit margins Injection of monies into the financial system to conceal origin of funds

18 CASE STUDY: MONETARY TRANSACTIONS Criminal proceeds consolidated to purchase real estate Bank A Cash, Cheques, Wire Transfers Account funded by cash, cheques, international wire transfers. High turnover of funds in the account. Difficult to trace the transaction to a specific individual or criminal activity

19 SUSPICIOUS TRANSACTION REPORTING OBLIGATIONS Section 39 Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) Mandatory for anyone to inform STRO, when a person knows or have reasonable grounds to suspect that any property may be connected to drug dealing or criminal conduct in the course of business or employment Such a report is known as a Suspicious Transaction Report No civil or criminal proceedings shall lie against a person disclosing in good faith Violation: Maximum $20,000 fine

20 SUSPICIOUS TRANSACTION REPORTING OBLIGATIONS Section 8 Terrorism (Suppression of Financing) Act (T(SOF)A) Every person in Singapore, and every Singapore citizen overseas, to inform the Police of any property or information relating to any terrorist or terrorist entity No civil or criminal proceedings shall lie against a person disclosing in good faith Lodge a Police Report if urgent. If not urgent, you may make a Suspicious Transaction Report Violation: Maximum $50,000 fine, or 5 years imprisonment, or both

21 SUSPICIOUS TRANSACTION REPORTING OBLIGATIONS Commonly asked questions Am I allowed to tell my client that I filed a STR against him/her? Will the suspect in my STR be in any trouble with the authorities? Will the suspect featured in the STR be arrested? Will my identity remain confidential? Will I be required to testify in court?

22 PROTECTION FOR STR FILERS Section 40A CDSA Section 5 & 6 Official Secrets Act Provides for protection of information (such as the identity of the STR maker) CAD does not reveal the identity of the maker of the STR

23 KEYS TO COMBAT MISUSE Customer Due Diligence Detailed Record Keeping Internal Control AML/CFT Training

24 SUSPICIOUS TRANSACTION REPORTING OFFICE (STRO) Formed in January 2000 Singapore s Financial Intelligence Unit Receive, analyze and disseminate - Suspicious Transaction Reports (STRs) - Cross border Cash Movement Reports (CMRs) - Cash Transaction Reports (CTRs)

25 STR ANALYSIS PROCESS Financial information STRs CTRs CMRs Analysis by STRO Enforcement Databases Commercial databases Others Dissemination /collation Enforcement agencies Foreign counterparts Intelligence

26 USEFULNESS OF STRs Financial Intelligence Reports that have Direct and Immediate Impact on Investigations in 2014 Dissemination /collation Enforcement agencies Foreign counterparts Intelligence Investigation Commenced 12% Intelligence Developed 40% Supported Ongoing Investigations 48%

27 SUSPICIOUS TRANSACTION REPORTS (STRs) SUBMITTED TO STRO 30,000 Total Number of STRs Submitted 29,082 25,000 20,000 15,000 10,000 5,000 7,621 12,158 11,004 11,934 13,557 17,975 22, Year

28 SUSPICIOUS TRANSACTION REPORTS (STRs) SUBMITTED TO STRO Number of STRs Submitted in 2014 by Sector Banks 10,212 Money Changers and Remittance Agents Insurance Companies 5,922 5,714 Casinos 4,359 Other Payment Method Providers Capital Markets Intermediaries 1,335 1,175 Others Finance Companies Trust and Company Service Providers Top STR filers are the banks, money-changing and remittance businesses and insurance companies. Other filers include the casinos, capital markets intermediaries, accountancy firms, lawyers, corporate service providers

29 LOCAL CASE STUDY: PP V TAN SEN HOW Tyco International Asia Corporation Condominium unit at The Madeira Paid full purchase price of $570, 675 Altered Tyco s cheques and misappropriated $10million Ex-Financial Supervisor of Tyco Vera Wang Wan Yin Condominium unit at TheIcon Paid 30% of purchase price: $131, SENTENCING AND CONVICTION Forgery for the purpose of Cheating CDSA offences: Convert criminal proceeds to purchase 2 condominium units 10 years imprisonment

