The Current State of Singapore s Anti-Money Laundering Laws: A Critical Re-evaluation

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1 NUS Practice Law Seminar The Current State of Singapore s Anti-Money Laundering Laws: A Critical Re-evaluation 1 August 2018 Eric Chan

2 Disclaimer: This information is provided for general information purposes only and does not constitute legal or other professional advice. It is not comprehensive. Specific advice should always be sought in relation to any legal issue. Shook Lin & Bok LLP does not accept any responsibility for any loss which may arise from reliance on this presentation. 2

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5 Theme The current state of our AML laws: Where do we stand? The Practical Burdens of Compliance Erring on the side of caution? 5

6 Outline Overview of Singapore s AML Regime Some Practical Issues Discernible Trends Key Take-Aways Conclusion 6

7 Glossary AML Anti-money laundering CDSA Corruption, Drug-trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap. 65A) FATF Financial Action Task Force FIU Financial Intelligence Unit STR Suspicious Transaction Reports STRO Singapore s FIU, the Suspicious Transaction Reporting Office of the Commercial Affairs Department 7

8 Overview of Singapore s AML Regime

9 The International Backdrop Financial Action Task Force (FATF) Inter-government body established in 1989 to set standards and promote measures to combat ML and TF FATF Recommendations, as the accepted international standard against which national laws are measured. Not a convention. FATF meets regularly in plenary and working group meetings, attended by officials from member countries. Generation of political will to act through mutual peer pressure. Adherence to FATF standards is monitored through a process of mutual evaluation whereby officials from FATF member countries will make an in-country visit to assess a country s AML/CFT framework against FATF standards

10 Overview of Singapore s AML Framework Regime for Confiscation of Benefits of Crime Information Gathering powers Criminalisation of Money Laundering Reporting of Suspicious Activity Cross-border movement of cash and bearer instruments Reporting of Certain Cash Transactions CDD Requirements on Onboarding + Periodic Review

11 Sources of Singapore AML Legal Requirements CDD upon onboarding a Client Requirements imposed by Industry Regulators Periodic Review of CDD Information Requirements imposed by Industry Regulators Monitoring Client Activity and Reporting Suspicious Transactions Obligation to Report imposed by section 39(1) of CDSA

12 The ML Predicate Crime Serious Offence Criminal Conduct Foreign Serious offence Dual criminality Listed in CDSA Second Schedule Foreign Equivalent to a Serious Offence No dual criminality Foreign Serious Tax Offence

13 Assisting to Retain Benefits of Criminal Conduct CDSA section 44(1) Enters or otherwise concerned in an arrangement Knowing or having reasonable grounds to believe that Retention or control by another person of benefits of criminal conduct is facilitated; OR Other person s benefit from criminal conduct is used to secure funds placed at the other person s disposal or use for that other person s benefit to acquire property Knowing or having reasonable grounds to believe that that other person has engaged in or benefited from criminal conduct Offence

14 Obligation to Report a Suspicious Transaction CDSA section 39(1) Knowing or having reasonable grounds to suspect Obligation is to report suspicion, not to investigate a crime Property Information came to attention in the course of trade, profession, business or employment Represents proceeds of act which may be drug dealing or criminal conduct; OR Used in connection with act which may be drug dealing or criminal conduct; OR Intended to be used in connection with act which may be drug dealing or criminal conduct STR

15 Protection of STR Informants CDSA section 39(6) Where a person discloses in good faith to a Suspicious Transaction Reporting Officer His knowledge/suspicion in CDSA section 39(1); or any info/matter on which that knowledge/suspicion is based The disclosure not to be treated as a breach of any restriction upon disclosure imposed by law, contract or rules of professional conduct; and no liability for any loss arising out thereof

16 Deeming the STR Informant not to have Knowledge CDSA section 40 Where a person (or his officer, employee or agent) gives information under CDSA section 39(1) As soon as practicable after having the knowledge referred to in CDSA section 39(1) The person (or his officer, employee or agent) shall be taken not to have been in possession of that information at any time Then for the purposes of sections of CDSA sections 43 (drug money laundering), 44 (money laundering), 46 (assisting in drug money laundering), and 47 (assisting in money laundering)

17 Reporting Suspicion up the Line CDSA section 39(7) Where a person is in employment at the time in question If X discusses his suspicion with his line manager Y, and X s suspicion is negated, Y may still need to report if his suspicion is now triggered from the discussion. He disclosed the info/matter to the appropriate person in accordance with his employer s procedures established for this purpose Defence to a charge for committing an offence under CDSA section 39

18 Tipping Off CDSA section 48 Where a person knows or has reasonable grounds to suspect An authorised officer is acting or proposing to act in connection with an investigation, being or to be conducted under the CDSA An STR has been made or is being made to an authorised officer Offence He discloses to any other person info which is likely to prejudice that investigation or proposed investigation under the CDSA He discloses to any other person info which is likely to prejudice any investigation following the STR

19 Some Practical Issues

20 The Typical CDD Process Establishing the ID of the Client Verification of client ID using docs and info Identifying and verifying ID of Agents Identifying and verifying ID of Beneficial Owners Purpose and nature of business relationship Face-to-Face Contact or no Face-to-Face Contact? Risk Based Approach to CDD dialing up or down as required

21 The CDD Requirement for Lawyers Only if matter is a Relevant Matter Acquisition, divestment or other dealing in Real Estate Management of client s moneys, assets or accounts Creation, operation or management of companies and other legal structures M&A activity Any other matter that is unusual in the ordinary course of business, having regard to complexity, quantum involved, apparent economic/lawful purpose, or business/risk profile of the client 21

