Author: Aiying
According to Caixin Media today, Singapore is stepping up its scrutiny of family offices and hedge funds and cleaning up inactive family offices due to a $3 billion money laundering case. The new rules require family offices to provide detailed information and invest at least 10% or S$10 million in local projects. Industry insiders believe this may cause some wealthy Chinese to turn to Hong Kong.
We know that Singapore, located in Southeast Asia, is a city-state with an area of about 725 square kilometers. With its strategic geographical location and developed transportation network, Singapore has developed into an important international financial center and trade hub in the world. However, it is precisely this open and globally connected nature that makes Singapore also face complex and diverse money laundering risks. International criminals may use Singapore's financial system and commercial infrastructure to conduct illegal capital flows.
In order to better understand and respond to these potential money laundering threats, the Monetary Authority of Singapore released the Anti-Money Laundering Risk Assessment Report 2024 last week. The main purpose of the report is to assess the money laundering risks currently faced by Singapore, analyze the risk status of various sectors, and propose corresponding preventive measures and strategies to further strengthen Singapore's anti-money laundering capabilities and ensure the security and integrity of the financial system.
Aiying has distilled four key points for everyone through the report:
1. Internal and external money laundering challenges faced by Singapore
1. External threats
As an international financial center, Singapore faces a variety of external money laundering threats, mainly including the following categories:
Cyber Fraud: Cyber fraud is one of the most significant external threats facing Singapore. With the global popularity of the Internet and the development of e-commerce, cyber fraud activities have increased rapidly. Fraudsters use sophisticated technical means to carry out transnational crimes, such as business email compromise (BEC) and fake website fraud. These crimes not only cause financial losses to the victims, but also lead to a large amount of illegal funds flowing into Singapore's financial system. The funds obtained through fraud often enter Singapore bank accounts through multiple levels of fund transfer and money laundering techniques, and are then quickly transferred to other countries, increasing the difficulty of tracing.
Illegal online gambling: Illegal online gambling is also one of the major external threats facing Singapore. Due to the global coverage of the Internet, illegal gambling websites can easily operate across borders and attract a large number of international gamblers. These websites transfer funds through Singapore's financial system to launder illegal proceeds. Although Singapore has strict legal provisions for illegal gambling activities, these websites are usually located overseas, making law enforcement much more difficult. In addition, illegal gambling proceeds are often laundered through complex money laundering methods, including the use of cryptocurrencies and third-party payment platforms, making it more difficult to track the flow of funds.
Other transnational crimes: Singapore also faces money laundering threats from other transnational crimes, such as drug trafficking, human trafficking and corruption. These criminal activities usually involve large amounts of illegal funds, which enter Singapore's financial system through various means. For example, funds from drug trafficking may be laundered through forged trade invoices and false contracts; funds from corruption may be laundered through investment in high-value assets such as real estate and luxury goods.
2. Insider Threat
In addition to external threats, Singapore also faces certain internal money laundering risks, which are mainly reflected in the following aspects:
Domestic cyber fraud: In recent years, domestic cyber fraud activities have increased and become one of the main internal threats in Singapore. Fraudsters use social media and instant messaging tools to carry out various forms of fraud, such as online shopping scams, fake investment schemes and phone scams disguised as government officials. These fraudulent activities not only cause a large number of residents to suffer financial losses, but also lead to illegal funds flowing into the financial system. These funds are usually laundered through bank accounts, using multiple accounts for transfers, increasing the complexity of fund flows and evading supervision.
Abuse of Corporate Service Providers (CSPs): Corporate Service Providers (CSPs) in Singapore play an important role in company registration and management, but they are also at risk of being abused. Some criminals use CSPs to register shell companies and use them to transfer illegal funds and launder money. Shell companies usually have no actual business operations and are only used to hide the source and destination of funds, making it more difficult to track and investigate.
Investment in high-value assets: Singapore is an important wealth management and high-net-worth asset center, attracting a large amount of international funds. This also brings the risk of internal money laundering. Some criminals launder money by investing in high-value assets such as real estate, art and luxury goods. The high value and liquidity of these assets enable criminals to convert illegal funds into legal assets in a relatively short period of time and evade financial supervision.
