Singapore's "2024 Anti-Money Laundering Risk Assessment Report": Internal and External Money Laundering Challenges, Money Laundering Risk Situations in Various Financial Sectors

Author: Aiying

According to a report by Caixin Media today, Singapore is strengthening its scrutiny of family offices and hedge funds and cleaning up inactive family offices due to regulatory loopholes exposed by a massive S$3 billion money laundering case. The new regulations require family offices to provide detailed information and invest at least 10% or S$10 million in local projects. Industry insiders believe this may lead some wealthy Chinese individuals to turn to Hong Kong.

We know that Singapore, located in Southeast Asia, is a city-state covering approximately 725 square kilometers. With its strategic geographical location and developed transportation network, Singapore has developed into a significant international financial center and trade hub. However, it is precisely this openness and global connectivity that exposes Singapore to complex and diverse money laundering risks. International criminals may exploit Singapore's financial system and business infrastructure for illegal fund flows.

To better understand and address these potential money laundering threats, the Monetary Authority of Singapore released the "2024 Anti-Money Laundering Risk Assessment Report" last week. The primary purpose of the report is to assess the money laundering risks currently faced by Singapore, analyze the risk status of various sectors, and propose corresponding preventive measures and strategies to further enhance Singapore's anti-money laundering capabilities, ensuring the safety and integrity of the financial system.

Aiying has distilled four key points from the report:

1. Internal and External Money Laundering Challenges Faced by Singapore

1. External Threats

As an international financial center, Singapore faces various external money laundering threats, mainly including the following categories:

Cyber Fraud: Cyber fraud is one of the most significant external threats faced by Singapore. With the global proliferation of the internet and the development of e-commerce, cyber fraud activities have rapidly increased. Fraudsters use sophisticated technological means to commit transnational crimes, such as Business Email Compromise (BEC) and phishing scams. These criminal activities not only cause economic losses to victims but also lead to a substantial influx of illegal funds into Singapore's financial system. Funds obtained through fraud often enter Singapore's bank accounts through multi-layered fund transfers and money laundering techniques, and are then quickly transferred to other countries, complicating traceability.

Illegal Online Gambling: Illegal online gambling is also a major external threat faced by Singapore. Due to the global reach of the internet, illegal gambling websites can easily operate across borders, attracting a large number of international gamblers. These websites transfer funds through Singapore's financial system to launder illegal proceeds. Although Singapore has strict legal regulations against illegal gambling activities, these websites are often based overseas, significantly increasing enforcement difficulties. Moreover, illegal gambling proceeds are often laundered through complex methods, including the use of cryptocurrencies and third-party payment platforms, making it even more challenging to track the flow of funds.

Other Transnational Crimes: Singapore also faces money laundering threats from other transnational crimes, such as drug trafficking, human trafficking, and corruption. These criminal activities typically involve large amounts of illegal funds that enter Singapore's financial system through various means. For example, funds obtained from drug trafficking may be laundered through falsified trade invoices and fake contracts; funds obtained from corruption may be laundered through investments in high-value assets such as real estate and luxury goods.

2. Internal Threats

In addition to external threats, Singapore also faces certain internal money laundering risks, mainly reflected in the following aspects:

Domestic Cyber Fraud: In recent years, domestic cyber fraud activities have increased, becoming one of Singapore's primary internal threats. Fraudsters use social media and instant messaging tools to conduct various forms of scams, such as online shopping fraud, fake investment schemes, and impersonating government officials in phone scams. These fraudulent activities not only cause significant economic losses to many residents but also lead to illegal funds entering the financial system. These funds are typically laundered through bank accounts, using multiple accounts for transfers, increasing the complexity of fund flows and evading regulation.

Abuse of Company Service Providers (CSPs): Company service providers (CSPs) in Singapore play a crucial role in company registration and management but also face the risk of being abused. Certain criminals exploit CSPs to register shell companies, using these companies to transfer and launder illegal funds. Shell companies typically have no actual business operations and are solely used to conceal the source and destination of funds, complicating tracking and enforcement.

