MAS Licensing Loopholes Aided Illicit Money Conduits into Singapore, Sources Say

Lax AML scrutiny on family offices, remittance companies facilitated money laundering

By: Andy Wong Ming Jun

Cross-border agents both inside and outside of Singapore have aided money launderers to rapidly transfer vast sums into the country through a web of formal or informal remittance houses, evading controls and setting the stage for the S$1.8 billion (US$1.3 billion) scandal now engulfing the banking and finance industry, knowledgeable industry figures say. According to the Financial Action Task Force (FATF), the intergovernmental money laundering and terrorist financing watchdog of the Group of Seven countries, money remittance and currency exchange businesses have been shown in the past to be both witting and unwitting participants in money laundering activities through three stages: placement, layering, and integration.

The Monetary Authority of Singapore (MAS) has ordered all financial firms in the country to examine any potentially suspicious or unusual transactions of some 34 individuals made since the start of 2020, according to local media. Of the 34 suspects, 10 have been arrested and named in ongoing court proceedings. State investigators and prosecutors are expanding their investigation targets to include the charged individuals’ wives and relatives, as well as precious metals and stones dealers in the country. This is no surprise given Singapore’s rating as being only “partially compliant” on customer due diligence, regulation, and supervision of Designated Non-Financial Business and Professions (DNFBP), which include property agents and jewelry dealers by FATF in 2019.

There however remains a glaring omission in terms of institutions currently under increased scrutiny: remittance houses and single-family offices (SFO). SFOs are set up to manage the financial assets owned or controlled by members of the same family, and have burgeoned in recent years in Singapore. Many such SFOs are controlled by foreign entities, including one of the 10 arrested individuals who is confirmed to be a director of Golden Eagle Family Office in Singapore under the front of offering management consulting services.

Many of these SFOs mark the final endpoint of a well-established money laundering process that starts with rich criminals buying into or establishing credible front businesses overseas. These businesses, often legitimate, are predominantly involved in the import and export of physical goods, and merely serve as placement and layering conduits for illicit funds to be injected into them under the guise of increased capital investments and more illicit funds passed off as revenue from “new legitimate customers.”

Once sufficient profits have been generated by these foreign front businesses and dutifully recorded into their accounting books for a sufficiently long period of time with complete auditing records to establish credibility and legitimacy, the newly-cleaned “profits” are then shifted into these individuals’ family offices in Singapore via remittance houses, avoiding direct wiring between established main street banks so as not to generate a digital trail. The laundered monies are typically held for a few months before being spent on lavish lifestyles and luxury purchases in the country. The entire cross-border money laundering chain is designed to provide maximum legal obstruction and opacity in the event of criminal investigations and is partially the reason why some of the key money laundering suspects have still not been apprehended in Singapore or overseas.

Since 2019, MAS regulations on licensed remittance houses haven’t required them to seek prior approval before dealing with new customers without having previously met with them face-to-face, enabling the money launderers to successfully channel funds into Singapore between 2020 to 2022, when international travel was severely restricted due to the Covid-19 pandemic. Singapore pounced on the opportunity to attract more Family Offices by giving various tax incentives on top of the country’s low corporate tax rate and zero capital gains tax, the result being that by end-2022 there were some 1,100 Family Offices, up from mere 400 at the end of 2020. Whilst restrictions on remittance payouts are capped at S$20,000 to any individual receiving an inward remittance transaction, there exist no restrictions or suspicious transaction report (STR) tripwire to be triggered by multiple remittances received in short order to the same recipient – in this case, the bank accounts belonging to the various family offices and companies set up in Singapore by the money launderers.

A September 4 Straits Times report disagreed with calls for extra scrutiny on family offices and mainland Chinese wealth in Singapore, stating that the issue was merely with “less than ideal compliance by some intermediaries that facilitated these fund flows.” A banking industry source who asked to remain unnamed because of the sensitivity of the ongoing investigation told Asia Sentinel that while generally there is agreement in the industry that lapses have occurred in anti-money laundering compliance by agents and professional intermediaries, the established culture is one of viewing such self-reported checks as an administrative paperwork speed bump to be avoided in the pursuit of making money. When it comes to the prospect of earning large commissions from facilitating such large fund inflows and the luxury assets they are used to purchase outright, such “fixers” and agents are motivated to ensure as much as possible that these business transactions would not give reason for them to trigger suspicion and subsequently file STRs, the source said. Other media reports support that belief.

Like much of the AML regime put in place by MAS, the onus is largely on licensees and individual agents to self-report any potential suspicious transactions. For instance, remittance houses and money changers are only required to appoint external auditors or qualified consultants to assess the effectiveness of their policies and procedures when they first conduct non-face-to-face business with new clients, and self-submit an assessment report to MAS within a year of such business contact occurring. More critically, whilst MAS requires remittance companies to conduct due diligence checks on both sending and receiving individuals involved in transactions of S$20,000 and above, such checks are exempted for either party if they are financial institutions. Despite being effectively treated as financial institutions under existing regulations, family offices are currently exempted from MAS registration or licensing simply due to them not handling third-party funds. This allows for their business dealings with remittance companies to largely go unnoticed.

MAS proposed in July 2022 to close off the above AML loopholes for family offices in Singapore by standardizing and tightening licensing exemption criteria for them. Proposed changes include requiring the entities to be family owned, to only manage funds for the owning family and selected key employees, be incorporated in Singapore, have a designated Singapore-based employee to be the point of contact with MAS, and most importantly, maintain a business relationship with MAS-regulated banks operating in Singapore. The proposals are still in the consultation process until September 30 and thus have yet to be officially implemented. Market observers believe that these recommendations will almost certainly be introduced wholesale, and that they will have negligible impact on Singapore’s attraction to foreign wealth seeking safe haven for their monies.