II. Money Laundering Risks in Various Financial Sectors
1. Banking risk assessment
The banking sector features prominently in Singapore’s money laundering risks for a number of reasons:
Frequent cross-border transactions: Singapore’s banking system is highly internationalized, and frequent cross-border transactions facilitate money laundering. Large amounts of funds are transferred internationally through banks, allowing money launderers to quickly transfer illegal funds and evade regulation.
Diverse financial products: Banks offer a variety of financial products and services, such as private banking, wealth management, investment banking, etc. The complexity and diversity of these products and services provide money launderers with multiple ways to launder money. For example, private bank accounts and investment portfolios can be used to hide illegal proceeds and launder money through complex financial transactions.
Large customer base: Singapore's banking industry has a large customer base, including local and international customers. Among these customers are high net worth individuals and multinational corporations, which poses great challenges to banks in terms of customer due diligence (CDD) and anti-money laundering (AML) monitoring. Criminals can use false identities and complex corporate structures to hide their true identities, making it more difficult for banks to identify and report suspicious transactions.
E-banking and technology development: With the development of e-banking and financial technology, online transactions have become more common and convenient. Although this has improved the efficiency of financial services, it has also provided new channels for money laundering. Money launderers can quickly transfer funds through online platforms and use virtual assets and cryptocurrencies to launder money, which increases the difficulty of bank supervision.
2. Risk assessment of wealth management and payment services
Wealth Management:
High net worth clients: The wealth management industry mainly serves high net worth clients, whose funds are highly liquid and have a wide range of investment channels. Money launderers may hide the source of illegal funds through investment funds, trusts and other financial instruments.
Complex financial products: The financial products offered by wealth management companies are often complex, including cross-border investments, structured products, and private equity. These complex financial products can be used by money launderers to convert illegal funds into legal income through multiple layers of transactions and investments.
Strong privacy: Wealth management business emphasizes customer privacy, which may lead to insufficient background checks on customers in some cases and thus be exploited by money launderers.
Payment Services:
Third-party payment platforms: With the popularity of electronic payments and third-party payment platforms, money launderers can use these platforms to transfer funds quickly and covertly. For example, money launderers can use multiple electronic wallets to make decentralized payments and circumvent the monitoring of traditional financial systems.
Prepaid cards and e-money: The anonymity and convenience of prepaid cards and e-money make them ideal tools for money laundering. Criminals can purchase large numbers of prepaid cards and use them in different locations, or transfer money across borders using e-money, making it more difficult to track.
Cryptocurrency: Payment service providers include cryptocurrency exchanges and wallet services. The anonymity and decentralization of cryptocurrency make it a tool for money launderers to transfer funds across borders and launder money.
3. Corporate Service Provider (CSPs) Risk Assessment
Corporate service providers (CSPs) also play an important role in anti-money laundering risk assessments. The main risk factors include:
Company registration and management: CSPs provide company registration and management services, which allow criminals to use shell companies to launder money. Shell companies usually have no actual business operations and are only used to hide the source and destination of funds. Transferring funds through multiple shell companies makes it more difficult to track.
Legal and financial consulting: The legal and financial consulting services provided by CSPs may be used by money launderers to cover up illegal activities under the guise of legality. For example, money launderers may use the trust and fund management services provided by CSPs to transfer illegal funds to overseas accounts and circumvent domestic supervision.
Anonymity and privacy protection: Many CSPs offer services that emphasize customer privacy and anonymity, which money launderers can use to hide their true identity and the source of their funds. For example, by using nominee companies or trusts, money launderers can further conceal their money laundering activities.
Cross-border business: CSPs in Singapore are often involved in cross-border business involving multiple jurisdictions. This cross-border business model provides convenience for money launderers to exploit the legal and regulatory differences in different countries to launder money. For example, money launderers can register companies in countries with looser regulations, transfer funds to Singapore, and use Singapore's financial system for further money laundering activities.