High-Value Asset Investments: Singapore is a significant wealth management and high-net-worth asset center, attracting substantial international funds. This also brings internal money laundering risks. Some criminals launder money by investing in high-value assets such as real estate, art, and luxury goods. The high value and liquidity of these assets enable criminals to convert illegal funds into legitimate assets in a short time, evading financial regulation.

2. Money Laundering Risk Assessment in Various Financial Sectors

1. Banking Sector Risk Assessment

The banking sector occupies a prominent position in Singapore's money laundering risks, primarily due to:

• Frequent Cross-Border Transactions: Singapore's banking system is highly internationalized, and frequent cross-border transactions facilitate money laundering activities. A large volume of funds is transferred internationally through banks, allowing money launderers to quickly move illegal funds and evade regulation.
• Diverse Financial Products: Banks offer a variety of financial products and services, such as private banking, wealth management, and investment banking. The complexity and diversity of these products and services provide multiple avenues for money launderers. For example, private banking accounts and investment portfolios can be used to conceal illegal proceeds and launder money through complex financial transactions.
• Large Customer Base: The banking sector in Singapore has a vast customer base, including local and international clients. Among these clients are high-net-worth individuals and multinational corporations, posing significant challenges for banks in customer due diligence (CDD) and anti-money laundering (AML) monitoring. Criminals can exploit false identities and complex corporate structures to hide their true identities, making it difficult for banks to identify and report suspicious transactions.
• Electronic Banking and Technological Development: With the development of electronic banking and financial technology, online transactions have become more common and convenient. While this improves the efficiency of financial services, it also provides new channels for money laundering activities. Money launderers can quickly transfer funds through online platforms, using virtual assets and cryptocurrencies for laundering, complicating bank regulation.

2. Wealth Management and Payment Services Risk Assessment

Wealth Management:

• High-Net-Worth Clients: The wealth management industry primarily serves high-net-worth clients, whose funds are highly liquid and have diverse investment channels. Money launderers may hide illegal sources of funds through investment funds, trusts, and other financial instruments.
• Complex Financial Products: The financial products offered by wealth management companies are often complex, including cross-border investments, structured products, and private equity. These complex financial products can be exploited by money launderers to convert illegal funds into legitimate income through multi-layered transactions and investments.
• Strong Privacy: Wealth management services emphasize client privacy, which may lead to insufficient background checks on clients in certain cases, making it easier for money launderers to exploit.

Payment Services:

Third-Party Payment Platforms: With the proliferation of electronic payments and third-party payment platforms, money launderers can conduct rapid and discreet fund transfers through these platforms. For example, money launderers can use multiple e-wallets for dispersed payments, evading monitoring by traditional financial systems.

Prepaid Cards and E-Money: The anonymity and convenience of prepaid cards and e-money make them ideal tools for money laundering. Criminals can purchase large quantities of prepaid cards and use them in different locations or conduct cross-border transfers using e-money, increasing tracking difficulties.

Cryptocurrencies: Payment service providers include cryptocurrency exchanges and wallet services. The anonymity and decentralized nature of cryptocurrencies make them tools for money launderers, facilitating cross-border fund transfers and laundering activities.

3. Company Service Providers (CSPs) Risk Assessment

Company service providers (CSPs) also play an important role in anti-money laundering risk assessments, with key risk factors including:

• Company Registration and Management: CSPs provide company registration and management services, allowing criminals to use shell companies for money laundering. Shell companies typically have no actual business operations and are solely used to conceal the source and destination of funds. Transferring funds through multiple shell companies complicates tracking.
• Legal and Financial Consulting: The legal and financial consulting services provided by CSPs may be exploited by money launderers to cover illegal activities with a legal facade. For example, money launderers may use CSPs' trust and fund management services to transfer illegal funds to overseas accounts, evading domestic regulation.
• Anonymity and Privacy Protection: Many services provided by CSPs emphasize client privacy and anonymity, allowing money launderers to hide their true identities and sources of funds. For instance, by using nominee companies or trusts, money launderers can further conceal their laundering activities.
• Cross-Border Business: Singapore's CSPs often engage in cross-border business, involving multiple jurisdictions. This cross-border business model provides convenience for money launderers, allowing them to exploit legal and regulatory differences in different countries for laundering. For example, money launderers can register companies in countries with looser regulations and then transfer funds to Singapore, using Singapore's financial system for further laundering activities.

