Combating Money Laundering and Terrorism Financing

Speech by Mr Ravi Menon, Assistant Managing Director (Complex Institutions), Monetary Authority of Singapore

1   Good morning.  Let me congratulate PricewaterhouseCoopers for organising this conference on anti-money laundering.  This is an important issue, and I am grateful for the opportunity to share with you the Monetary Authority of Singapore's perspectives.    

2   First, a few quick words about the nature and scope of the problem.  Money laundering is the process through which the gains derived from criminal activities are made to appear as if they have originated from a legitimate source.  September 11 has highlighted a more threatening dimension of the problem - the use of the financial system to mobilise and direct funds for terrorist activities.  As the conduit through which money flows, the financial sector has been the natural focal point for money laundering and terrorism financing.  

3   Money laundering is big business.  According to IMF estimates, the aggregate size of money laundering in the world is about 2-5% of global GDP.  The Economist has estimated that about US$500 billion to US$1.5 trillion is laundered each year through the global banking system. 

4   Money laundering and terrorism financing pose significant legal and reputational risks for financial institutions.  With loss of reputation comes loss of credibility, and ultimately competitiveness.  And to the extent money laundering and terrorism financing help to perpetuate the crimes that generate the illegal money and support terrorist activity, they impose broader economic and social costs.  As a nation and as an international financial centre, Singapore has a compelling interest in combating money laundering and terrorism financing.

5   We have built a track record and reputation as a clean and well-regulated financial centre, putting in place a robust anti-money laundering framework long before the heightened international attention on this area.  But we cannot afford to be complacent.  Money launderers and terrorism financiers are tenacious in probing financial systems for gaps, and creative in devising new methods to overcome safeguards. We must continue to update and enhance our framework for anti-money laundering, or AML, and countering the financing of terrorism, or CFT.  Let me highlight four key elements of this framework:

• rigorous implementation of international standards;
• active international co-operation;
• robust and comprehensive regulation; and
• ongoing supervision.

6   First, implementing international standards.  As an international business and financial centre, Singapore constantly benchmarks itself against international best practices.  The international standard for AML/CFT practices is set by the 40 Recommendations of the Financial Action Task Force, or FATF, an inter-governmental body established by the G-7.   Though not a binding international convention, Singapore has made a political commitment to implementing the 40 Recommendations.  The Recommendations were first developed in 1990 and most recently revised in June this year.  The FATF has also expanded its mandate to include CFT measures with the issuance of eight Special Recommendations in 2001.

7   Singapore welcomes the new Recommendations.  They broaden the scope and effectiveness of the AML/CFT framework.  Key steps going forward include:

• expanding the customer due diligence process for financial institutions;
• adopting enhanced measures for high-risk customers and transactions; and
• extending AML measures to designated non-financial businesses and professions, including lawyers, accountants, real estate agents, and others.

Various government agencies are working together to implement the revised Recommendations, some of which will require legislative amendments and possibly new administrative arrangements.

8   Singapore undertakes an annual self-assessment of its adherence to the FATF's 40 Recommendations.  In the 2002-03 assessment, Singapore fully complied with all the assessed Recommendations.  We also completed a self-assessment exercise on the eight Special Recommendations on CFT.  Singapore is in compliance with six out of the seven assessable recommendations.  Discussions are ongoing with the private sector on implementing the outstanding recommendation concerning wire transfers.

9   Singapore also engages in assessments by external parties. We are currently undergoing an assessment by the IMF and World Bank of our AML/CFT framework. This is part of the Financial Sector Assessment Programme, or FSAP, which is a joint IMF-World Bank exercise to assess countries' financial sector vulnerabilities and adherence to various financial sector standards.  We expect to do well in this assessment.  But more importantly, it is a useful opportunity to benchmark ourselves against international standards, and identify the areas for further improvement. 

10   Money laundering and terrorism financing are trans-national crimes.  This is why the second key element of our AML/CFT framework is international co-operation.  We have established a clear legal framework for providing assistance on criminal investigations or proceedings related to money laundering offences.  In addition, MAS and our law enforcement agencies engage in regular and active co-operation with their international counterparts.

11   The sharing of experiences in dealing with AML/CFT issues is another important component of international co-operation. Singapore is one of the founding members of the Asia/Pacific Group on Money Laundering (APG), one of the FATF's regional groupings.  The APG encourages the adoption of effective AML/CFT measures in the region, recognising that country factors need to be taken into account in the implementation of international standards.  Singapore has contributed to the mutual evaluation exercises organised by the FATF and the APG, as well as hosted and participated in several regional seminars and workshops aimed at deepening understanding of AML issues.  Singapore is also a member of the Egmont Group of Financial Intelligence Units, which serves as a platform for exchanging financial intelligence information amongst members.