30 FORMAT OF STR Available at Your Contact Transaction Particulars Reasons for Suspicion Suspect s Particulars Supporting documents, if any

31 TIPS FOR LODGING STRs DON T Merely lodge a STR without elaborating on why something is suspicious DOs Explain reason for suspicion Identify unusual activities and behaviours Provide information on the client in question Provide us with relevant supporting documents

32 WHAT TO DO WHEN YOU DETECT A SUSPICIOUS TRANSACTION? STRs - Financial Institutions - DNFBPs - Casinos - Real estate Agents -Other agencies & individuals By Post By (stro@spf.gov.sg) STRO

33 FILING A SUSPICIOUS TRANSACTION REPORT POST: Head, Suspicious Transaction Reporting Office Commercial Affairs Department 391 New Bridge Road, # Police Cantonment Complex Block D Singapore Tel: (65) STRO@spf.gov.sg MORE INFO: The Suspicious Transaction Reporting Regime

34 IMPACT OF NON-REPORTING CASE STUDY: FAILURE TO LODGE STR Money Laundering & corruption charges Rahman - Politically Exposed Person Lim Siew Cheng PENALTY: $12,000 fine Incorporated companies for Politically Exposed Person (PEP) Held monies for client in his personal account Turned a blind eye to adverse news on the client

35 THANK YOU

36 CEA s Practice Circular on Prevention of Money Laundering and Countering the Financing of Terrorism 2 nd CAD-CEA Joint Outreach Session to KEOs on AML/CFT 27 Jul 2015 Briefing Officer: Cedric Peeris (Principal Manager /Policy & Planning Division)

37 Presentation Outline Background & Objectives of PC Requirements of PC o o o o o o Assessing ML/TF Risks Customer Due Diligence (CDD) Measures Suspicious Transaction Reporting Record Keeping Training Compliance Checks Learning Points from Inspections and Self- Assessment Checklist Returns 37

38 Background & Objectives of PC Real estate can be conduit for ML & TF activity (see Slides 39-42) FATF s standards for AML/CFT cover real estate sector (see Slides 43-44) o o Real estate agency sector has to play our part in combating ML & TF FATF s evaluation of Singapore scheduled at end of this year CEA first issued Practice Circular (PC) on AML/CFT in Nov PC is part of national efforts to combat ML/TF. Objectives of PC: o o o Improve awareness and understanding on ML and TF Inform of measures to be adopted against ML/TF activities Highlight key provisions in legislation and obligations for compliance 38

39 Undercover Reporters Find Salespersons Helping Foreign Criminals Launder Money Through London Properties 39

40 Undercover Reporters Find Salespersons Helping Foreign Criminals Launder Money Through London Properties Daily Mail report on estate agents from reputable UK firms helping Russian criminals launder cash by buying mansions worth between 3 to 15mill fuelling London s property bubble (8 July 2015) Undercover reporters pose as Russian politician and ask agents how to hide criminality. Agent advises on finding lawyer to secure anonymity. Provides coaching on what to tell lawyer so there is no suspicion of wrongdoing. Deal would have earned agent 300,000 in commission Stated in report that by not reporting criminal activity, and if deal went ahead, agents could face years in prison 40

41 Kickbacks from Indian Minister traced to Singapore material found on several property transactions 41

42 Kickbacks from Indian Minister traced to Singapore material found on several property transactions The Hindu report on alleged kickbacks received by former Indian Minister and his family members in return for construction contracts Kickbacks have been traced to Singapore Matter is under investigation and investigator mentioned in article that there was voluminous material on several property transactions, some had overseas links 42

