ACAMS Singapore AML Regime Exam Study Guide (3rd Edition) PDF

Singapore AML Regime Exam STUDY GUIDE Version 3.0 acams.org Credits and Copyright ACAMS SINGAPORE AML REGIME EXAM STUDY GUIDE (3rd Edition) We want to thank the community of individuals, including members of ACAMS Singapore Chapter, who have generously contributed their time to the development...

Singapore AML Regime Exam STUDY GUIDE Version 3.0 acams.org Credits and Copyright ACAMS SINGAPORE AML REGIME EXAM STUDY GUIDE (3rd Edition) We want to thank the community of individuals, including members of ACAMS Singapore Chapter, who have generously contributed their time to the development of the ACAMS Singapore AML Regime Exam and related Study Guide. Senior Asia Pacific Leader Hue Dang, CAMS-Audit Writer / Project Manager Dr. William Scott Grob, CAMS-FCI Key Exam Contributor Rosalind Lazar, CAMS Singapore AML Regime Exam Task Force acams.org This document is designed to be printed in black and white. © 2022 ACAMS. All rights reserved. As a licensed learner you may download or print this document. It is copyrighted material. Do not share. No other use is allowed without express written permission from ACAMS. acams.org Table of Contents About the Singapore Regime Exam Study Guide ............................................... 1 Learning Objective .............................................................................................................................................. 1 Additional Reference ........................................................................................................................................ 2 Additional Resource: The Association of Banks in Singapore (ABS) Guidelines on Anti-Money Laundering and Countering the Financing of Terrorism (November 2015) .............................................................................................................................................................................. 2 Exam Format ........................................................................................................................................................... 3 Accreditation Body ............................................................................................................................................. 3 Monetary Authority of Singapore (AML Notices) link ................................................................. 3 Introduction ............................................................................................................................................................. 4 About the CAMS designation ...................................................................................................................... 5 1: Key Acronyms...................................................................................................... 6 2: Regulatory and Supervisory Framework .....................................................8 Monetary Authority of Singapore ............................................................................................................. 8 MAS Notices and Guidance .......................................................................................................................... 8 3: Anti-Money Laundering and Countering the Financing of Terrorism 10 What is Money Laundering? ....................................................................................................................... 10 What is Terrorist Financing? ....................................................................................................................... 10 Three Stages in the Money Laundering Cycle .............................................................................. 10 The Three Stages of Money Laundering ............................................................................................ 11 Underlying AML Principles ............................................................................................................................ 11 4: Risk Assessment ............................................................................................... 13 Risk Mitigation ....................................................................................................................................................... 14 Zero Tolerance / Prohibitions.................................................................................................................... 14 New Products, Practices, and Technologies.................................................................................. 14 5: Customer Due Diligence ................................................................................. 16 Customer................................................................................................................................................................. 16 Customer Onboarding................................................................................................................................... 16 Identity Authentication .................................................................................................................................. 17 Risk-Based Approach ..................................................................................................................................... 17 CDD Measures for Non-Face-to-Face Business Relations................................................... 18 CDD Measures for Non-Account Holder ........................................................................................... 18 Simplified CDD ..................................................................................................................................................... 19 Enhanced Due Diligence ............................................................................................................................. 20 Singapore AML Regime Exam Version 3.0 Page i Beneficial Owners............................................................................................................................................. 20 Beneficial Ownership Example ................................................................................................................ 21 Ultimate Beneficial Owner Requirements....................................................................................... 23 Ultimate Beneficial Owner Example .................................................................................................... 24 Politically Exposed Persons ....................................................................................................................... 25 High-Risk Categories ...................................................................................................................................... 26 6: Ongoing Monitoring ........................................................................................ 27 Transaction Surveillance .............................................................................................................................. 28 Sanctions Screening....................................................................................................................................... 29 7: Suspicious Transaction Reporting .............................................................. 30 8: Wire Transfers and Correspondent Banking ............................................ 