Can Singapore’s banks keep up with money laundering tactics?
By Peter Deans
The island’s strong reputation for financial integrity is under scrutiny due to recent money laundering cases, highlighting the need for more robust AML/CTF practices, and vigilance in the financial sector
For centuries, Singapore has been a vibrant hub for trade and commerce across Asia and the world. In the second half of the 20th century, Singapore emerged as a major financial service provider supporting international trade, as well as becoming a global player in the wealth management industry. This success has been built on its strong reputation for being a safe and trustworthy place to transact, store wealth, and manage complex businesses in the region.
Recently, however, the discovery of extensive money laundering and related criminal activity has shaken this belief. Questions have been asked about the strength and effectiveness of the anti-money laundering and counter-terrorism financing (AML/CTF) regime, and its implementation by Singapore’s banks. For all financial institutions in Singapore, 2024 will see a continued focus on managing AML/CTF risks and compliance with the laws.
In mid-August 2023, authorities revealed they had cracked a sophisticated money laundering operation involving 10 individuals, predominantly foreign nationals. The case’s scale was staggering, with authorities initially seizing assets worth over SGD 1.0 billion ($753 million), including 94 properties, 50 motor vehicles, and luxury watches and handbags. Police believe the syndicate laundered nearly SGD 1.8 billion ($1.36 billion). They allegedly funnelled millions of dollars, suspected to be proceeds from illegal gambling and scams, through Singapore’s banking system. The money was laundered through DBS, Citigroup, and a number of other banks.
It is understood that authorities had identified the group through extensive investigations, including the analysis of suspicious transaction reports made by financial institutions about dubious activity.
This demonstrates that while elements of Singapore’s AML /CTF regime are effective on one level, broader questions remain over how an operation of this size and scale could continue unnoticed.
The Singapore government and the Monetary Authority of Singapore (MAS) are acutely aware of the importance of having strong AML/CTF defences. MAS noted at the time that it “works closely with our [financial institutions] to guard against the abuse of our financial system for illicit activities. [They] are regularly reminded to stay vigilant to ML/TF risks, and to ensure that fund flows into Singapore are and remain legitimate.”
Nick Williams, partner at Hogan Lovells Singapore echoes MAS’ position, noting: “The spotlight is clearly on money laundering in Singapore given the emergence of this and other high-profile cases. Singapore will need to maintain and strengthen its AML/CTF standards and practices to ensure it continues to be a leading global financial services hub.”
Meeting rising AML/CTF challenges
Across the globe, the task of combating organised crime is enormous. There is little doubt that the flow of illicit funds in both the banking system as well as the new crypto and other digital channels is increasing. Accurate estimates are difficult to calculate given the nature of these activities. However, the United Nations Office on Drugs and Crime estimates the amount of money laundered globally in one year is 2% to 5% of global gross domestic product—equivalent to $800 billion to $2,000 billion.
The Basel AML Index is an independent ranking that assesses countries’ ML/TF risks and capacity to counter them. On a scale of 1 to 10, with 10 being the highest risk, it saw an increase in the average country rating from 5.25 in 2022 to 5.31 in 2023, meaning that money laundering and terrorism financing risks have increased. Increased geopolitical risks and instability in the Middle East will probably see this increase further in 2024.
Matthew Fleming, partner and forensic practice lead at the advisory firm KordaMentha, has worked in Singapore for 12 years and has extensive experience in AML/CTF in the region. Fleming highlights that even with a strong AML/CTF regime in place, the task for both regulators and regulated entities is large. He said: “With velocity and volume of financial transactions, Singapore does attract financial criminals, but the country does operate a robust AML and regulatory framework through the MAS. The penalties for breaches related to financial crime are robust—$500,000 or 10 years jail for an individual, for example—and can be severe. However, the sheer volume of financial activity can be challenging.”
Singapore does relatively well, regime is sound
Fleming believes that even with the challenges the industry faces, Singapore is doing relatively well, saying: “The volume of financial traffic in Singapore creates a massive task for the regulators; however, the Paris-based Financial Action Task Force does rate Singapore as coping and regulating well. The task is getting harder globally and the same pressures face Singapore with the increased manipulation of identities, financial instruments, and modes of currency transfers, including cryptocurrencies, precious gems and metals, and asset transfers.”
He added: “Vigilance is key, as is the need to continue to investigate and prosecute. Suspicious transaction reporting is on the rise and the task for Singapore will be to adequately investigate each of these reports and prosecute invalid transactions.”
Anthony Quinn, CEO and founder of AML/CTF technology provider and advisory firm Arctic Intelligence, highlights that regulators are keeping the pressure up on the industry. He noted: “Regulators across the Asia Pacific region are increasing on-site inspections, resulting in increased actions being taken against regulated entities. In June 2023, MAS imposed penalties totalling SGD 3.8 million ($2.86 million) against Citibank, DBS, and Swiss Life (Singapore) for breaches of AML/CTF requirements.”
Quinn added: “The increase in regulatory enforcement action is not limited to Singapore, with the Hong Kong Monetary Authority in August issuing a HKD 16 million ($2.05 million) fine against EFG Bank AG for breaches of AML/CTF laws, following an earlier HKD 4 million ($512,000) fine in January against Westpac’s Hong Kong branch.”
Blending technology, operations and people
Implementing and embedding AML/CTF processes and practices is one of the bigger challenges facing banks. Success involves blending technology, banking operations, and people to enable the identification of irregularities in both customer onboarding and transactions. The AML/CTF regulations across most developed countries are reasonably consistent. The implementation of AML/CTF practices to comply with these regulations, however, needs well-designed and executed AML/CTF programs that are appropriate for the banking platforms, business activities, and processes of each bank.
Somewhat controversially, DBS Group CEO Piyush Gupta told The Straits Times in September 2023: “Looking for illicit actors and funds is like finding a needle in a haystack.” It is a common retort from bank executives that the expectations on their institutions to identify all criminal activities are too high.
Williams is forthright in his view that more will inevitably need to be done by the banks. He said: “While banks have robust know-your-customer and other AML/CTF checks in place, they will need to continue to do more, invest more, and tighten up their practices. Banks and other financial institutions will also need to review their existing operations and client bases.”
Fleming believes that the banks generally are doing well but must continue to invest in both technology and people, stating: “Banks must keep ahead with dynamic anti-money laundering training and awareness. While big data analytics is the key to initial flagging of suspicious individuals or corporations, the human factor plays an integral part when deciphering this data.”
Fleming also believes that the community and media also need to better understand the issues, remarking: “The media have to discontinue the almost soft reporting of financial crime and uplift the true origins of these finances. The glamour or wealth sometimes outweighs the origin; the media has a responsibility to report the source of wealth accurately, stop glamourising such celebrity, and let the public know where this wealth comes from. Increased awareness with increased regulatory enforcement will positively affect deterrence.”
The money laundering case in August 2023 highlights that Singapore remains vulnerable to money laundering risks and other criminal activities, given its role as a global financial hub. Financial services firms operating in Singapore need to continue to be vigilant and promptly identify suspect financials through the development and implementation of effective AML/CTF systems and practices.
Keywords: Singapore Banking Sector, Money Laundering Tactics, Financial Integrity, Anti-money Laundering, Counter-terrorism Financing, Aml/ctf Risks, Financial Institutions, Illicit Fund, Regulatory Enforcement, Compliance Measures
Institution: Peter Deans, Nick Williams, Matthew Fleming, Anthony Quinn, Piyush Gupta
Country: Singapore, Hong Kong
People: Nick Williams, Matthew Fleming, Anthony Quinn, Piyush Gupta