ACIP has released 2 guidance papers on approaches towards the misuse of legal persons and trade-based money laundering (TBML) during a dialogue held on 14 May.
The ACIP is Singapore’s public-private collaboration to exchange views and information on anti-money laundering/countering the financing of terrorism (AML/CFT) and finding ways to mitigate money laundering/terrorist financing (ML/TF) risks better.
The papers, titled, Best Practice Paper on Trade-Based Money Laundering and Best Practice Paper on the Misuse of Legal Persons was a result of ACIP’s earlier findings on two key ML/TF areas that deserved attention.
Misuse of Legal Persons
Many organisations, such as the Transparency International, have been advocating governments around the world in revealing hidden identities of ultimate beneficial owners (UBOs). Recently, UK had voted in favour of releasing UBO information publicly on its overseas territories.
The problem of identifying UBOs are exacerbated when connected persons such as lawyers and accountants residing outside of the jurisdiction where the Legal Person is incorporated.
To understand the key risks behind legal persons, ACIP convened a sub-group – Legal Persons Working Group (WG) – to provide recommendations to the industry.
According to the Paper, Personal Investment Company (PIC) was reported to be the highest represented legal person found in Suspicious Transactions Reports (STRs). PICs are legal persons commonly incorporated in an offshore jurisdiction with lower AML/CFT standards, where information on beneficial owners is not easily available.
As part of their recommendations to the industry, the Legal Persons WG proposed having a central beneficial owner register for legal persons incorporated in Singapore to ease due diligence checks.
Trade-Based Money Laundering (TBML)
The FATF defines TBML as the process of disguising the process of crime and moving value through the use of trade transactions in an attempt to legitimise their illicit origins. Singapore is exposed to TBML due to its role as a trade and financial hub.
The Paper provided a set of scenarios, such as, issuing Letters of Credit and Bank to Bank reimbursement, to guide the industry ascertain the appropriate transacting party as the “customer” that would be subject to due diligence.
Additionally, trade finance transactions that are on “Open Account” terms should be scrutinised for the following red flags:
- The customer engages in transactions that are inconsistent with the customer’s business strategy (for example, a steel company starts dealing in paper products) or make no economic sense;
- The customer deviates significantly from its historical pattern of trade activity (that is, in terms of markets, monetary value, the frequency of transactions or volume);
- Transacting parties appear to be affiliated, conduct business out of a residential address, or same business address or provide only a registered agent’s address; or
- The customer conducts business in jurisdictions that are bordering sanctioned countries or are at higher risk for TBML.
The ACIP is expected to release a Best Practice Paper on data analytics. The paper aims to share experience, provide practical insights on understanding, acquiring, building or co-creating AML/CFT analytics solutions to streamline efficiency and accuracy in detecting suspicious transactions.
Mr Chua Kim Leng, Special Advisor of MAS, also announced that MAS would be starting a series of thematic reviews, including one that focuses on the abuse of legal persons.