31 Wire Transfers ...................................................................................................................................................... 31 Cross-Border Transactions ........................................................................................................................ 31 Correspondent Banking............................................................................................................................... 32 Correspondent Banking Diagram ..........................................................................................................33 Pass-Through Accounts .............................................................................................................................. 34 Nested Activity .....................................................................................................................................................35 Nesting Diagram .................................................................................................................................................35 9: Internal Policies and Procedures ................................................................ 36 Board of Directors and Senior Management ................................................................................ 36 Group Policy ......................................................................................................................................................... 38 Compliance........................................................................................................................................................... 38 Audit ........................................................................................................................................................................... 39 Personal Data and Record-Keeping ................................................................................................... 40 Privacy and Data Sharing ............................................................................................................................. 40 Reliance on Third Parties .............................................................................................................................. 41 Training...................................................................................................................................................................... 41 Employee Hiring ................................................................................................................................................. 42 10: Application Assessment (Case Studies) ................................................. 43 Trade-Based Money Laundering (TBML)......................................................................................... 43 Misuse of Legal Persons ............................................................................................................................... 46 11: Definitions ......................................................................................................... 48 Singapore AML Regime Exam Version 3.0 Page ii About the Singapore Regime Exam Study Guide Learning Objective The objective of the Exam is to assess the candidate’s understanding of the Anti-Money Laundering regulations applied to financial institutions, capital market intermediaries, trust companies, insurance companies, and similar types of institutions. In this study guide, we focus on MAS 626 NOTICE (30 November 2015) ON PREVENTION OF MONEY LAUNDERING AND COUNTERING THE FINANCING OF TERRORISM - BANKS (MAS 626 Notice) and the MAS’ Guidelines to Notice 626 on Prevention of Money Laundering and Countering the Financing of Terrorism – Banks (November 2015) (MAS 626 Guidelines). Both documents, as may be amended from time to time, are available on the MAS website: https://www.mas.gov.sg/regulation/anti-money-laundering Additionally, the candidate will be required to read and understand the various Circulars and Information Papers issued by MAS since 2018, as well as the AML/CFT Industry Partnership (ACIP) best practice papers particularly the Best Practices for Countering Trade-Based Money Laundering (published: 18 May 2018) and Legal Persons – Misuse Typologies and Best Practices (published: 18 May 2018), as well as the MAS’ Guidance for Effective AML/CFT Transaction Monitoring Controls (September 2018). All these documents are available on the MAS website: https://www.mas.gov.sg/regulation/anti-money-laundering Singapore AML Regime Exam Version 3.0 Page 1 Additional Reference The candidate should also be familiar with the following: • The provisions in the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act and Terrorism (Suppression of Financing) Act relating to suspicious transaction reporting for Singapore, • The Notices and Guidelines provided to the following financial institutions: Banks, including Correspondent Banks (Notice 626); Merchant Banks (Notice 1014); Depository (Notice SFA03AA-N01); Finance Companies (Notice 824); Credit Card or Charge Card Licensees (Notice 626A); Holders of Money-Changer’s License and Remittance License (Notice 3001); Life Insurers (Notice 314); Financial Advisers (Notice FAA-N06); Capital Market Intermediaries (Notice SFA04-N02); Approved Trustees (Notice SFA13N01); Depositaries (Notice SFA03AA-N01), Trust Companies (Notice TCAN03); and Holders of Stored Value Facilities (Notice PSOA-N02). Additional Resource: The Association of Banks in Singapore (ABS) Guidelines on Anti-Money Laundering and Countering the Financing of Terrorism (November 2015) According to the Association of Banks, Singapore (ABS), their Guidelines “sets out the industry best practices for all ABS member banks in relation to preventing money laundering (ML) and countering terrorism financing (TF)”. However, a copy of these Guidelines is only made available to ABS MemberBanks. If the candidate is an employee of an ABS Member-Bank, the candidate may request its employer for a copy, and refer to these Guidelines to enhance the candidate’s knowledge of the Singapore banking industry best practices with respect to AML risks and controls. Please refer to the ABS website for more information: https://abs.org.sg/home Singapore AML Regime Exam Version 3.0 Page 2 Exam Format ACAMS Singapore AML Regime Exam: The exam, in English, has forty (40) Multiple Choice Questions and Multiple Response Questions in English. The exam has a combination of memory recall questions coupled with case-study based questions over 90 minutes. Accreditation Body The Institute of Banking and Finance Singapore is the accrediting institution providing funding support for this program. Established in 1974, the IBF is a not-for-profit industry association to foster and develop the professional competencies of the financial sector. See the link below. https://www.ibf.org.sg/Pages/Home.aspx Monetary Authority of Singapore (AML Notices) link https://www.mas.gov.sg/regulation/anti-money-laundering This link may change from time to time, and users are reminded to verify the content as there are periodic revisions. All permissions were granted from the Monetary Authority Singapore on the use of copywritten materials. Other useful links are added at the end of the guide. Singapore AML Regime Exam Version 3.0 Page 3 Introduction This Study Guide aims to provide information around the regulatory framework