Ong Chong Tee: Combating financial crime - international and national
efforts
Keynote address by Mr Ong Chong Tee, Deputy Managing Director (Financial Supervision)
of the Monetary Authority of Singapore, at the ABS Financial Crime Seminar, Singapore,
2 July 2014.
* * *
1 Distinguished guests, ladies and gentlemen, thank you for inviting me here this morning.
The annual ABS Financial Crime Seminar has become a key event on Singapore's
antimoney laundering and counter-terrorism financing (AML/CFT) calendar. It is a good
opportunity for our banking industry at large to take stock of the current challenges and
trends, as well as to discuss priorities. As the diverse programme of this conference shows,
money laundering and terrorist financing (ML/TF) is a complex global issue, and I am
heartened to see the number of experienced professionals and experts gathered here today
to share perspectives and insights.
The international environment
2 Financial crime is a serious global threat. According to some UN estimates, the amount of
money laundered globally is between 2% and 5% of global GDP annually, or to put this in US
dollar terms, between US$800 billion and US$2 trillion a year. The challenge before us - as
is often noted - is that the fight against money laundering and financing of terrorism is never
done. Rapid advancements in information, communication and payment technologies have
led to great conveniences around speed, ease, and often anonymity; so these developments
also open up more potential loopholes and avenues for perpetrators to escape detection;
hence the momentum on AML/CFT efforts must be maintained.
3 Indeed, the international community has not sat still. As many of you know, the Financial
Action Task Force (FATF) was set up in 1989, and has been the key policy-making body that
meets regularly to identify emerging risks and typology, provide guidance, as well as to
strengthen or refine international standards. In 2012, a revised set of international standards
to combat ML/TF risks was issued, and the FATF has since commenced a new round of
mutual evaluations to ensure that countries put in place the necessary controls. Fundamental
to this is the importance for countries to understand their ML/TF risks, and adopt appropriate
measures to mitigate those risks effectively.
A national effort
4 Singapore has and will continue to play our part in this important global effort. As an
international financial centre and business hub, our openness exposes us to cross-border
financial crimes. Protecting our reputation as a well-regulated and clean financial centre is
not negotiable. This is a fundamental tenet upon which our financial centre has developed,
and the continued confidence in the integrity of our financial system is a necessary condition
for sustaining growth of the sector. We therefore take our AML/CFT efforts very seriously,
that include the surveillance and investigation work of our Financial Intelligence Unit in the
Commercial Affairs Department.
5 In the last two years, more than 15 government agencies had come together to perform a
comprehensive assessment of our ML/TF environment and the adequacy of measures. This
culminated in a National Risk Assessment (NRA) report published in January. It is the first
time that we have taken a consolidated and comprehensive look at the overall ML/TF risks to
Singapore. What did we find? For one, the results largely validated the prevailing instinctive
sense that high-risk sectors are primarily the cash intensive and internationally oriented
ones, such as casinos and remittance agents. The NRA also revealed emerging risk areas
like virtual currencies and large-value precious stones and metals dealings, and we are
looking into addressing the potential risks associated with these sectors.
6 Put simply, the NRA has been a useful "health-check" of the ML/TF risks facing Singapore,
by highlighting areas that warrant more resources and attention. As with the importance of
having regular medical "health-checks", we intend to update the risk review regularly, every
two to three years, to ensure that our understanding of Singapore's ML/TF risks is current
and accurate.
7 A better understanding of risks should also translate into more targeted mitigation
measures. For example, in the non-financial sector, the Accounting and Corporate
Regulatory Authority will implement an enhanced regulatory framework for corporate service
providers, to minimise the risks of shell companies being set up for illicit purposes. This is
expected to take effect from the last quarter of 2014. As another example, pawnbrokers are
identified as a potential channel for money laundering. While pawnbrokers are already
subject to basic AML/CFT obligations, further requirements will be introduced when changes
to our pawnbroking legislation are put in place at the end of this year.
8 For the financial sector, the controls in place are assessed during the NRA exercise to be
generally strong, which is not surprising given that the sector has built up considerable
AML/CFT expertise and processes over many years. Nonetheless, there are newer areas to
be considered. For instance, we have announced in March that we will regulate virtual
currency intermediaries for AML/CFT purposes. Our approach is a targeted one, recognising
that virtual currency intermediaries can facilitate anonymous cross border money transfers,
not unlike the activities of money-changing and remittance businesses. They will thus be
subject to similar AML/CFT requirements, and further details will be released in due course.
Also, for remittance agents and money-changers themselves, MAS has stepped up
supervision, inspection and enforcement efforts, and is also engaging the licensees on their
ML/TF risks.