22 The Challenges in Conducting CDD Is CDD even worth the Effort? Conducting CDD on: Immediate Client Agents Beneficial owners Customer resistance Owner-Controllers Transaction Principals Is the web of CDD requirements/exemptions getting too complex? The phenomenon of De-Risking 22

23 The Risk-based Approach does it really help?! How to meaningfully define these? Low Client Risk Normal Client Risk High Client Risk Low Txn Risk Normal Txn Risk High Txn Risk Low Low-Normal Low-High Low-Normal Normal High Low-High High High Qualitative Adjustment Having the cake and eating it: Flexibility - Yes, definitely. Certainty - That too, please. 23

24 When Failure to file an STR becomes an Offence The bank must think that there is a possibility, which is more than fanciful, that the relevant facts exist. A vague feeling of unease would not suffice. But the statute does not require the suspicion to be clear or firmly grounded and targeted on specific facts or based upon reasonable grounds. R v Da Silva A degree of conviction that is lower than certainty but higher than speculation Koh Hak Boon v PP, Ow Yew Beng v PP However, the protective provisions of the CDSA are available at a lower threshold 24

25 More Fundamentally, What s Next After the STR? In the aftermath of an STR filing, what should one do? Proceed with transaction? Reject transaction? Stall? Suspend relationship? Exit relationship? 25

26 Managing the Situation after the STR Shah v HSBC Private Bank (UK) Ltd (2012) UK Bank suspected customer was involved in money laundering, filed a Suspicious Activity Report. Bank delayed acting on instructions to make transfers pending directions from UK authorities. Customer sued, claiming damages for losses on account of the delay, and the bank s failure to explain the delay. Claim eventually defeated on the basis of an implied term that entitled the bank to refuse acting on instructions if it suspected money laundering, and had acted in compliance with the UK Proceeds of Crime Act. 26

27 Managing the Situation after the STR Shah v HSBC Private Bank (UK) Ltd No explicit term entitling Bank to refuse/delay acting on instructions or to refuse to give updates Issues: Can there be an implied term entitling the bank to delay payment Which individual s suspicion is to be attributed to the Bank Whether basis of suspicion was valid Did the bank have a duty to give updates, and if so, when Did breach of duty by bank cause the loss Were the exoneration clauses valid to protect the Bank Remoteness of damage and mitigation of losses 27

28 Managing the Situation after the STR WBL Corporation Ltd v Lew Chee Fai Kevin (2012) Singapore WBL suspected Lew had engaged in insider trading. Refused to honour Lew s exercise of share option under an ESOS, on the ground that this would be money laundering. WBL had earlier filed an STR. However, MAS eventually took civil action against Lew for insider trading. No criminal prosecution. Sued by Lew on the ESOS, WBL pleaded illegality as a defence. 28

29 Managing the Situation after the STR WBL Corporation Ltd v Lew Chee Fai Kevin At first instance, the High Court found for WBL. On appeal, the Court of Appeal reversed and ruled in favour of Lew Andrew Phang JA (for the Court of Appeal): Having filed an STR under the CDSA, WBL was effectively exonerated by CDSA s 40 from any involvement in money laundering under CDSA s 44. Accordingly, there was no illegality which WBL could rely on as a defence to Lew s action for breach of contract. Lew is entitled to claim damages to be assessed 29

30 Deeming the STR Informant not to have Knowledge CDSA section 40 Where a person (or his officer, employee or agent) gives information under CDSA section 39(1) As soon as practicable after having the knowledge referred to in CDSA section 39(1) The person (or his officer, employee or agent) shall be taken not to have been in possession of that information at any time Then for the purposes of sections of CDSA sections 43 (drug money laundering), 44 (money laundering), 46 (assisting in drug money laundering), and 47 (assisting in money laundering)

31 Responding to the Client s Queries Having filed the STR, what can one if the client asks for an update on the status of the transaction? Inform the client? Ignore the client? Stall? 31

32 Responding to the Client s Queries Shah v HSBC Private Bank (UK) Ltd Bank refused to say anything. Customer argued that the bank had an implied duty to disclose the reasons once it came to a point where there was no risk of prejudice. Supperstone J: The likelihood of prejudice is to be judged by reference to the facts available to the bank at the time. The bank will not necessarily know the outcome of an SAR or the extent of any investigation. Equally the bank will almost never know whether the customer is wholly innocent. If there is a risk of tipping off, then to avoid potential criminal liability, the bank must refuse the request for information. 32

33 Discernible Trends

34 Forthcoming Developments 1MDB: Cross-border mutual assistance Domestically, rigorous enforcement of STR reporting obligations Common Reporting Standards Concern over cross-border migration of businesses CDD generally Regulatory expectations of more complex and thorough checks expected 34

35 Key Take-Aways

36 Three Things to Note about our CDSA Favours continuity over disruption Exoneration in relation to disclosure and reporting No exoneration in relation to refusing to act 36

37 Post-STR Case Management Risk of Regulatory Breach Proceed as usual? Reject? Stall? Suspend relationship? Exit relationship? Risk of Reputational Damage Risk of Civil Liability

38 When Things get really Uncomfortable Entanglement in illegality a valid concern and you want to exit BUT No wait-and-see illegality defence!

39 Conclusion 39

40 The Days of Don t See, Don t Hear, Don t Report 40

41 Wrapping Up Dealing with the Practical Burdens of Compliance Understand how everything fits CDD not just a matter of ticking the boxes Balancing between good compliance and good business? Erring on the side of caution Yes, but beware the Unintended Consequences 41

42 Thank You Eric Chan Partner, Shook Lin & Bok LLP Tel: Robinson Road #18-00 AIA Tower Singapore Tel: Fax: Website: 42