3. Common money laundering methods
1. Bank account transfer
Bank account transfer is one of the most common money laundering methods. Its core operations include:
Multiple account transfers: Money launderers use multiple bank accounts to make frequent and rapid transfers, moving illegal funds layer by layer to obfuscate the source of the funds. These accounts may be located in different banks and countries, making it extremely complicated to track the flow of funds. For example, money launderers can transfer funds to the final destination through several intermediary accounts, each of which only holds the funds for a short period of time.
Smurfing: Money launderers divide large amounts of illegal funds into multiple small deposits and deposit them into multiple bank accounts to avoid suspicion from banks and regulators. The amount of each deposit is usually below the legal reporting limit, thereby circumventing anti-money laundering monitoring systems. For example, a $1 million illegal fund is split into hundreds of deposits of less than $10,000 and distributed across multiple bank accounts.
Using third-party accounts: Money launderers may use unsuspecting third-party accounts (such as friends, relatives, colleagues, or false identities) to transfer funds. These accounts appear to be legitimate, but are actually used to launder money. For example, money launderers may transfer funds to multiple third-party accounts, and then use these accounts to further transfer and launder funds.
2. Using Shell Companies
A shell company is a company that has no actual business operations and is used only for financial transactions. Typical methods used by money launderers to launder money using shell companies include:
Layered transfer: Money launderers register multiple shell companies in different countries and transfer funds through these companies to hide the true source and destination of the funds. For example, illegal funds are first transferred to country B through a shell company in country A, and then transferred to country C through a shell company in country B, and so on, making it more difficult to track the funds.
Fake invoices: Money launderers use shell companies to issue fake invoices to create the appearance of legitimate transactions. For example, Company A (a shell company) issues an invoice to Company B (another shell company controlled by the money launderer) for a fake transaction, claiming to have purchased $1 million worth of goods or services that do not actually exist. Company B pays Company A $1 million, which looks like a legitimate transaction on paper, but is actually a money laundering operation.
Mixing legitimate businesses: Some money launderers use shell companies with legitimate businesses to conceal illegal funds. For example, a company operates a legitimate export business and sets up multiple shell companies to create false export transactions by falsely reporting the quantity and value of exported goods, injecting illegal funds into the shell companies, and then laundering money through the flow of funds from legitimate businesses.
3. High-value assets
Investing in high-value assets is one of the common methods used by money launderers. Its characteristics and operation methods include:
Real estate investment: Money launderers purchase high-value real estate, such as luxury homes and commercial properties, and convert illegal funds into legal assets through real estate transactions. The high value of the real estate market and the relative opacity of transactions allow money launderers to launder large amounts of funds in a short period of time. For example, a money launderer purchases a multi-million dollar mansion through a shell company and resells or rents it out in a short period of time, making a profit and legalizing the funds.
Art and luxury goods: Money launderers purchase high-value art, jewelry, antiques, and luxury goods to launder money through transactions in these items. The market for these high-value items often lacks transparency, and transaction records are not detailed, making it easy to hide the source of funds. For example, a money launderer buys a famous painting worth millions of dollars and then sells it through an auction house or private transaction to legalize the proceeds.
High-end vehicles and yachts: Purchasing luxury goods such as high-end vehicles, yachts, and private jets is another common way to launder money. Money launderers convert illegal funds into legal assets by buying and selling these high-value items. For example, a money launderer buys a luxury yacht and sells or rents it out on the international market to legalize the funds.
Precious metals and jewelry: Money launderers launder money by buying and selling precious metals and jewelry such as gold and diamonds. The high value and portability of these items make them ideal tools for money laundering. For example, money launderers buy large quantities of gold or diamonds and sell them through different markets and trading channels to legalize illegal funds.
These common money laundering techniques exploit the complexity and opacity of the financial system and high-value asset markets, concealing the source and destination of illegal funds through a variety of channels and means, and increasing the challenges of anti-money laundering work.