9 Banks are critical gatekeepers against illicit fund flows. This is why MAS must continue to
take proactive measures to maintain a robust and effective regime. Our approach is
preventive, pre-emptive and prescriptive (where specific rules are needed). This morning,
allow me to outline three key features, namely:
a) a strong legal and regulatory framework that is in line with international standards;
b) an effective supervisory regime; as well as
c) a collaborative partnership with the industry.
A strong legal and regulatory framework
10 A strong legal and regulatory framework is the basis of any effective regime. Over the
years, MAS has updated our AML/CFT Notices for financial institutions several times, to take
into account the latest global developments, as well as to incorporate emerging best
practices. Our efforts to stay ahead of the curve are recognised internationally. In the 2008
FATF evaluation exercise, Singapore is assessed to have a strict and rigorous AML/CFT
regime. We have agreed to undergo another evaluation in 2015.
11 We should not be complacent, for the reasons that I mentioned earlier. MAS will continue
to strengthen the AML/CFT regime for financial institutions, to maintain relevance and
effectiveness. Later this month, we will be issuing a public consultation on proposed
amendments to a range of MAS' AML/CFT Notices for financial institutions. This round of
amendments draws reference from the revised FATF recommendations as well as
international best practices, and should not be a surprise for those of you who have been
following these developments. While there are a few new requirements in response to FATF
recommendations, many of the proposed changes formalise existing practices and
supervisory expectations. But let me highlight one change.
12 When banks first started their ML/TF risk assessments, the focus has largely been around
processes to identify and deal with customers with high ML/TF risks. This level of risk
assessment is necessary but insufficient now. Just as how a bank should look at the credit
risk of its overall loan portfolio and not just of individual customers, ML/TF risk assessments
can also benefit from the same approach. We will therefore require financial institutions to
assess ML/TF risks at the institution level, to complement individual transaction level checks.
This will in essence be the banking industry-equivalent of what the government has done in
the NRA. There are several banks that already have such a practice in place, so this
requirement will level-up the industry as a whole.
13 Other changes in our impending consultation document will include formalising the need
to screen one's customers, tightening the threshold for enhanced measures on cross-border
wire transfers, and providing a risk-based approach for politically exposed persons. Details of
these and other amendments will be laid out in the consultation paper. Overall, we do not
expect the revisions to require major changes to existing processes, and I welcome your
inputs during the consultation.
An effective supervisory regime
14 However, even the best regulatory framework is futile, if it is not backed by effective
supervision. As I have alluded, MAS' supervisory approach is premised on "prevention is
better than cure". Rather than having to impose hefty fines on a financial institution after a
major incident or lapse in controls, we prefer that such incidents not happen in the first place.
This means that we will not be apologetic about being intrusive and probing in our
supervision work, and ML/FT risks will continue to be a key thematic area of focus.
15 The NRA exercise has noted that the controls adopted by banks are generally strong, but
there is scope to strengthen the control processes especially in the areas of trade finance
and correspondent banking. For example, during some of our inspections, we found that
some banks did not screen all the key items in trade documents, and there were also
inadequate controls when processing related party client transactions. We are looking to
arrange roundtable sessions to share best practices in these two areas.
16 Apart from strengthening control frameworks and processes, the human factor is just as
important. We have noted instances where banks have good systems and processes in
place, but line departments did not implement the measures properly. Some of the common
reasons include inadequate risk awareness, mis-communication across departments, and
lack of management oversight. There is therefore a need to invest in the human capabilities,
and not just rely on system capabilities in our AML/CFT efforts.
17 One of the more topical issues relating to supervision is that of tax crimes. Singapore
designated serious tax crimes as money laundering predicate offences in the middle of last
year. Financial institutions have been asked to review their customer accounts for tax-illicit
funds. One of the practical difficulties faced by financial institutions is how to determine
whether a given pool of funds is fully tax compliant, when even a tax lawyer may be hesitant
to make a call, unless he has full visibility of the customer's other transactions beyond the
bank. International guidance on this area is still evolving, and the process to become more
proficient in detecting tax-illicit monies will understandably be an iterative one.
18 Nonetheless, we have found the quality of the recent tax risk reviews to be satisfactory,
and I like to commend you all for the efforts put in. More importantly, this exercise has raised
general awareness among financial institutions, which are now better prepared to manage
risks arising from the laundering of proceeds from tax crimes. Arising from the review, a
handful of customers may have chosen to close their accounts or even have had their
accounts terminated - if they chose not to be subject to the heightened scrutiny. Suspicious
Transaction Reports have also been filed in a few cases. Overall, the message is clear and
consistent - tax-illicit funds are not welcome here.
