A crucial time for customer due diligence for banks in Singapore

The country’s economic stability also makes it an attractive place for investments. According to government data, Singapore’s assets under management (AUM) grew 15% on average each year from 2017 to 2021, with most of that wealth coming from institutional investors. 

Non-retail individual clients —single-family offices, clients of external asset managers, private trusts, and high-net-worth individuals – made up just 20% of the increase in AUM over that same period. Government data further revealed that the number of single-family offices entering Singapore steadily increased from 700 in 2021 to 1,100 in 2022.

Money laundering has come under intensified regulatory scrutiny in Singapore following a widespread money laundering scandal that has rocked the country. In August 2023, more than 400 police officers conducted simultaneous raids at multiple locations across Singapore, leading to the arrests of 10 individuals who were charged with engaging in money laundering and forgery, according to the Singapore police.

Those arrested possessed foreign passports believed to be issued by countries that included the People’s Republic of China (PRC), Cambodia, Vanuatu, St Kitts, Nevis, Dominica, and Turkey. Financial institutions with customers in any of these countries should be on high alert.

Singapore’s Commercial Affairs Department (CAD), the agency that investigates white-collar crime, first became alerted to the potential illicit activity in 2021 through suspicious transaction reports (STRs) filed by financial institutions. Among the suspicious activity that was flagged by these banks included, for example, “suspected forged documents that were used to substantiate the source of funds in Singapore bank accounts,” the Singapore police reported.

An investigation that commenced in early 2022 uncovered a large web of foreign nationals, including those with familial ties, suspected of laundering illicit proceeds from their overseas organised crime activities, including online gambling and the unlicensed lending of money. More than S$2.8 billion in total assets have been seized, to date, including property, vehicles, jewellery, designer handbags, liquor and wine, gold bars, cash, and cryptocurrencies. 

In a ministerial statement before Parliament, Josephine Teo, Minister for Communications and Information and Second Minister for Home Affairs, called the case “one of the largest anti-money laundering operations not just in Singapore, but likely the world.” Investigations remain ongoing. As of January 2024, the total value of assets seized or issued with prohibition of disposal orders was more than S$3 billion, according to the Singapore Police.

Customer due diligence expectations

The Monetary Authority of Singapore (MAS), Singapore’s central bank, said it continues to work closely with financial institutions and other critical gatekeepers to guard against illicit activities in the financial system. 

In public remarks, MAS Managing Director Ravi Menon reminded financial institutions of their obligations to apply stringent AML controls, including conducting rigorous know-your-customer (KYC) processes and customer due diligence (CDD) on transactions. “Financial institutions are expected to conduct additional due diligence, such as corroborating the customers’ source of wealth,” Menon said.

Customers who refuse to provide the information required for a CDD check should raise red flags. “Where doubts or suspicions are flagged as part of their due diligence, financial institutions have to take appropriate risk mitigation measures,” Menon said. “These include not onboarding the customer or discontinuing the relationship.” 

If criminal activity is suspected, an STR must be filed. MAS will continue to ensure financial institutions adhere to their AML obligations through close supervision and surveillance activities. In a ministerial statement before parliament, Alvin Tan, Minister of State for Culture, Community and Youth and Trade and Industry, warned that “MAS is conducting detailed supervisory reviews and inspections of the financial institutions with a major nexus to this case.” 

Tan said that MAS additionally will assess whether financial institutions have “upheld robust AML/CFT practices, including performing adequate checks on their customers’ sources of wealth and funds, monitoring customer transactions to pick out suspicious ones, and taking all reasonable steps to mitigate against money laundering and terrorism financing risks.” 

In addition to financial institutions, certain non-financial businesses and professions also serve as important gatekeepers and must conduct KYC and CDD on their customers and transactions as well. Such gatekeepers include real estate agents of property transactions, corporate service providers, and dealers of precious stones and metals.

Wealth management sector

In March 2023, MAS issued a circular reminding financial institutions to “stay vigilant” to ML/TF risks in the wealth management sector, including single family offices (SFOs). MAS said it will continue to carry out onsite inspections to ensure that existing controls in this sector can adequately address current and emerging ML/TF risks, such as tax evasion and corruption-related risks. 

The circular provided industry guidance on MAS’ supervisory expectations in key control areas. Recommended measures include strengthening board and senior management oversight and risk and control functions; conducting review and quality assurance testing; and exercising vigilance over high-risk customers and transactions.

To strengthen its surveillance and defence against money-laundering risks pertaining to SFOs, MAS in July 2023 released a public consultation paper proposing to require all SFOs to notify MAS both when they commence operations and also annually; and maintain a business relationship with a MAS-regulated financial institution that would perform AML checks. 

That consultation closed in September 2023. According to Tan’s remarks before parliament, the consultation proposed that all SFOs, “regardless of whether they apply for tax incentives,” be subject to strict AML controls. “For example, SFOs will have to maintain a business relationship with a MAS-regulated financial institution, which will perform AML checks on them,” Tan said.

“The proposed enhancements consulted on go beyond most other leading jurisdictions and financial centres,” Tan added. “They aim to ensure that we have quality SFOs that contribute to Singapore and that we keenly watch any ML or terrorist financing risks. MAS will also study whether further measures beyond those that have been proposed in the consultation are necessary to ensure our approach to SFOs remains robust.”

Moving forward, it will be critical for Singapore financial institutions to continue to maintain robust KYC and CDD procedures to mitigate their ML/TF risks. Risk Advisory has maintained an office in Singapore since March 2022 and will continue to stay on top of these developments for its local and global clients.

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