ACIP was set up in April 2017 and is a public-private partnership which works as a platform to discuss money laundering issues and identify areas where guidance is necessary. The two policy papers have been produced by working groups within ACIP comprised of individuals from major banks, professional services and Government.
Titled “Legal Persons – Misuse Typologies And Best Practices” and “Best Practices for Countering trade-based Money Laundering”, the two papers will have significant impacts upon regulated firms.
Speaking to encompass, Carsten Rosenkranz, Head of Market Development Risk – ASEAN, Thomson Reuters, said: “The two ACIP papers show that anti-money laundering (AML) and counter-terrorism financing (CTF) control regimes have moved way beyond pure tick-the-box exercises to an effectiveness driven approach to reduce the negative effects of financial crime. Regulators, law enforcement and other organisations including Thomson Reuters have come to realise that the current approach to AML is not generating the results that are required to reduce money laundering and terrorist financing activities significantly.
Despite the investments in tools and systems, the efforts have not led to the effective discovery and disruption of crime. There seems to be a sense of agreement in several countries in southeast Asia that major efforts and more collaboration are needed to address this – and many countries have put this very high on their agenda, for example, Indonesia, Thailand, and Malaysia. The enforcement actions in Singapore – such as BSI and Falcon – have clearly shown that times have changed.”
The paper on ‘legal persons’ has been written to focus attention on money launderers and other criminals that would attempt to use company names very similar to those of real companies in an attempt to launder their funds, and beneficial owners hiding behind corporate shells to try and disguise their involvement.
The second paper on trade-based money laundering gives a number of examples of types of money laundering such as “pass through” activities and “round tripping” which acutely illustrate how criminals can move money between different company structures owned by themselves or associates.
One major focus of the new papers is the need to be aware of who is setting up a company structure – an act normally executed by a law or professional service firm. The papers require a reasonable level of due diligence to be carried out by the services firm, looking at all times for “red flags” that might prompt the submission of a suspicious activity report (SAR) or for further information to be acquired.
According to Rosenkranz, these papers are reflective of wider changes occurring in Singapore and the wider Asian region: “The last 10 years have seen tremendous changes in the regulatory landscape both in terms of the actual rules and laws as well as the approach the regulator has adopted when it comes to engaging with their regulated entities and the key stakeholders within the country and on an international level. The relevant AML guidelines have been revised on several occasions to be in line with the international standards recommended by The Financial Action Task Force (FATF) – significant changes included the treatment of local Politically Exposed Persons (PEPs), tax evasion as a predicate crime, expanding the AML/CFT obligations into the non-financial sector and so on. ACIP is a successful example of the Monetary Authority of Singapore (MAS) public-private partnership model which looked to set up industry groups to identify and solve key challenges in the AML space. Furthermore, MAS engages the relevant stakeholders during the consultation phase of new or amended guidelines and works closely with its international peers and relevant organisations to optimise the effectiveness of AML controls, data sharing and enforcement actions.”
Regulated firms of all stripes, including financial service firms, but also law and professional service firms, will need to up their game from this point on to conform to the new regulations. Due diligence will need to be conducted at an enhanced level, both for customers opening new accounts and in monitoring transactions.
“Intermediaries, for example, Designated Non-Financial Businesses and Professions (DNFBPs) play a very significant role in detecting and mitigating money laundering activities” says Rosenkranz.
“The level of understanding of AML/CFT threat is increasing but needs to accelerate, and so do the tools that these firms use in complying with their AML obligations. Singapore is putting in significant efforts to address these challenges, so significant improvements can be expected in time to come. Other countries have only just begun this journey which means the DNFBP sector is still at risk of being exploited by criminals.”
As Mr Chua Kim Leng, Special Advisor, Financial Supervision Group Monetary Authority of Singapore, said in a speech announcing the launch of the two papers:
Regulated firms must be alert to any transactions or behaviours that are unusual or inconsistent with what you know of their business activities, source of funds and wealth, as well as their risk profile. Robust, risk focused onboarding and customer review practices, and well-designed screening and transaction monitoring systems, are not only fundamental, but critical defences against such threats.
The two papers give a number of pieces of advice, particularly to financial services firms. These include monitoring transactions between corporate vehicles with the same beneficial owner; establishing the source of funds; monitoring cash deposits into current accounts; being aware of account names that are very similar to major companies, and; watching for deviations in account use. Why was the account opened, and if it has changed in purpose, why?
In the UK, the average onboarding time for new customers is 30 days, with some taking double this time. This is largely the result of outdated legacy systems supported by large teams of KYC analysts and onerous, manual processes. If Singaporean banks and other regulated firms follow this route customer experience, and profitability will suffer.
Western banks are now seeking to replace these dated systems with new technology, but process change can take time to design and implement. Banks in Singapore have the opportunity, and are being encouraged by the regulator, to take advantage of new technologies now, to ensure compliance does not negatively impact on customer experience. The highly repetitive and manual activities involved in the KYC process are ripe for intelligent process automation (IPA), and artificial intelligence (AI) can help eliminate noise to bring focus on the real risks facing a firm.
The purpose of the two policy papers was to highlight some of the red flags that alert firms to the possibility of criminal activity, and these examples should be taken onboard by banks and other financial institutions. Access to the right data in order to identify red flags is critical.
Rosenkranz has advice for regulated firms to follow: “We would recommend taking a look at the overall data strategy to ensure that the data you have or generate is:
In addition, there are numerous point solutions available for the various tasks that need to be performed under the AML/CFT obligations but firms often struggle to generate a single and aggregated view of their compliance status and their risk exposure. This then becomes a concern for C-suite executives who face much greater pressure given the personal liability measures that have been put in place. Subject expertise in the industry will also be very helpful in identifying the new types of information needed and the ability to make sense of it.”
In light of these changes, Rosenkranz says it is more important than ever for regulated firms to adopt technology such as IPA and AI, within the Know Your Customer process.
“It is a good time to adopt the new technologies that can help improve the effectiveness of certain tools like transaction monitoring platforms. That said all these new technologies rely on top quality data without which they will not be able to generate any meaningful improvements, we therefore strongly recommend that firms develop a clear data strategy alongside the introduction of new technologies. For the KYC process a lot of such data is already available and with the introduction of KYC utilities, digital identities, Singapore’s MyInfo and the adoption of the eKYC concept in many SEA-countries we believe that the pain and cost of current KYC approaches will reduce.
Taking additional context from the Thomson Reuters True Cost of Financial Crime Survey, where less than 10% of Financial Crime Compliance leaders believe they have sufficient information to understand the most serious financial crime threats, the industry will need to expand and diversify the types and sources of information. Therefore technology will be critical to prevent data paralysis, and to effectively extract value.”
Carsten is a member of the Financial & Risk Market Development Team at Thomson Reuters and a Certified Anti-Money Laundering Specialist based out of Singapore. In this role he is responsible for TR’s Go-to-Market initiatives in South-East Asia including the planning of the company’s strategies for its Risk-propositions and for building professional communities and market awareness around topics like financial crime, ethics & conduct, risk management etc. Prior to this Carsten helped design and roll-out more than 2,000 Compliance training projects for organisations across Asia including Prudential, UOB, Bayer Healthcare, Peninsula Hotels, Allianz, AUSTRAC etc. covering diverse topics such as Anti-Money Laundering, Anti-Bribery/Corruption, Ethics, Code of Conduct, etc.
Carsten has an MBA in Business Management from the University of Hamburg and has been working in the area of Compliance, AML, Learning & Development for over 15 years.
Connect with Carsten on LinkedIn.
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