3. Common Money Laundering Techniques

1. Bank Account Transfers

Bank account transfers are one of the most common money laundering techniques, with core operational methods including:

• Multiple Account Transfers: Money launderers frequently and rapidly transfer funds through multiple bank accounts to layer and obscure the source of illegal funds. These accounts may be distributed across different banks and countries, making it extremely complex to trace fund flows. For example, money launderers can transfer funds to the final destination through several intermediary accounts, with each account holding the funds for only a short time.
• Smurfing: Money launderers break large amounts of illegal funds into multiple smaller deposits, depositing them into various bank accounts to avoid raising suspicion from banks and regulators. Each deposit amount is typically below the statutory reporting threshold, thus evading anti-money laundering monitoring systems. For instance, a sum of $1 million in illegal funds may be split into hundreds of deposits of less than $10,000, distributed across multiple bank accounts.
• Using Third-Party Accounts: Money launderers may use unsuspecting third-party accounts (such as friends, relatives, or false identities) for fund transfers. These accounts appear legitimate but are actually used for laundering. For example, money launderers may transfer funds to multiple third-party accounts and then conduct further transfers and laundering through these accounts.

2. Using Shell Companies

Shell companies are defined as companies with no actual business operations, used solely for financial transactions. Typical methods money launderers use shell companies for laundering include:

• Layered Transfers: Money launderers register multiple shell companies in different countries, transferring funds through these companies to hide the true source and destination of funds. For example, illegal funds may first be transferred through a shell company in Country A to a shell company in Country B, and then from there to Country C, complicating fund tracking.
• Fake Invoices: Money launderers use shell companies to issue fake invoices, creating the illusion of legitimate transactions. For example, Company A (a shell company) issues a fake invoice to Company B (another shell company controlled by the money launderer), claiming to have purchased goods or services worth $1 million, when in fact these goods or services do not exist. Company B pays $1 million to Company A, which appears as a legitimate transaction on the books but is actually a laundering operation.
• Mixing Legitimate Business: Some money launderers mix shell companies with legitimate businesses to conceal illegal funds. For example, a company may operate a legitimate export business while simultaneously establishing multiple shell companies, inflating the quantity and value of exported goods to create fake export transactions, injecting illegal funds into the shell companies, and then laundering through the cash flows of the legitimate business.

3. High-Value Assets

Investing in high-value assets is a common method used by money launderers, characterized by the following features and operational methods:

• Real Estate Investment: Money launderers purchase high-value real estate, such as luxury homes and commercial properties, to convert illegal funds into legitimate assets through real estate transactions. The high value and relative opacity of the real estate market enable money launderers to launder large amounts of funds in a short time. For example, a money launderer may purchase a luxury home worth several million dollars through a shell company and then quickly resell or rent it out, profiting and legalizing the funds.
• Art and Luxury Goods: Money launderers purchase high-value art, jewelry, antiques, and luxury goods to launder money through the transactions of these items. The markets for these high-value items often lack transparency, and transaction records are not detailed, making it easy to hide the source of funds. For example, a money launderer may purchase a famous painting worth several million dollars and then sell it through an auction house or private sale, legalizing the proceeds.
• High-End Vehicles and Yachts: Purchasing high-end vehicles, yachts, and private jets is another common method of laundering money. Money launderers convert illegal funds into legitimate assets by buying and selling these high-value items. For example, a money launderer may purchase a luxury yacht and sell or rent it on the international market, thereby legalizing the funds.
• Precious Metals and Jewelry: Money launderers launder money by buying and selling precious metals and jewelry, such as gold and diamonds. The high value and portability of these items make them ideal tools for laundering. For instance, a money launderer may purchase large quantities of gold or diamonds and sell them through different markets and trading channels, legalizing the illegal funds.

These common money laundering techniques exploit the complexity and opacity of the financial system and high-value asset markets, using various means to obscure the source and destination of illegal funds, increasing the challenges for anti-money laundering efforts.