4. Singapore’s response
1. Legal and regulatory framework
Singapore has taken a number of legal and regulatory measures to effectively address the threat of money laundering:
Strict laws and regulations: Singapore has implemented laws such as the Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CFT Act) and the Controlled Goods and Services Administration Act (CMSA), which stipulate anti-money laundering obligations that financial institutions and designated non-financial businesses and professions (DNFBP) must comply with. These laws require various institutions to implement customer due diligence (CDD), monitor and report suspicious transactions, keep transaction records, etc., in order to prevent and combat money laundering activities.
Supervision by regulators: The Monetary Authority of Singapore (MAS) is the main regulator responsible for supervising the compliance of financial institutions. MAS regularly issues guidelines and circulars to ensure that financial institutions strictly comply with anti-money laundering regulations and evaluates the effectiveness of their anti-money laundering measures through on-site inspections and audits. In addition, Singapore has also established the Commercial Affairs Department (CAD) and the Financial Intelligence Office (STRO) of the Ministry of Home Affairs to jointly combat money laundering and terrorist financing activities.
Strict punishment mechanism: Singapore imposes severe penalties on institutions and individuals that violate anti-money laundering regulations, including high fines, revocation of licenses and criminal liability. Such a punishment mechanism is intended to enhance the compliance awareness of financial institutions and enterprises and ensure the effective implementation of anti-money laundering measures.
2. Cross-departmental collaboration
Coordination and collaboration across government departments in Singapore has played an important role in strengthening anti-money laundering capabilities:
Implementation of Financial Action Task Force (FATF) standards: Singapore actively implements international anti-money laundering standards, including the recommendations issued by the Financial Action Task Force (FATF). Inter-departmental collaboration is used to ensure that these standards are fully implemented across the country.
Joint working groups: Singapore has set up several joint working groups, bringing together the Monetary Authority of Singapore, the Commercial Affairs Bureau, the Financial Intelligence Bureau of the Ministry of Home Affairs and other departments to jointly formulate and implement anti-money laundering policies and strategies. These working groups hold regular meetings to share information and intelligence, coordinate the anti-money laundering actions of various departments, and improve overall anti-money laundering capabilities.
Information Sharing Platform: Singapore has established an efficient information sharing platform to facilitate the exchange of data and intelligence between departments. For example, the Financial Intelligence Office (STRO) collects and analyzes suspicious transaction reports and shares relevant information with law enforcement agencies and regulatory authorities so that timely action can be taken.
3. International cooperation
Singapore attaches great importance to international cooperation and jointly combats money laundering through various means:
Joining international organizations: Singapore is a member of the Financial Action Task Force (FATF) and the Asia Pacific Group on Money Laundering (APG), and actively participates in international anti-money laundering cooperation. Through these international organizations, Singapore shares information and best practices with other countries and jointly develops anti-money laundering policies and standards.
Bilateral and multilateral cooperation agreements: Singapore has signed bilateral and multilateral cooperation agreements with many countries, covering intelligence sharing, judicial assistance and extradition. These agreements provide a legal and operational framework for combating transnational money laundering and promote the effective implementation of international cooperation.
Transnational Investigations and Law Enforcement Cooperation: Singapore actively participates in transnational investigations and enforcement operations, and works closely with law enforcement agencies in other countries to combat money laundering and terrorist financing. For example, through INTERPOL and other international law enforcement networks, Singapore is able to respond quickly to transnational criminal activities and coordinate law enforcement actions.
Financial intelligence exchange: Singapore has established cooperative relations with multiple financial intelligence units (FIUs) around the world and regularly exchanges financial intelligence. This international intelligence network enables Singapore to obtain and analyze the dynamics of international money laundering activities in a timely manner, and improve the foresight and accuracy of anti-money laundering work.
Through these legal and regulatory frameworks, cross-sectoral collaboration and international cooperation measures, Singapore continues to enhance its anti-money laundering capabilities and ensure the security and integrity of the financial system. The government's multi-pronged strategy not only strengthens the domestic anti-money laundering defense line, but also strengthens cooperation with the international community to jointly combat the global money laundering threat.