43 FATF says Australia Needs to Tighten Safeguards on ML/TF 43

44 FATF says Australia Needs to Tighten Safeguards on ML/TF Business Times article where FATF stated that Australia Needs to Tighten Safeguards on ML/TF (23 April 2015) Real estate sector is important part of FATF evaluation Important for industry to put in place AML/CFT measures and follow through with implementation of measures 44

45 Background & Objectives of PC Feb 2015 o o CEA issued revised PC refinements made to align with prevailing AML/CFT practices Together with revised PC, self-assessment checklist was also provided to aid EAs in complying with requirements in PC Mar 2015 CEA commenced inspections of EAs Upcoming: Aug 2015 o o To issue Salespersons Guide on Prevention of ML and CFT Further refine PC (amendments to be made to PC shown in red text in subsequent slides) 45

46 Assessing ML/TF Risks EAs required to identify, assess, understand and document ML/TF risks in relation to customers EAs required to consider 2013 Singapore NRA Report to better understand risks for real estate sector (extracts circulated via GC 02-15) To assess ML/TF risks, EAs can consider the following: o Deal more with foreigners or locals? o Any high profile clients? o Deal more with private property or HDB transactions? Deal with large value transactions? o Deal more with sale/purchase or lease transactions? 46

47 Assessing ML/TF Risks From the risk assessment, EAs have to identify areas of higher ML/TF risk, and measures that will be put in place to address/mitigate risks EAs to document risk assessment 47

48 CDD Measures and STR Reporting Flow Chart Ask client to complete Customer s Particulars Form (for all transactions) Is purchaser foreigner? Is cash used in property purchase? Is there suspicion of ML/TF activity? Are there doubts about customer s particulars? No No further action required Y e s Undertake CDD measures Lodge STR when there is suspicion of ML or TF activity 48

49 Customer s Particulars Form Name: Customer s Particulars (for individuals) NRIC/Passport No./Other ID: Date of Birth: Nationality: Occupation: Name of Beneficial Owner (if individual is not the true owner) Name: Customer s Particulars (for entities) Country of Registration: Registration Number: Registration Date: Main Business Activity: Name of Beneficial Owner (if entity is not the true owner) 49

50 CDD Measures Verification of Identity and BO checks CDD measures: o Verify customer s identity using reliable, independent source documents, data or information Where there is reason to believe that customer is not beneficial owner (BO): o o Take reasonable measures to verify identity of BO; If BO is legal person/entity e.g. company, take reasonable measures to understand ownership and control structure; Identify person who has controlling stake in company or most senior executive or managing official 50

51 CDD Measures Screening Screen clients against UN sanction lists to determine if there is ML/TF risks: o individuals/entities known or suspected to be related to terrorists/terrorist organisations o Individuals/entities which may be involved in proliferation of weapons of mass destruction and its financing Refer to MAS webpage on targeted financial sanctions for UN sanction lists (link shown below refer to GC 04-15): Report full or partial name match to STRO If aware that you are dealing with such individuals or entities, cease dealing with them 51

52 CDD Measures Screening EAs strongly advised to subscribe to MAS webpage o o Alert EA to changes to UN sanction lists Help EA stay abreast of high risk countries identified by FATF KEOs should strongly encourage salespersons to subscribe to MAS webpage 52

53 CDD Measures Screening: Step-by-Step Guide to Subscribing to MAS Website 53

54 CDD Measures Screening: Step-by-Step Guide to Subscribing to MAS Website 54

55 CDD Measures Screening: Step-by-Step Guide to Subscribing to MAS Website 55

56 CDD Measures Screening: Step-by-Step Guide to Subscribing to MAS Website 56

57 CDD Measures Screening: Step-by-Step Guide to Subscribing to MAS Website Dear XXX, You have subscribed to the following items on MAS' website: Anti-Money Laundering / Countering the Financing of Terrorism and Targeted Financial Sanctions To activate your subscription, please follow this link: Subscription/Subscribe.aspx?sc_s=EC5DECCA5ED3D6B8079E2E7E7BACC 9F2&sc_d=mas&sc_e=cedric_peeris@cea.gov.sg&sc_action=subscribe You will receive an update when new information becomes available. This is a system-generated , please do not reply. If you have questions or problems with the subscription service, please contact webmaster@mas.gov.sg. 57