applied in Singapore by the Monetary Authority of Singapore, mainly through MAS 626 Guidelines. The mission of ACAMS is to advance the professional knowledge, skills, and experience of those dedicated to the detection and prevention of money laundering around the world, and to promote the development and implementation of sound anti-money laundering policies and procedures. ACAMS achieves its mission through: • Developing international standards for the detection and prevention of money laundering and terrorist financing; • Educating professionals in private and government organizations about these standards and the strategies and practices required to meet them; • Certifying the achievements of its members; and • Providing networking platforms through which AML professionals can collaborate with peers throughout the world. ACAMS sets professional standards for anti-financial crime practitioners worldwide and offers them career development and networking opportunities. In particular, ACAMS seeks to: • Help AML professionals with career enhancement through cutting-edge education, certification, and training. ACAMS acts as a forum where professionals can exchange strategies and ideas. • Assist practitioners in developing, implementing, and upholding proven, sound AML practices moreover procedures. • Help financial and non-financial institutions identify and locate Certified Anti-Money Laundering Specialists (CAMS) designated individuals in the rapidly expanding AML field. Singapore AML Regime Exam Version 3.0 Page 4 About the CAMS designation As money laundering and terrorist financing threaten financial and nonfinancial institutions and societies as a whole, the challenge and the need to develop experts in preventing and detecting financial crime intensifies. ACAMS is the global leader in responding to that need, having helped standardize AML expertise by creating the CAMS and CGSS designations. Internationally recognized, the CAMS and CGSS credentials identify those who earn it as possessing specialized AML knowledge. AML professionals who earn the CAMS and CGSS designations position themselves to be leaders in the industry and valuable assets to their organizations. Congratulations on your decision to pursue the most respected and widely recognized international credential in the AML field. We welcome and invite you to embark on a journey that may lead you to career advancement, international recognition, and respect among peers and superiors. Singapore AML Regime Exam Version 3.0 Page 5 1: Key Acronyms ACRA Accounting and Corporate Regulatory AML Authority Anti-Money Laundering APG Asia/Pacific Group on Money Laundering BO Beneficial Owner BI Beneficiary Institution CBR Correspondent Banking Relationship CDD Customer Due Diligence CDSA Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act CFT Counter-Financing Terrorist CLG Companies Limited by Guarantee DNFBPs Designated Non-Financial Businesses and Professions EDD Enhanced Due Diligence FATF Financial Action Task Force FCC Financial Crime Compliance FLOD First Line of Defense FIU Financial Intelligence Unit IBF Institute of Banking and Finance of Singapore KYC Know-Your-Customer MAS The Monetary Authority of Singapore Singapore AML Regime Exam Version 3.0 Page 6 MAS Notice MAS 626 NOTICE on Prevention of Money Laundering and 626 Countering the Financing of Terrorism – Banks (30 November 2015) NPO Non-profit organization OI Originating Institution or Ordering Institution Ultimate Beneficial Owner PEP Politically Exposed Person PTA Proliferation Financing PF Payable-through Account SLOD Second Line of Defense STR Suspicious Transaction Reports SWIFT Society for Worldwide Interbank Financial TLOD Telecommunication Third Line of Defense UBO Ultimate Beneficial Owner Singapore AML Regime Exam Version 3.0 Page 7 2: Regulatory and Supervisory Framework The Monetary Authority of Singapore (“MAS”) is the central bank and supervisor of the Singapore financial sector under the Monetary Authority of Singapore (Amendment) Act 2013. This Act as first approved in January 1977, and subsequently amended over time, has entrusted this body to promote financial stability and enact anti-money laundering (AML) and counterterrorist financing (CFT) regulations conducive to the growth and protection of the economy. Monetary Authority of Singapore MAS’s central objective is to “promote sustained and non-inflationary economic growth, and a sound and progressive financial services sector” through a set of principles, supervision, risk-based outcomes, and enforcement. MAS Notices and Guidance For reference, listed below are a variety of MAS regulations and guidance applied to various industries: 1. Banks in Singapore licensed under section 7 of the Banking Act (Cap.19). 2. Merchant banks approved under section 28 of the Monetary Authority of Singapore Act (Cap. 186). 3. Finance companies licensed under section 6 of the Finance Companies Act (Cap. 108). 4. Financial advisers licensed under section 6 of the Financial Advisers Act (Cap. 110) except those which only provide advice by issuing or promulgating research analyses or research reports, whether in electronic, print or another form, concerning any investment product. Singapore AML Regime Exam Version 3.0 Page 8 5. Holders of a capital markets services license under section 82 of the Securities and Futures Act (Cap. 289). 6. Fund management companies registered under paragraph 5(1)(i) of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations (Rg. 10). 7. Persons exempted under section 23(1)(f) of the Financial Advisers Act read with regulation 27(1)(d) of the Financial Advisers Regulations (Rg. 2) except those which only provide advice by issuing or promulgating research analyses or research reports, whether in electronic, print or other form, concerning any investment product. 8. Persons exempted under section 99(1)(h) of the Securities and Futures Act read with paragraph 7(1)(b) of the Second Schedule to the Securities and Futures (Licensing and Conduct of Business) Regulations. 9. Approved trustees approved under section 289 of the Securities and Futures Act. 10. Trust companies licensed under section 5 of the Trust Companies Act (Cap. 336). 11. Depositaries defined by MAS (Cap. 186). 12. Direct life insurers licensed under section 8 of the Insurance Act (Cap. 142). 13. Insurance brokers registered under the Insurance Act which, by virtue of such registration, are exempted under section 23(1)(c) of the Financial Advisers Act except those which only provide advice by issuing or promulgating research analyses or research reports, whether in electronic, print or other form, concerning any investment product. 