12   The third key element is a robust and comprehensive regulatory framework.  Singapore's AML laws are centred in the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act, or CDSA.  The CDSA criminalises the money laundering of benefits derived from 187 predicate offences, and provides for the confiscation of these benefits.  Responsibility to investigate offences under the CDSA lies with the Commercial Affairs Department, or CAD, an agency within the Singapore Police Force.

13   The CDSA makes the reporting of suspicious transactions mandatory for all persons who become aware of such transactions in the course of their work. Singapore has a dedicated Suspicious Transaction Reporting Office within CAD, acting as the central agency for the receipt and analysis of all suspicious transaction reports.  It also conducts outreach programmes to raise financial institutions' awareness of their AML/CFT responsibilities. 

14   As with the AML regime, Singapore has taken a co-ordinated national approach on the CFT front. Shortly after September 11, an Inter-Ministerial Task Force on Anti-Terrorism was set up to review our domestic laws so as to ensure compliance with international obligations and to strengthen our national capacity to implement anti-terrorism measures.

15   Singapore has introduced a series of CFT laws in recent years.   These laws give effect to Singapore's obligations under the UN International Convention for the Suppression of the Financing of Terrorism as well as measures mandated by the UN Security Council.  The legal vehicle for CFT in the financial sector is the MAS (Anti-Terrorism Measures) Regulations, which covers all financial institutions in Singapore.

16   Our regulatory framework for AML/CFT is comprehensive.  It covers not just banks but also non-bank financial service providers, such as finance companies, insurance companies, securities firms, financial advisers, money changers, and remittance agents.

17   The fourth element of our framework is ongoing supervision of financial institutions to foster sound AML/CFT practices.  Singapore has a strong tradition for rigorous supervision of financial institutions.  Let me highlight two key aspects of our supervisory process with regard to AML/CFT:

• issuing detailed guidelines to financial institutions, setting out their obligations with respect to know-your-customer principles, disclosure of suspicious transaction reports, and internal control policies and procedures; and
• carrying out offsite reviews and onsite inspections to monitor institutions' adherence to these guidelines.

18   An important feature of MAS' onsite supervisory process is the periodic thematic inspection focusing exclusively on AML.  For example, following the September 11 terrorist attacks, MAS carried out an intensive series of AML inspections across the entire financial sector, covering 118 institutions over a two-month period.  These inspections have been useful in identifying deficiencies in some institutions with regard to customer due diligence, suspicious transaction reporting systems, and information dissemination.  MAS has followed up with these institutions on rectifying the deficiencies, and there has been good improvement in AML/CFT practices generally.

19   But this is still work-in-progress.  Even as we make improvements, international standards on AML/CFT are continually being raised.  We will be revising our AML guidelines, to take account of the new FATF Recommendations.  MAS will closely consult with the industry on these revisions.

20   Ultimately, Singapore's AML/CFT framework is only as good as the quality of implementation and vigilance by financial institutions.   There are four things institutions should focus on.

21   First, know your customers.  Customer identification is the first line of defence against money laundering.  Financial institutions should obtain satisfactory evidence of customers' identities, have effective procedures for verifying the bona fides of new customers, and screen them against the various lists of suspected money launderers and terrorists.

22    Second, report all suspicious transactions.  Once you have established a customer relationship, maintain good records of all financial transactions and look out for unusual activities.  If you suspect funds are derived illegally or belong to any terrorist, file a report promptly.  You do not have to conduct an investigation to verify.  That is the job of CAD.

23   Third, ensure that staff are well-trained.  New staff, "front-line" staff, staff dealing with new customers, and supervisors and managers should be given appropriate training and refresher training, on AML/CFT policies and procedures.

24   Finally, adopt a risk-based rather than rule-based approach. Seek to approach AML/CFT issues from a risk perspective, rather than a purely regulatory compliance perspective.  Look out systematically for products, customers, and geographic locations that pose a higher risk of money laundering or terrorism financing.

25   Going forward, as highlighted by the revised FATF Recommendations, the AML/CFT effort must extend to other financial sector participants such as lawyers and accountants.  Various government agencies will be working closely with professional associations in the coming year as we implement the new FATF standards.

26   Let me conclude.    AML/CFT is everybody's business.  Active collaboration and partnership among industry, the regulator, and enforcement agencies is critical to maintaining the integrity of Singapore's financial sector.  Our message to those who launder money or finance terrorism must be clear, consistent, and strong: crime does not pay.

27   I wish you fruitful discussions.  Thank you.