58 Enhanced CDD Politically Exposed Persons (PEPs) PEP - refers to domestic PEP, foreign PEP or international organisation (IO) PEP Domestic PEP - individual entrusted domestically with prominent public functions Foreign PEP individual entrusted with prominent public functions by foreign country IO PEP individual entrusted with prominent public functions by IO 58

59 Enhanced CDD Politically Exposed Persons (PEPs) Examples of prominent public functions roles held by Head of State or government, government ministers, senior civil or public servants etc. Family member - parent, step-parent, child, stepchild, adopted child, spouse, sibling, step-sibling and adopted sibling of PEP Close associate - individual who is closely connected to PEP, either socially or professionally 59

60 Enhanced CDD Politically Exposed Persons (PEPs) EAs shall implement appropriate internal policies, procedures and controls to determine if customer or BO is PEP, or family member or close associate of a PEP For foreign PEP, or family member or close associate of foreign PEP, EAs shall establish process for salespersons to obtain approval from EAs management to establish or continue business relationship Establish by appropriate and reasonable means, source of wealth and funds For domestic and IO PEPs, consider these measures if assessed to be higher risk relationship or transaction 60

61 Enhanced CDD Higher Risk Areas Consider enhanced CDD measures for complex, unusually large transactions, or unusual patterns of transactions Obtain more information on customer by reasonable means (e.g. occupation, source of funds/wealth, purpose of transaction) Pay attention to business relations and transactions with individuals and companies from higher risk countries (to refer to FATF public list of high-risk and noncooperative jurisdictions: 61

62 CDD Measures On-going Due Diligence Conduct due diligence on clients whom EA has on-going business relationship Ensure transactions consistent with knowledge of client, business and risk profile, and source of funds 62

63 Follow-up from CDD If there are reasons to be suspicious of client or beneficial owner, or where CDD cannot be completed, EAs and salespersons shall not deal with client or beneficial owner, terminate relationship and consider lodging STR Note: In cases where EAs and salespersons reasonably believe that undertaking CDD measures would tip-off client, should not pursue CDD process and should lodge STR 63

64 Suspicious Transaction Reporting Suspicious Transaction Reporting (STR) plays important role in combating ML and TF Lodge STR if you know or have reason to suspect that any transaction is connected to ML or TF o Report goes to Suspicious Transaction Reporting Office (STRO) of CAD PC has list of common suspicious indicators to help EAs and salespersons decide on lodging STR 64

65 Suspicious Indicators of ML/TF Activity Client intends to make real estate purchase with significant amount of cash e.g. paying option fee or down payment for property in cash Client is unconcerned about value of the property, and is willing to pay much higher or sell much lower than market value Client is planning to purchase multiple properties in short period of time Adverse news concerning client in the media 65

66 Suspicious Indicators of ML/TF Activity Salespersons not able to complete CDD measures, e.g. client not forthcoming when salesperson asks for identity of BO Buyer is shell company and representatives of buyer refuse to disclose identity of true owner(s) of the company Client s known business activity and purpose does not match with real estate transaction, e.g. client is non-profit organisation but property is purchased for investment and client intends to take large loan 66

67 Record Keeping In line with FATF requirement, EAs shall retain originals or keep copies of documents relating to property transactions for at least 5 years. Current 3-year record keeping requirement in Code of Practice will be revised to 5 years Retain records for cases under investigation or which are subject of STR for longer period as may be required by authorities Records may be retained in electronic form 67

68 Training KEOs shall take appropriate steps to ensure that salespersons are regularly trained on: o AML and CFT requirements, CDD measures, detecting and reporting STRs o Prevailing methods and trends in ML and TF o EAs internal policies, procedures and controls on AML/CFT 68