14. Payment and settlement systems under the Payment Systems Oversight Act 2006 15. Lastly, as noted by the Accounting and Corporate Regulatory Authority (Singapore), companies and their directors and other officers of CLGs, which are also NPOs, may be subject to AML/CFT activities as well as their donors and beneficiaries. For the MAS 626 Link - http://www.mas.gov.sg//media/MAS/Notices/PDF/MAS-Notice-626--November-2015.pdf Singapore AML Regime Exam Version 3.0 Page 9 3: Anti-Money Laundering and Countering the Financing of Terrorism What is Money Laundering? As defined by FATF, an inter-governmental body, money laundering is the process of introducing criminal proceeds into a country’s financial systems to disguise the origin. Predicate crimes may include human, and drug trafficking, illegal arms sales, smuggling, tax evasion, corruption, and terrorism. Each country defines the list of predicate offenses. What is Terrorist Financing? Terrorist financing is the act of providing monetary assistance to terrorists to commit acts to influence the governance or the public about their cause. The funding of these terrorists may go through multiple channels, including payment services or credit cards, but not limited to those channels. Three Stages in the Money Laundering Cycle Money laundering contains three stages intended to obstruct the source of funds and mask the intended use. They are • Placement - Stage 1 is the physical introduction of illicit proceeds into the financial system typically with deposits into accounts; • Layering - Stage 2 requires the criminal proceeds sent as wire transfers to other beneficiaries disguising the source and destination. • Integration - Stage 3 happens when illicit proceeds are successfully integrated into legitimate business without detection. Singapore AML Regime Exam Version 3.0 Page 10 The Three Stages of Money Laundering Source: The United Nations, Office of Drugs and Crime Underlying AML Principles The MAS has three underlying principles that are the guideposts for developing an effective AML program and applies to a variety of financial institutions, including banks, merchant banks, insurance companies, and securities firms. A financial institution should integrate these principles into the conduct of commercial operations and business activities to ensure that its AML controls are holistic. The Underlying Principles for all financial institutions are • “exercise due diligence when dealing with customers, natural persons appointed to act on the customer’s behalf, connected parties of the customer, and beneficial owners of the customer. • conduct its business in conformity with high ethical standards, and guard against establishing any business relations or undertaking any transaction, including a digital token transaction, which is or may be connected with, or facilitates or may facilitate money laundering or terrorist financing. • to the fullest extent possible, assist and cooperate with the relevant law enforcement authorities in Singapore to prevent money laundering and terrorist financing.” Singapore AML Regime Exam Version 3.0 Page 11 MAS Enforcement Actions: “Singapore, 11 October 2016… The Monetary Authority of Singapore (MAS) announced today that it is withdrawing the merchant bank status of Falcon Private Bank Ltd, Singapore Branch (Falcon Bank) for serious failures in anti-money laundering (AML) controls and improper conduct by senior management at the Head Office in Switzerland as well as the Singapore Branch.” Key takeaway: Senior management is responsible for a financial institution's AML controls Ref: MAS 626, Section 3, https://www.mas.gov.sg/regulation/notices/notice626 Singapore AML Regime Exam Version 3.0 Page 12 4: Risk Assessment A financial institution is required to take appropriate steps to identify, assess, and understand their AML/CFT risks in a complete and holistic sense. Financial institutions are required to know their inherent risks across customers, jurisdictions of customers, notably with non-residents. Jurisdiction is a critical consideration that requires inclusion into a risk assessment, primarily for products, services, transactions, including digital token transactions, and channels distributed in other jurisdictions. The risk assessment involves documentation, consideration of the risk factors, periodic updates to keep the risk assessment updated, and having the appropriate mechanism to share the information with the MAS. Risk Assessment Formula Inherent Risks-Mitigating Controls=Residual Risks Ref: MAS 626 Sections 4.1 and 4.2, https://www.mas.gov.sg/regulation/notices/notice-626 The risk assessment formula requires covered institutions to enact adequate controls to mitigate the inherent AML/CFT risks. The mitigating controls must be written into policies and procedures which are approved by senior management, allowing the financial institution to manage and mitigate the financial crime risks effectively. After implementation, a bank must continue to monitor policies, procedures, and controls to ensure they remain current or enhance them if necessary. In the cases where the AML/CFT remains elevated, the financial institution must take enhanced measures. Examples of enhanced controls may be to conduct enhanced due diligence or to conduct greater transactional surveillance. The presence of higher risks requires the bank to incorporate this information into the risk assessment and control framework. Ref: MAS 626 Section 4.3, https://www.mas.gov.sg/regulation/notices/notice626 Singapore AML Regime Exam Version 3.0 Page 13 Risk Mitigation Risk mitigation arises when a financial institution builds internal controls and processes to mitigate and manage AML risks. Financial institutions should develop and implement policies, procedures, and controls which are approved by senior management. These internal controls, policies, and procedures should be regularly updated when there are significant changes. Ref: MAS 626, Section 4.3, https://www.mas.gov.sg/regulation/notices/notice626 Zero Tolerance / Prohibitions The risk-based approach will contain prohibitions. A financial institution may express zero risk appetite for particular types of customer segments, countries, or types of legal entities. One such prohibition is when a financial institution prohibits conducting correspondent banking business with Shell Banks. Ref: MAS 626, Sections 6.1 & 10.6, https://www.mas.gov.sg/regulation/notices/notice-626 New Products, Practices, and Technologies New products, practices, and technologies need to be considered as part of the risk assessment process. The risk assessment process applies to a new or existing product, an affiliate or unit, or the enterprise. A financial institution needs to identify and assess emergent risks and incorporate the developments of new delivery channels or products, such as mobile banking or FinTech products, or the technology for AML/CFT risks. Whether a new or existing extension of products, services, a financial institution entity needs to assess the vulnerabilities, undertake a risk assessment before launch, and ensure the inherent risks have suitable control to lessen the residual risk. Financial institutions must pay particular care around products, services, or channels that provide anonymity. Singapore AML Regime Exam Version 3.0 Page 14 The financial institution should also review its enterprise-wide risk assessment when material trigger events occur. Material trigger events include the acquisition of new customer segments or delivery channels, or the launch of new products and services by the bank. Ref: MAS 626, Section 5 and MAS 626 Guidelines, para 4-18 , https://www.mas.gov.sg/ regulation/notices/notice-626 Singapore AML Regime Exam Version 3.0 Page 15 5: Customer Due Diligence Customer A customer is defined as a natural person, legal entity or legal arrangement, such as a trust structure, which establishes or intends to build a business relationship, or undertakes or wants to conduct a transaction, including digital token, without an account being opened with the bank. Ref: MAS 626, Section 2, https://www.mas.gov.sg/regulation/notices/notice626 MAS Enforcement Actions: Singapore, 19 December 2018…The Monetary Authority of Singapore (MAS) announced today that it has increased the ban against Mr. Tim Leissner to a lifetime Prohibition Order (PO). This follows Mr. Leissner’s admission to criminal charges brought against him by the United States Department of Justice (US DOJ). Key takeaway – There are penalties applied to individuals and entities for non-compliance. Customer Onboarding A financial institution conducts customer due diligence (CDD) measures to identify the customer. Banks cannot open or maintain fictitious or anonymous accounts. Moreover, should there be reasonable grounds of suspicion before creating an account or business relationship, for example for drug dealing, then the bank should not establish a business relationship or execute a transaction, but instead file an STR and forward a copy to the MAS. Where a business relationship is advanced, the bank needs the full name and any alias, unique identification number which may be satisfied by the national identity card or passport, or when the legal person can be satisfied with an incorporation number or business registration number. For natural persons, the residential address is required. Where the appropriate, date of birth, Singapore AML Regime Exam Version 3.0 Page 16 nationality, phone number, and other identification may be required under MAS 626. For legal persons and legal arrangements, a similar collection of documents may be necessary such as a statutory or business address, incorporation or registration dates, legal forms, constitutions, or legal powers. Ref: MAS 626, Section 6, https://www.mas.gov.sg/regulation/notices/notice626 Identity Authentication A bank is required to verify the customer information obtained by using reliable and independent sources of data, documents, or information. Many times, a utility or telecommunication bill will be utilized to verify a customer’s residential address. MAS 626 sets out the requirements for the identification and verification of the customer, as well as associated parties, to ensure the natural person, legal person, or legal arrangements exists, and there is information to verify the person and related parties. This process includes the escalation or when waivers are the requirement to extend the due diligence or processes to substitute when particular information is not readily available. Ref: MAS 626, Sections 6 – 6.12, https://www.mas.gov.sg/regulation/notices/notice-626 Risk-Based Approach CDD should be undertaken within a proportional framework that reflects a customer’s inherent risks. Banks should apply a risk-based approach to their customer due diligence measures; for example, simplified due diligence may be applied to low-risk customers and enhanced due diligence applied for high-risk customers. Additionally, there may be instances, such as when the transaction value exceeds S$20,000 or where the bank undertakes any digital token transaction for a customer who has not otherwise established business relations with the bank, where customer due diligence is required before the execution of the transaction. MAS 626 further outlines several circumstances that may trigger CDD. Ref: MAS 626, Sections 6.3 - 8.8, https://www.mas.gov.sg/regulation/notices/notice-626 Singapore AML Regime Exam Version 3.0 Page 17 CDD Measures for Non-Face-to-Face Business Relations • Financial institutions, notably holders of Money-Changing or Remittance Licenses, or operations employing digital banking, are required to develop policies and procedures that address specific risks arising from non-faceto-face business relations, including the risk of personation. • If there are exceptions, the written policy should address the risk controls in place to reduce AML/CFT risk. These policies and procedures should frequently be reviewed. • Non-face-to-face CDD requirements should be as robust as those required to be performed if there were face-to-face CDD requirements. Ref: MAS 626, Sections 6.27 – 6.29, https://www.mas.gov.sg/regulation/notices/notice-626 CDD Measures for Non-Account Holder A bank is required to undertake CDD of the non-account holder when a transaction of value exceeds a threshold of S$20,000, or other than any digital token transaction referred to in paragraph 6.31A of MAS Notice 626, or when there is an incoming domestic or cross-border wire transfer that exceeds S$1,500. Ref: MAS 626, Section 6.31 and 6.31A, https://www.mas.gov.sg/regulation/notices/notice-626 Singapore AML Regime Exam Version 3.0 Page 18 Simplified CDD Depending on the nature and behavior of the customer, a financial institution may perform simplified client due diligence when the circumstances are appropriate. The assessment of low risk should be supported by an adequate analysis of risks by the bank. A financial institution shall NOT employ Simplified CDD when • A customer or any beneficial owner of the customer is from or in a country or jurisdiction which the FATF has called for countermeasures; and • A customer or any beneficial owner of the customer is from or in a country or jurisdiction known to have inadequate AML regimes, as determined by third-party inputs, such as domestic authorities, for example, the Basel Index or Transparency International or FATF or the financial institution for itself; or • When a financial institution has a suspicion about the customer prompted by adverse media reports. The rationale needs documenting within a financial institution’s CDD procedures, and the effectiveness tested from time to time. The simplified method requires regular approval by senior management. Ref: MAS 626, Section 7, https://www.mas.gov.sg/regulation/notices/notice626 Singapore AML Regime Exam Version 3.0 Page 19 Enhanced Due Diligence Correspondingly, a financial institution should have an enhanced due diligence (“EDD”) process which enacts higher requirements upon the CDD process. The EDD process initiates greater scrutiny, especially when a customer presents unique risks that may be a challenge to the financial institution’s risk appetite or internal controls. Best practice requires an EDD policy that provides clear guidance to the First Line of Defense and product partners. Typically, particular customer segments routinely encounter higher risk ratings, such as Politically Exposed Persons (“PEPs”) or Correspondent Banks, and commonly face more frequent and extensive due diligence reviews and monitoring. Senior Management should regularly review customer reviews to ensure the customer remains with risk appetite with corresponding management information being produced. Internal risk management systems, policies, procedures, and controls should incorporate this risk category. Relationship groups must obtain the financial institution’s senior management approval to establish or continue business engagement. Ref: MAS 626, Section 8, https://www.mas.gov.sg/regulation/notices/notice626 Beneficial Owners A crucial step to understanding a customer is the identification and verification of the beneficial owners. There may be multiple beneficial owners attached to a legal person. A bank is required to take reasonable measures to identify the natural person(s) involved in the entity, or when this is not available, the controlling person(s). The CDD process may be streamlined when the beneficial ownership information is publicly available. This public information may be through a recognized stock exchange, such as