Distinguishing between legitimate investment capital and dubious funds has posed a longstanding challenge, and Singapore’s service providers are about to find themselves on the frontline, once new laws come into effect.
Singapore’s streamlined business establishment process, and its appeal as a financial hub are key drivers of foreign investment into the country. However, illicit operatives continue to devise new means and methods to circumvent the laws.
Director
Helmsman
Singapore
In response, the country’s new Corporate Service Providers Bill – passed by parliament in July 2024 but yet to come into force – will introduce stricter regulations. A range of service providers will require formal registration if they wish to continue operating in this field.
Registered corporate service providers (CSPs) will be required to perform customer due diligence measures on parties they service. Failure by a party to fulfill these measures would compel the corporate service provider to take certain steps, such as to terminate the provision of any service to such party, and reporting suspicious transactions to the relevant authorities in accordance with the law.
The development will push service providers into the frontline of the global fight to reduce money laundering, proliferation financing and terrorism financing.
Why CSPs? In June 2024, Singapore released a money laundering national risk assessment, the crux of which was that its key money laundering threats stemmed from “fraud, particularly foreign and domestic cyber-enabled fraud, orchestrated by criminal syndicates typically located overseas”.
The most common methods of money laundering were identified as:
- Illicit funds flowing into or through Singapore via bank accounts;
- Misuse of legal persons such as shell companies to channel illicit funds; and
- Using illicit funds to buy high-value assets like real estate, and precious stones and metals.
It is with this in mind that the government has homed in on CSPs, as a key focus within the country’s anti-money laundering framework. The national risk assessment notes that, along with sectors such as real estate, licensed trust companies, casinos, and the precious stones and metals sectors, CSPs pose higher risks given their role in providing upstream services such as incorporation of companies, and that they are linked to the misuse of legal persons in some instances.
This is evident from recent cases that have hit the headlines in Singapore. Due to the requirement of having at least one locally resident director in each Singapore incorporated company, it is known in the market that some corporate service providers or other persons who are locally resident, offer “nominee director” services for an annual fee.
In one instance, a director of more than 380 companies in Singapore was convicted after it was found that two of the companies he had incorporated, or helped to incorporate, were found to have laundered millions of dollars in money gained through scams. In another instance, a Singaporean who ran a corporate services business, wherein he ended up being the nominee director of 980 companies, was jailed and fined after it was found that more than SGD7.3 million (USD5.5 million) had been laundered through some of the companies under him.
The new bill focuses on transactions for a customer concerning any of the following:
- Buying or selling of real estate;
- Management of client money, securities or other assets;
- Management of bank, savings or securities accounts;
- Organisation of contributions for creating, operating or managing corporations; and
- Creating, operating or managing legal persons or legal arrangements, or buying and selling of business entities.
Contravening the new requirements will invite a fine up to SGD50,000 (USD37,800), imprisonment for up to two years, or both, with fines up to SGD2,500 (USD1,890) for every day that an offence continues after conviction. Providing false or misleading information will equally render such persons guilty of an offence, which on conviction could mean a fine not exceeding SGD50,000, an imprisonment term not exceeding two years, or both.
As Singapore – and the world – tightens its grip on proliferation financing, terrorism financing and money laundering, small and medium-level accountancy businesses find themselves thrust into the limelight alongside banks and other major players.
That is the price that has to be paid. It is undeniable that corporate service providers have sometimes found themselves unwittingly a conduit for illicit operatives. The new laws will regulate how corporate service providers deal with new and ongoing business, seeking to ensure that Singapore continues to counter the risks of proliferation financing, terrorism financing and money laundering by implementing robust regulations that will reduce the exploitation by criminals of its efficient business infrastructure through early detection, disruption and enforcement.
Lynette Koh is a director at Helmsman Singapore
HELMSMAN21A, Duxton Hill,
Singapore, 089604
www.helmsmanlaw.com
Contact details:
T: +65 6978 2070
E: lynette.koh@helmsmanlaw.com
