• 1MDB, BSI and the Potential Perils of Ignoring Money Laundering Risks in Singapore
  • July 22, 2016
  • Law Firm: Duane Morris LLP - Philadelphia Office
  • This week, for the first time in more than 30 years, the Monetary Authority of Singapore (known as the MAS) has shut down an international bank’s operations in Singapore. BSI Bank Limited (BSI) was also fined SGD 13.3 million and six members of its senior management (including its former CEO) may be prosecuted (potentially facing fines and imprisonment). This announcement appears to be part of a coordinated international investigation arising out of, in part, the 1MDB scandal.

    The MAS announcement stated that it had taken this step because of “serious breaches of anti-money laundering requirements, poor management oversight of the bank’s operations, and gross misconduct by some of the bank’s staff.”

    The MAS

    As Singapore’s financial regulator, the MAS is responsible for issuing (and withdrawing) operating licences for a range of regulated industries, including banks, insurers and fund managers, among others. It also polices these regulated organisations and sets mandatory guidelines (known as Notices) on how these organisations should manage certain risks.

    The MAS guidelines on how merchant banks should address money laundering risks are found in MAS Notice 1014 (a similar Notice, 626, applies to commercial banks generally). Not following these guidelines, as the BSI case shows, can lead to the closure of a bank’s Singapore operations—and potentially worse.

    BSI and 1MDB

    Although the MAS announcement does not mention the 1MDB scandal, it is possible that the MAS probe arose in part out of the criminal proceedings underway against 1MDB in Switzerland and elsewhere. It may also relate to the handling of misappropriated funds, possibly from 1MDB.

    Suspected money laundering activities

    It is notable that some of the activities highlighted by the MAS read like well-known money laundering techniques.

    One reported activity was the processing of multiple “pass-through trades” often without any economic substance. In money laundering, pass-through trades are frequently used as part of the process concealing the criminal origins of money (known as “layering”). Layering is the moving of money through different bank accounts, businesses and/or assets so that it becomes more challenging to prove from where the money came.

    Lessons from the BSI case

    If the MAS investigation into BSI is linked to the wider 1MDB investigation, then BSI’s fate would be an example of how a well-known institution can be ensnared by a wider international financial crime investigation. If a client of an organisation is suspected of being involved in criminal activity and that client’s funds pass through the organisation’s accounts, the organisation could itself be implicated in money laundering.

    It also underscores why businesses should take money laundering prevention seriously. While anti-money laundering compliance is mandatory for regulated industries in Singapore and elsewhere, it is also common sense.

    This is because good money laundering prevention systems allow for early detection, and in Singapore, as with other jurisdictions, the authorities tend to be lenient on organisations that proactively detect and self-report suspicious transactions. Under Singapore’s anti-money laundering law, prompt disclosure of knowledge or suspicion of money laundering can provide immunity against certain money laundering crimes [See the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act, section 40 read with section 39].

    Regulated organisations in Singapore that do not take money laundering risks seriously are likely to face further scrutiny by the MAS in the future. In the words of Mr Ravi Menon, the MAS Managing Director: “MAS is absolutely committed to safeguarding the integrity and reputation of Singapore’s financial centre. On this, there can be no compromise.”