the Singapore Exchange, or through a third-party provider. MAS 626 Section 6.16 outlines this requirement. In some cases, such as life insurance policies, the financial institution will identify the beneficiaries as beneficial owners. In such a case, the financial institution will determine the natural persons, legal persons, or legal arrangements with their full legal name and other necessary characteristics as Singapore AML Regime Exam Version 3.0 Page 20 it deems necessary to satisfy the requirements to establish the identity at the time of insurance payout. When the customer is a legal arrangement such as a trust, sufficient diligence is required to understand the purpose of the trust, identify the settlor(s), protector, beneficiaries, and any natural person exercising control. The customer due diligence process needs to outline the chain of ownership or control, as described in the legal documentation. Ref: MAS 626, Section 6.13 to 6.17, https://www.mas.gov.sg/regulation/notices/notice-626 Beneficial Ownership Example In the following beneficial ownership illustration, two entities own Company A. The two beneficial owners are Corporation B (80%) and Company C (20%). Corporation B has an ownership percentage above the 25% controlling ownership interest threshold. Thus, Corporation B is considered a beneficial owner. Beneficial Ownership Ref: MAS 626, Sections 6.13 – 6.17, https://www.mas.gov.sg/regulation/notices/notice-626 Singapore AML Regime Exam Version 3.0 Page 21 MAS Enforcement Actions: Singapore, 10 October 2018: The Minister in Charge of the Monetary Authority of Singapore (MAS) has varied the prohibition orders made by MAS against two individuals. Prohibition Orders against Mr. Lim Fang Wee On 3 May 2018, MAS announced the issuance of prohibition orders against Mr. Lim Fang Wee for a period of four years, with effect from 30 April 2018. The orders prohibit him from performing any regulated activity under the Securities and Futures Act (SFA) and any financial advisory service under the FAA, as well as from taking part in the management, acting as a director or becoming a substantial shareholder of any capital market services firm under the SFA and any financial advisory firm under the FAA. MAS had issued the prohibition orders on the grounds that Mr. Lim (i) has not honestly carried on business in the type of regulated activity for which he had been appointed, and (ii) is not a fit and proper person to be appointed to carry such business. Mr. Lim, a former representative of Credit Suisse AG, Singapore Branch, had deliberately concealed the identity of the true beneficial owner of three accounts with the bank, making it more difficult for the bank to monitor and detect suspicious transactions. Mr. Lim appealed to the Minister against MAS’ decision. Following the hearing by MAS’ Appeals Advisory Committee (AAC), the Minister has decided to vary the length of the prohibition orders from four years to three years, with effect from 30 April 2018. Key takeaway: AML penalties include fines, imprisonment, and prohibition orders. Source: https://www.mas.gov.sg/regulation/enforcement/enforcementactions/2018/variation-of-prohibition-orders-against-mr-lim-fang-weeand-mr-kevin-scully Singapore AML Regime Exam Version 3.0 Page 22 Ultimate Beneficial Owner Requirements The ultimate beneficial owner (UBO) is the natural person who owns or effectively controls the corporate vehicle. All customers must identify their ultimate beneficial owner (s). Money launderers utilize fictitious personas or use third parties to mask their identity. ‘Mule accounts’ may be set up by multiple individuals but controlled by one individual or a crime syndicate. Under the Company Act (Chapter 50 of the 2006 Revised Edition), as amended in 2017, for Controllers and Nominees Directors, an individual registrable controller is to provide: (a) full name; (b) alias, if any; (c) residential address; (d) nationality; (e) identity card number or passport number; (f) date on which the individual registrable controller became an individual controller of the company or foreign company; and (g) date on which the individual registrable controller ceased to be an individual controller of the company or foreign company (as the case may be), if applicable. While the MAS 626 Guidelines give, by way of an example, “25%” as the threshold for the identification of Beneficial Owners, industry best practice among the global and local banks in Singapore is for these banks to use a more stringent threshold of 10%. The threshold (example 10% or 25%) is to determine “ultimate ownership”. However, the financial institution is also required to identify the natural person who has “control” of the legal entity. Reference is made to the definition of a “beneficial owner” in the MAS 626 Notice. “Control’ is a question of fact and is not necessarily determined by application of a threshold. The diagrams highlight how to identify beneficial ownership and the UBO unwrapping process. Note, with regards to the threshold, and one needs to understand the aggregated crossholdings of those UBOs. Singapore AML Regime Exam Version 3.0 Page 23 Ultimate Beneficial Owner Example In the following illustration, RE may need to determine the natural person having significant beneficial ownership. One approach is to look at the beneficial owners of a corporate vehicle. (For this illustration, the 10% threshold is used.) In this example, Titan Pte Ltd (Singapore) is owned by 30% by Bob, a natural person; 10% by Tom, a natural person, and 60% by Titanium Pte. Ltd, which is owned by 10% by Adam, a natural person; 10% by Mary, a natural person, and another corporate vehicle. One must delve further into ownership. The remaining ownership is held by Titan Trust Cayman Ltd, which is owned by 10% by Bill and 90% by Ally. Thus, we can conclude that Titan Pte Ltd is owned by Bob (30%), Tom (10%), Bill (5%), Ally (43%), Adam (6%) and Mary (6%). Bob and Ally are the UBOs of Titan Pte Ltd and have greater than 10% ownership. Ref: MAS 626, Section 6, and Singapore Company Act (Chapter 50 of the 2006 Revised Edition) https://www.mas.gov.sg/regulation/notices/notice-626 Singapore AML Regime Exam Version 3.0 Page 24 MAS Enforcement Actions: Singapore, 19 March 2018 ... The Monetary Authority of Singapore (MAS) announced today that it has imposed penalties of S$5.2 million on Standard Chartered Bank, Singapore Branch (SCBS) and S$1.2 million on Standard Chartered Trust (Singapore) Limited (SCTS). The penalties were for breaches of MAS’ anti-money laundering and countering the financing of terrorism (AML/CFT) requirements. These breaches occurred when trust accounts of SCBS’ customers were transferred from Standard Chartered Trust (Guernsey) to SCTS from December 2015 to January 2016. Key takeaway: Financial institutions must comply to AML/CFT requirements and cannot look to arbitrage jurisdictions. Source: https://.mas.gov.sg/regulation/enforcement/enforcementactions/2018/mas-imposes-penalties-on-standard-chartered-bank-andstandard-chartered-trust-for-amlcft-breaches Politically Exposed Persons Politically Exposed Persons (PEPs) include both foreign and domestic persons that have or had held a prominent function in governments. A PEP included immediate family members and close associates of the Primary PEP. Singapore includes domestic PEPs all Government Ministers, Members of Parliament, Nominated Members of Parliament and