Having flagged its intentions in October last year, Singapore's markets watchdog yesterday started a consultation* on designating tax crimes as money laundering (ML) predicate offences.
The move comes amid a wave of regulation from various jurisdictions around the world aimed at combating tax evasion, perhaps most notably – and controversially – the US's Foreign Account Tax Compliance Act, or Fatca. It also follows recent money-laundering cases involving UK banks HSBC and Standard Chartered.
With other financial hubs becoming increasingly transparent, some commentary had suggested Singapore might become a new location for ML transactions, particularly given concerns over client confidentality in certain other jurisdictions.
The new Monetary Authority of Singapore consultation should signal that Singapore should not be seen as an 'Asian lite' jurisdiction for illicit financing, says Maria Gabriela Binchini, founder and head of Optionality Consulting in Singapore.
The move suggests MAS recognises the concerns of regulators around the globe, she adds, and understands that its continued growth as a financial centre dictates strong anti-money laundering regulation, including penalty for offence.
Under the proposals, a “broad range of serious tax crimes” will be designated as ML predicate offences from July 1, 2013. MAS says this is “part of its ongoing efforts to protect the integrity and reputation of Singapore as a trusted international financial centre”.
With the designation, financial institutions (FIs) must apply the MAS's full suite of Anti-Money Laundering/Countering the Financing of Terrorism measures, to prevent the laundering of proceeds from serious tax crimes.
This involves the conduct of rigorous customer due diligence and transactions monitoring, as well as proper reporting of suspicious transactions. FIs must adequately identify and assess tax-related risks and take action to appropriately manage and mitigate them.
The consultation paper proposes an implementation framework of essential elements that FIs should observe to comply with the new requirements.
FIs must develop and implement policies, controls and procedures to effectively detect and deter the laundering of proceeds from wilful or fraudulent tax evasion through the financial system. This includes supplementing existing client acceptance and transactions monitoring with tax-specific red flag indicators and reviewing existing clients to assess the tax legitimacy of assets booked.
FIs should also establish proper escalation policies for managing high-risk clients, including appropriate senior management approval procedures.
Tax evasion is currently not a predicate offence for Singapore's AML rules, notes law firm Baker McKenzie. As early as October 2011, the MAS had announced its intentions to include tax offences as a predicate offence for AML rules. This was described by the regulator at that time as a “pre-emptive move” to ensure that Singapore is aligned with international standards, adds the law firm.
Some argue the MAS wants to avoid stepping on the toes of European (and presumably also US) regulators.
One senior private banking source notes: “The Hong Kong and Singapore regulators do not like to see organisations with a heavy proportion of Europe-based business, because it can attract negative comments from governments and regulators in Europe claiming that these jurisdictions are acting as tax havens."
In fact, he notes, CEOs of banks in Singapore recently received a letter from the MAS requiring that they review all their clients to make sure there is no evidence of tax fraud, in light of the proposed rule changes.
The source adds that several Europe-headquartered boutique private banks in Singapore have been told not to take on any more European clients.
* The consultation paper is available on the MAS website (www.mas.gov.sg/News-and- Publications/Consultation-Paper), and the deadline for comments is December 9.