Partnership with the industry
19 We need to work together to tackle financial crime. At the government level, law
enforcement agencies meet regularly with the financial and non-financial sector supervisors
to coordinate policy, so that we effectively deter illicit funds as a country. Yet no amount of
supervision can substitute for the industry being similarly committed to this cause.
20 In this regard, I am happy to note that the ABS has published additional guidance on
AML/CFT earlier this year. This demonstrates that there is ownership amongst financial
institutions to ensure that the framework that is in place is translated into meaningful
application on the ground.
21 On MAS' part, we will continue to proactively engage the industry on key issues and
developments. Prior to the publication of the NRA, we had invited some of you to a focus
group discussion to validate the findings not just relating to banks, but of other sectors as
well. More recently, MAS released a report on the private banking industry, setting out key
observations and supervisory expectations, so as to promote broader sharing of best
practices. I understand that the report has been well-received by the industry. I should add
that while the report relates to private banking activities, many sound practices are relevant
for other customer-facing business lines. I therefore strongly encourage all financial
institutions to leverage on the report to benchmark their controls, and to put in place
enhancements where relevant.
22 I had mentioned about deepening manpower capabilities. In this regard, competency
building is imperative, to uplift AML/CFT standards amongst industry professionals. I
commend the ABS for its suite of training options on AML/CFT, ranging from thematic
workshops, classroom trainings, to seminars such as this. I understand that attendance at
this seminar and related AML/CFT courses has been growing each year, and I hope this
positive trend continues. Attention to AML/CFT has certainly been increasing, with
certification providers like the International Compliance Training Academy and the
Association of Certified Anti-Money Laundering Specialists (ACAMS) seeing more sign-ups.
ACAMS had also set up a Singapore Chapter late last year. In all, the resources and training
avenues are there, so it is for all of you to tap on them. An effective culture of AML/CFT
cannot be created by hiring a few experts from elsewhere. Instead, it is about raising
awareness throughout the firm; so do focus on "growing your own timber" alongside
importing relevant expertise.
Strengthening the framework further
23 Before I close this morning, I would like to announce two further measures that MAS will
undertake to strengthen our AML/CFT regime:
a. First, MAS has been progressively increasing the level of disclosure on supervisory
actions taken for breaches of AML/CFT requirements. At this seminar last year, we
disclosed aggregated figures of sanctions imposed for the preceding three years.
While a gross picture can give an indication of how well the industry has
implemented AML/CFT measures, they do not sufficiently highlight any common or
severe issue. Building on this, MAS will be looking to publish details of more severe
penalties imposed on financial institutions for such breaches. In addition to deterring
errant behaviour, this move will reinforce our preventive supervisory approach, and
draw financial institutions' attention to more severe instances of deficiencies and
breaches. Financial institutions can then pre-emptively strengthen their own controls
to prevent similar failures.
b. Second, the NRA highlighted ML/TF risks inherent in cash-intensive industries and
large value cash transactions. In May, the Ministry of Home Affairs, the Ministry of
Finance and MAS consulted publicly on a cash transaction reporting regime for
precious stones and metals dealers. In a similar vein, given the risks associated with
large value cash transactions and high face-value notes, MAS will be discontinuing
the issuance of the $10,000 note, starting from 1 October 2014. The development of
more advanced and secured electronic payment systems has reduced the need for
large value cash-based transactions. Therefore, we do not expect the
discontinuation of the note's issuance to create any major inconvenience. Existing
$10,000 notes in circulation will remain legal tender, including all notes under the
Currency Inter-changeability Agreement with Brunei. However, we expect the stock
of such notes to dwindle over time, as worn notes are returned to us and not
replaced.
Conclusion
24 Let me sum up.
25 Singapore is fully committed to the global efforts against financial crime. The evolving risk
environment requires proactive and collective actions in all jurisdictions. MAS has, and will
continue to take steps to further enhance our AML/CFT regime, along with other government
agencies for the non-financial sectors.
26 The financial sector has always been a critical gatekeeper in the fight against ML/TF,
hence it shoulders a great responsibility to ensure strong safeguards against potential
criminal fund flows. The American philosopher and author Eric Hoffer once said that "we are
prone to generalise the bad than the good. We assume that the bad is more potent and
contagious". In this case, I think it is a good idea not to be complacent. Some paranoia is not
a bad thing. But let me emphasise that as a key financial centre, we are coming from a
position of strength in combating ML/FT risks. We must remain so, by constantly addressing
new or evolving vulnerabilities, in a manner consistent with FATF recommendations.
27 On this note, may I wish all of you a most fruitful and stimulating seminar.