Non-Constituency Members of Parliament but not middle-ranking government employees. Identification of PEPs should assess the ML/TF threats to the financial institution and apply the EDD measures. Examples of EDD concerning sources of wealth corroboration may include the collection of evidence of title, copies of trust deeds, audited accounts, salary information, tax returns, a copy of wills when inheritance payments are made, and bank and securities statements. As part of enhanced monitoring, a bank should examine the sources of wealth or sources of funding underpinning the account and transactional activity. Ref: MAS 626, Section 8, https://www.mas.gov.sg/regulation/notices/notice626 Singapore AML Regime Exam Version 3.0 Page 25 High-Risk Categories The bank’s risk assessment may identify high-risk customers, jurisdictions, products, and services, or channels. In addition to PEPs, high-risk customers may also include those who are national or domiciled/resident in jurisdictions identified by FATF for countermeasures or as jurisdictions with inadequate AML measures. Private Banking, Correspondent Banking activities, or nonface-to-face client onboarding may also be deemed as higher-risk for ML/TF risks. Each financial institution must assess these categories periodically with rationale and documentation. Additionally, a financial institution may add additional higher risk categories to implement the risk-based approach. These risk categories require appropriate documentation and implementation into management systems, policies, and controls for a customer that presents a higher risk for ML/TF. In specific instances, the customer may present trigger events caused by changes in behavior, customer actions, or from third party information that requires a response because: • a customer may reside or operate in a higher risk jurisdiction, or because of particular countermeasures or sanctions introduced by other governments; or • a customer has assessed a higher risk due to a country or jurisdiction aspect, such as inadequate AML measures. Consequently, a financial institution’s AML/CFT measures continually need to adjust to changing circumstances. Ref: MAS 626, Section 8.5-8.9, https://www.mas.gov.sg/regulation/notices/notice-626 Singapore AML Regime Exam Version 3.0 Page 26 6: Ongoing Monitoring Financial institutions must undertake an initial review at onboarding of the customer CDD information (including the intended purpose and nature of the business relationship with the financial institution). The financial institution must subsequently perform ongoing monitoring of their customers’ activities by updating the customer’s CDD information and undertake transaction monitoring. Continuous monitoring ensures that the customer’s profile is upto-date, and that the customer’s risk profile reflects the ML/TF risk accurately to the financial institution. This ongoing monitoring is characterized as understanding the nature of the relationship, the purpose of the account, the risk profile, the customer and transaction behavior analysis, and when appropriate the source of funds. At times, the bank may need to analyze the transactional patterns to known financial crime typologies and may, at times, be a complex network of fund transfers requiring sufficient resources to ‘follow the funds’ and unravel the activity. The bank must have sufficient resources in place in terms of systems, people, and processes to support the underlying first and second-line functions in the collection of CDD information and ongoing monitoring. When the underlying patterns are unusual or suspicious, such as having no clear economic rationale or fitting a known typology, the financial institution is required to investigate and determine if a Suspicious Transaction Report (STR) is warranted. The STR should incorporate sufficient information and detail to assist the Commercial Affairs Department of the Singapore Police Force in their analysis. Ref: MAS 626, Sections 6.19 – 6.26, https://www.mas.gov.sg/regulation/notices/notice-626 Singapore AML Regime Exam Version 3.0 Page 27 Transaction Surveillance Effective transaction surveillance is a crucial part of any AML program. Financial institutions should have systems and controls to detect and prevent customers’ accounts from being abused by a criminal, as well as not knowingly facilitate payments to terrorists or sanctioned persons. Transaction Surveillance should include transaction screening and transaction monitoring. A transaction screening team should screen transactions to identify possible names in the sanction lists. For effective detection, the matching methodology should allow effective screening. The legal name should be in a form consistent with the financial institution’s transactional screening systems, thus at times, separating Anglicized names from the different language script, thus enhancing the matching process. When a trigger is activated, the method may include an alert process, or a multi-step triage process, to evaluate a transaction. This team reviews customer transactional activity identifying any suspicious activity from changes in the client’s behavior or external sources. Proper names, their aliases, UBOs, connected parties, close associates, and beneficiaries may be reviewed as part of this process. PEPs and people related or connected to PEPs are given increased scrutiny. This function may instigate investigation using static customer data derived from the KYC and CDD information against dynamic transactional data to make the assessment. A financial institution’s concern for suspicious activity tends to rise when customer activity departs from known behavioral patterns or when their businesses raise certain Red Flags. The financial institution should further deploy an automated transaction monitoring system. The system should use a suite of detection scenarios with parameters, thresholds, and triggers, as appropriate to the type of institution and the corresponding risk appetites, to assist in identifying transactions and activity patterns for further review. Scenarios analysis may also be deployed on historical movement to identify unusual activity. Cross-border transactions ought to receive heightened scrutiny reflecting the ML/TF risk of the jurisdictions from which the funds were sent or to where they were received. The end-to-end transactional process may need attention. Onboarding and monitoring teams need to coordinate their reviews. One example is the formatting of legal names to allow the application of fuzzy logic and expedite matching algorithms as part of a financial institution’s screening system. Singapore AML Regime Exam Version 3.0 Page 28 Financial institutions should pay particular attention to the name matching logic to ensure that the calibration is not too precise and where there is no adjustment for misspelling and different naming conventions. In this regard, specific matching techniques do not accommodate for misspelling and internal errors. Action may also be required to calibrate the transaction monitoring parameters and thresholds to avoid the generation of meaningless alerts. Ref: MAS 626, Sections 6.15, 11, 12.2, & 14, STRO indicators, and 2018 ACIP Papers. https://www.mas.gov.sg/regulation/notices/notice-626 https://www.police.gov.sg/Who-We-Are/Organisation-Structure/SpecialistStaff-Departments/Commercial-Affairs-Department https://www.abs.org.sg/industry-guidelines/aml-cft-industry-partnership