4. Singapore's Response Measures

1. Legal and Regulatory Framework

Singapore has implemented a series of measures in its legal and regulatory framework to effectively address money laundering threats:

• Strict Laws and Regulations: Singapore has enacted laws such as the Anti-Money Laundering and Countering the Financing of Terrorism Act (AML/CFT Act) and the Controlled Goods and Services Management Act (CMSA), which stipulate the anti-money laundering obligations that financial institutions and designated non-financial businesses and professions (DNFBPs) must comply with. These laws require various institutions to implement customer due diligence (CDD), monitor and report suspicious transactions, and maintain transaction records to prevent and combat money laundering activities.
• Oversight by Regulatory Authorities: The Monetary Authority of Singapore (MAS) is the primary regulatory authority responsible for overseeing the compliance of financial institutions. MAS regularly issues guidelines and notices to ensure that financial institutions strictly adhere to anti-money laundering regulations and assesses the effectiveness of their anti-money laundering measures through on-site inspections and audits. Additionally, Singapore has established the Commercial Affairs Department (CAD) and the Ministry of Home Affairs' Financial Intelligence Unit (STRO) to jointly combat money laundering and terrorist financing activities.
• Severe Penalty Mechanisms: Singapore imposes severe penalties on institutions and individuals that violate anti-money laundering regulations, including hefty fines, license revocation, and criminal liability. This penalty mechanism aims to enhance the compliance awareness of financial institutions and businesses, ensuring the effective implementation of anti-money laundering measures.

2. Inter-Departmental Cooperation

Coordination and cooperation among various government departments in Singapore play a crucial role in enhancing anti-money laundering capabilities:

• Implementation of Financial Action Task Force (FATF) Standards: Singapore actively implements international anti-money laundering standards, including recommendations issued by the Financial Action Task Force (FATF). Through inter-departmental cooperation, it ensures that these standards are comprehensively enforced nationwide.
• Joint Task Forces: Singapore has established several joint task forces that bring together the Monetary Authority of Singapore, the Commercial Affairs Department, the Ministry of Home Affairs' Financial Intelligence Unit, and other departments to jointly formulate and execute anti-money laundering policies and strategies. These task forces hold regular meetings to share information and intelligence, coordinating anti-money laundering actions across departments to enhance overall capabilities.
• Information Sharing Platforms: Singapore has established efficient information-sharing platforms to facilitate data and intelligence exchange among departments. For example, the Financial Intelligence Unit (STRO) collects and analyzes suspicious transaction reports and shares relevant information with law enforcement and regulatory authorities to enable timely action.

3. International Cooperation

Singapore places great importance on international cooperation to combat money laundering activities through various means:

• Membership in International Organizations: Singapore is a member of the Financial Action Task Force (FATF) and the Asia/Pacific Group on Money Laundering (APG), actively participating in international anti-money laundering cooperation. Through these international organizations, Singapore shares information and best practices with other countries and jointly formulates anti-money laundering policies and standards.
• Bilateral and Multilateral Cooperation Agreements: Singapore has signed bilateral and multilateral cooperation agreements with several countries covering intelligence sharing, judicial assistance, and extradition. These agreements provide a legal and operational framework for combating transnational money laundering activities, facilitating effective implementation of international cooperation.
• Cross-Border Investigations and Law Enforcement Cooperation: Singapore actively participates in cross-border investigations and law enforcement actions, closely collaborating with law enforcement agencies in other countries to combat money laundering and terrorist financing activities. For example, through Interpol and other international law enforcement networks, Singapore can quickly respond to transnational criminal activities and coordinate law enforcement actions.
• Financial Intelligence Exchange: Singapore has established cooperative relationships with financial intelligence units (FIUs) around the world, regularly exchanging financial intelligence. This international intelligence network enables Singapore to obtain and analyze dynamics of international money laundering activities in a timely manner, enhancing the foresight and accuracy of anti-money laundering efforts.

Through these legal and regulatory frameworks, inter-departmental cooperation, and international cooperation measures, Singapore continuously enhances its anti-money laundering capabilities, ensuring the safety and integrity of its financial system. The government's multi-faceted strategy not only strengthens domestic anti-money laundering defenses but also enhances cooperation with the international community to jointly address global money laundering threats.