69 Compliance Management Procedures KEOs shall develop compliance management arrangements on AML/CFT measures, through internal checks or audits Spot checks could be conducted on CDD measures undertaken by salespersons. 69

70 Learning Points from Inspections Risk Assessment Assessment & Identification of higher risk areas: EAs to evaluate the profile of their customers and transactions to identify higher risk transactions, e.g.: o Higher value transactions (e.g. above $3 million), transactions involving foreigners, cash transactions Mitigation of risk: This could entail EAs putting in place system for Management to pay greater attention to higher-risk transactions identified, e.g.: o o System trigger to alert them to such transactions or requirement for salespersons to report such transactions Management will scrutinise these transactions more closely for need for CDD and lodging of STR 70

71 Learning Points from Inspections Risk Assessment Documentation: This area is found lacking - scope for improving the documentation of risk assessment which should include: o o o Evaluation of customer and transaction profile of EA Identification of higher-risk areas Actions to mitigate risks identified 71

72 Learning Points from Inspections CDD Measures Procedures for Salespersons to comply: EAs must put in place and communicate to salespersons measures and procedures for CDD o Could follow closely to procedures in CEA s PC and any other additional measure EA requires, e.g. reporting of higher-risk transactions to Management, internal CDD checklists Communications of CDD Procedures/Measures: Could be through: o s, websites, briefings conducted to team leaders or salespersons, posters in EA s premises 72

73 Learning Points from Inspections STR Reporting Oversight by EA: Some EAs choose to exercise some oversight, e.g.: o o Developed mechanisms for salespersons to report suspicious transactions, discuss with salespersons and if valid, EA lodge STR EAs will discuss and guide salespersons, salespersons lodge STR Number of STRs lodged by industry is very low EAs and salespersons should lodge STRs when there is suspicion of ML/TF activity, e.g. use of significant cash, customers prepared to pay and not concerned with value of property, customers not forthcoming and being evasive 73

74 Learning Points from Inspections Training EAs can do more to get salespersons to be trained. Can consider: o o Using in-house seminars or monthly meetings as platform to conduct AML/CFT training Link-up with Industry Association for conduct of AML/CFT training or be conducted by EA s management personnel Allows for training of customised procedures of the EAs Encourage salespersons to attend CPD courses on AML/CFT Ensure that AML/CFT training records of salespersons are updated 74

75 Observations from Inspections Compliance Management This area is found lacking EAs have to put in place system to conduct checks/audits to ensure the AML/CFT procedures for their salespersons are complied with: o o o Decide on system/plan for compliance checks/audits, e.g. focusing on higher-risk transactions Conduct checks/audits in accordance with the plan Document checks/audits 75

76 Questions from EAs Self-Assessment Checklist Returns Mine is a small firm with limited activity, so AML/CFT procedures are not relevant to me. Response: Application of AML/CFT procedures is on property transactions, and are applicable to all EAs, big or small, that engage in property transactions Not necessary to have AML/CFT procedures as my salespersons only handle lease transactions. Response: Cannot apply blanket exemption. Illegal proceeds can be broken up into smaller, less conspicuous amounts for ML. Properties that are leased out could provide regular stream of income to finance illegal activities, including terrorist activities. 76

77 Questions from EAs Self-Assessment Checklist Returns Lawyers and bankers will handle money and loan for our clients. I am confident that our law firms and banks are efficient enough to filter those related to ML and TF. Response: According to FATF s standards, AML/CFT procedures are applicable to non-financial sectors. Apart from real estate, also applies to lawyers, accountants, developers, moneylenders, etc. As responsible industry, we have to play our part in combating ML & TF. How might salespersons conduct CDD checks without jeopardising the transaction? Response: Salespersons can inform clients that CDD checks are CEA s requirements. If client is uncooperative or unresponsive, salesperson should lodge an STR. 77