Sanctions Screening Another vital function is Sanctions Screening. A financial institution should collate lists internally or via a third-party provider various sanction list, as well as to consider other jurisdictions, such as the United States OFAC Specially Designated Nationals (SDN) list or United Kingdom’s HMT Financial Sanctions Targets list, as appropriate. Countries, sectors, companies, or individuals may be the subject of sanctions. Financial institutions should reject payments to sanctioned countries or persons unless there is an approved general or specific license to transact. Approved Licenses can allow for an exception but need careful monitoring to ensure strict compliance of the terms of the license to avoid the application of penalties to the financial institution. A financial institution should not alter originator or beneficiary information in a cross-border wire transfer. The rationale for discounting matches or hits should be corroborated by factional identifiers such as the date and country of birth, age, and gender, but not limited to these elements. Ref: MAS 626, Section 6.15, MAS Targeted Financial Sanctions and Potential Indicators of Proliferation Financing (8 April 2019). https://www.mas.gov.sg/regulation/anti-money-laundering/targetedfinancial-sanctions Singapore AML Regime Exam Version 3.0 Page 29 7: Suspicious Transaction Reporting A financial institution needs to report suspicious transactions to the Suspicious Transaction Reporting Office (STRO) of the Singapore Police Force’s Commercial Affairs Department promptly. Banks are to incorporate the definitions and actions required under the Corruption, Drug Trafficking, and Other Serious Crime (Confiscation of Benefits Act and Terrorism (Suppression of Financing) Act and the Terrorism (Suppression of Financing) Act into their processes. The STR function is the centralized point of data collection, decision-making, and reporting to the STRO and MAS. This role is usually performed by the AML Compliance Officer appointed at the management level by the financial institution (i.e., the Money Laundering Reporting Officer (MLRO). The MLRO (and his/her delegates) needs to document the rationale for the STR which may need to include customer data, transactional information and behavior, and the red flag indicators as outlined by the STRO. STRs, Cross Border Cash Movement Reports and Cash Transaction Reports for Precious Stones and Metals Dealers, are filed on STRO Online Notices and Reporting Platform (SONAR). The MLRO (and his/her delegates) should also ensure there is sufficient documentation as to why an STR is not warranted for a particular case. An STR may be considered when the transactional activity does not match the customer profile, and there is a rapid movement of funds in and out of an account, transactional activity without an economic purpose, or when a client is unwilling to provide information or withdraws a pending application. The financial institution should have effective safeguards to prevent tipping off customers or connected persons. Tipping off is the act of sharing information with the customer that a customer is suspected or undergoing an investigation. Ref: MAS 626, Section 14, and Singapore Police Force SONAR https://eservices.police.gov.sg/content/policehubhome/homepage/strosingpass.html Singapore AML Regime Exam Version 3.0 Page 30 8: Wire Transfers and Correspondent Banking Wire Transfers Wire transfers are electronic messages typically communicated between financial institutions, central banks, and stock exchanges. MAS 626 has set out several definitions, responsibilities, and procedures that financial institutions would need to operationalize as originator bank, an intermediary commercial bank, or a beneficiary bank. A typical electronic message will be composed of an originator account information, an originator bank, possibly an intermediary commercial bank, a beneficiary bank and beneficiary account details along with value and payment instructions. The purpose of the remittance may, at times, be included in the electronic message. Ref: MAS 626, Section 11, https://www.mas.gov.sg/regulation/notices/notice626 Cross-Border Transactions A wire transfer is considered a cross-border wire transfer when a message crosses jurisdictions or uses a currency other than the domestic. A bank has different responsibilities depending on the value being above, equal, or below S$1,500. The collection of the name of the originator, account number, the beneficiary's name, and account are considered minimum requirements. Additionally, the information will be collected as appropriate, reflecting the higher risk. One of the most extensive payment networks is SWIFT (Society for Worldwide Interbank Financial Telecommunication). 1Payment transparency requirements outline requirements for originators, intermediaries, and beneficiary institutions 1 SWIFT is the Society for Worldwide Interbank Financial Telecommunication Singapore AML Regime Exam Version 3.0 Page 31 to ensure payments are correctly established, monitored, and settled promptly. SWIFT is working with various transactional and sanctions monitoring vendors to ensure information is formatted in a structured manner. Ref: MAS 626, Section 11, https://www.mas.gov.sg/regulation/notices/notice626 Correspondent Banking Customers are connected through electronic payment systems where financial institutions are connected. This network is called correspondent banking and is defined when one financial institution (Service Provider) provides services to another financial institution (Respondent Financial Institution). The Service Provider’s Vostro Account will be mirrored with a Respondent Financial Institution’s Nostro Account. When the payment encryption key is exchanged, payment messages may be communicated. Correspondent Banking is vulnerable to Money Laundering for two main reasons: • By their nature, Correspondent Banking Relationships (CBR) create a situation in which a financial institution carries out financial transactions on behalf of customers of another institution. This indirect relationship means that the correspondent bank provides services for individuals or entities for which it has neither verified the identities nor obtained any first-hand knowledge of their Source of Wealth or Funds. • The amount of money that flows through correspondent accounts can pose a significant threat to financial institutions, as they process large volumes of transactions for their customers’ customers. This makes it more challenging to identify suspicious transactions, as the financial institution does not have the information on the actual parties conducting the transaction to know whether they are unusual. Given the nature of the activity and the scale and speed, this activity is deemed high risk. Typically, a Service Provider may grant access to various product types: cash management, international wire transfers, cheque clearing, FX, Payment Through Accounts, or similar activities. Ref: MAS 626, Section 10, https://www.mas.gov.sg/regulation/notices/notice626 Singapore AML Regime Exam Version 3.0 Page 32 Correspondent Banking Diagram Correspondent Banking Transaction Example (Single Correspondent) As outlined by FATF Recommendation 13 and MAS 626, a bank should undertake due diligence on its respondent financial institutions to ensure they are suitable to establish /maintain a