TO LAUNDER money through round-tripping, a South Asian conglomerate used 10 subsidiaries to swiftly shift funds of no more than US$20 million each time over just two months between these units.
The subsidiaries were in parts of South-east Asia, South Asia, and the Middle East, and used at least one Singapore bank account to channel the funds in 2016 through the complex web of inter-company transfers.
This is just one of the increasingly common tricks used to disguise illicit fund flows that Singapore regulators want the banking industry to review, as they launched on Monday two bestpractice papers to combat money laundering and terrorism financing.
The recommendations emerged from the first year of discussions between regulators and banks under the AML/CFT Industry Partnership (ACIP). AML/CFT refers to anti-money laundering and countering the financing of terrorism.
The ACIP was set up in April 2017, and is chaired by the Commercial Affairs Department (CAD) and the Monetary Authority of Singapore (MAS).
The first round of steering group members is made up of the three Singapore banks plus Citibank, HSBC, Standard Chartered, UBS and BNP Paribas.
The recommendations noted that Singapore's open economy makes it vulnerable to risks of money laundering, with regulators flagging the increased complexity of such cross-border infractions. Indeed, about a quarter of legal entities sampled by one ACIP working group are involved in wholesale and retail trade.
The set-up of ACIP followed from investigations into Malaysia's embattled state fund 1MDB that found accounts at Singapore-based banks had been used to funnel illicit funds, with MAS levelling millions in fines on several banks here as a result. Singapore's investigations relating to 1MDB began in 2015, regulators said.
The US Department of Justice charged that more than US$3 billion had been allegedly misappropriated from 1MDB and laundered through US financial institutions. The lawsuit referred to fund transfers to a "Malaysian Official 1". Former Malaysian prime minister Najib Razak has this week been accused of allegedly blocking an investigation into the scandal.
Speaking at a dialogue session on Monday, senior regulators in Singapore stressed the benefit of "frank conversations" resulting from the ACIP.
Chua Kim Leng, special adviser, financial supervision group, MAS, said the dialogue session represents "a year of open, honest discussion between the industry and government agencies".
ACIP member banks will be looking to build data analytics solutions to combat these risks, with regulators looking to standardise the way suspicious transaction reports (STRs) are made to authorities here to make it easier to apply data analytics to the gathered information.
As it is, one of the working groups producing the best-practice papers flagged that reports against personal investment companies were making up a disproportionately large number of STRs, though it said "more meaningful analysis" can only be carried out if STR filings are combined with the collections of certain standardised data.
David Chew, director, CAD, said at the same event on Monday that ACIP also works with professional intermediaries, which are important gatekeepers in fighting money laundering.
"For example, lawyers and corporate service providers run the risk of setting up complex corporate structures to help criminals camouflage the true owners of tainted money," said Mr Chew.
CAD recently prosecuted a number of corporate service providers for incorporating and acting as resident directors of companies that were used to launder criminal proceeds, he added.
The practice papers offered several case studies on the misuse of legal entities, as well as red flags to spot trade-based money laundering.
These cases include one by an "ostensible government-linked entity" that had public officials misrepresenting to auditors that missing funds from capital-raising activities were invested in a private investment fund (PIF) through an offshore subsidiary.
MAS' Mr Chua said PIFs present a thorny problem, as such funds are set up by private banking clients, though the assets are held by the banks. The practice paper suggested that to fix the emerging risks associated with PIFs, banks should check on the credibility of the sources of fund valuation, before accepting the PIFs as a custody asset.
In the area of trade finance, there remains a common use of fake documents.
Besides checking on the veracity of such documents, banks also need to check on the customers' profile. In one case study, a bank sought more information on one of its client's oil trading counterparties and found that the counterparty was selling toys and games, not oil, raising the bank's suspicions.
Loretta Yuen, head of legal and regulatory compliance at OCBC Bank, and co-chair for the working group looking at abuse of legal persons such as companies and partnerships, said the working group recommended building a sharing platform between banks and company service providers.
This will cut down the time and resources spent on know-your-customer activities at the point of account opening while strengthening the role of service providers involved in setting up new corporate vehicles, she said.
Victor Ngo, head of group compliance, UOB, and co-chair of the trade-based money laundering working group, said the guidance paper will provide valuable and practical insight into how financial institutions can incorporate preventive, detective and enforcement measures to strengthen internal controls.