Overall, we think that it is a great report but with all things and especially when all eyes on you, it is a little hard to aim for perfection in this regard. Here's what we think.
Technical compliance of the FATF 40 Recommendations:
Compliance - 18 recommendations
Largely Compliance - 16 recommendations
Partially Compliance - 6 recommendations
Compared with the previous MER in 2008, Singapore fared much better now with the 2 Non Compliance recommendations re DNFBPs upping 1 notch to Partially Compliance. There are more full Compliance Recommendations noted as well.
Under the new FATF MER methodology where effectiveness compliance is also assessed, whilst it appeared that there is a fair bit of room for improvement in this report, when compared with other FATF Member Countries' recent MERs on effectiveness compliance ratings, Singapore is somewhat amongst the pack.
According to the report, what seems to be lacking are supervision, investigation and prosecution of ML/FT cases (complex transnational ones) with more exercise of confiscation powers by the authorities. That is to say, don't just focus on the small money mules and shell companies cases; go for the biggies. Didn't Singapore seize $240m worth of assets in relation to 1MDB case? Perhaps, it is a timing issue.
Or maybe this is pale in comparison to the US attempt to seize more than $1b worth of assets relating to the same case? Must it be number game? I don't think so. The billions of fines and sanctions meted out by the US on large banks over the years didn't seem to achieve the desired result of getting people to behave.
I get the sense that FATF expectation on Singapore to be very robust in ML/TF efforts is premised on the basis that there is huge amount of inherent risks surrounding Singapore from a ML/TF perspective especially given its top position as a global financial centre. So we somewhat have to fare better than others.
What caught my attention is the rating improvement for technical compliance of Recommendations 22, 23 and 28 in respect of DNFBPs. Congratulations to efforts put in thus far but more work needed. Previously in the 2008 MER, Singapore was Non-Compliance in these areas. So, it is a step to the right direction.
Breaking that down a little bit, DNFBPs comprises
Real estate agents
Dealers in precious metals / stones
Lawyers, notaries, independent legal professionals and accountants
Trust and corporate services providers
A comment from the report also noted that DNFBPs had a less matured understanding of TF risks and often failed to distinguish terrorism and TF risks. There is also a significant difference in the level of understanding of the ML/TF risks between the financial sector vs the DNFBPs sector.
I felt that was a little harsh. Financial sector has been doing this for a very long time unlike DNFBPs. Take for example corporate services providers where the regulator, ACRA, amended the law in May 2015 effectively implementing recommendations 22, 23 and 28 for this industry. There are more than 2500 CSPs in Singapore and as with all new regulations, it takes time for the requirements to sink in and be operationalised. Training would certainly help (more to come in this respect). Perhaps, FATF's expectation is that given these Recommendations were in place since a long time ago, why did it take you so long to legislate and implement them?
Not much of an excuse but a fine balance between adopting global standards quickly versus ensuring global competitiveness for Singapore.
There is also a further comment on effective and consistent supervision and enforcement across all DNFBPs. This will be rather tricky in my view especially with different supervisory and enforcement powers across the entire DNFBPs segment. Effectiveness of regulation depends on how much policing is being done and how much enforcement is taken for non-compliance.
Another interesting point that came up relates to the issue of identifying ultimate beneficial ownerships where DNFBPs are singled out as the segment facing challenges in obtaining such information. A little unfair (again). Where the ultimate beneficial owners are "hiding" behind legal entities created outside of Singapore, for example BVI and Cayman, everyone literally hits a brick wall, not just DNFBPs.
Perhaps, it is easier for banks and FIs to obtain these from the client given that the latter seeks a financial service from the former and therefore will be more willing to disclose. However, with a DNFBP, the services sought would be quite ubiquitously available and given the somewhat one-off nature of the service (eg. incorporating a company) and the highly competitive market, the service providers don't get the bargaining power unlike a bank or a FI.
This is a global problem and until such time where all company registrars in each country make their records searchable and publicly available, every MER conducted will repeat this point. Would it not be better if there is a global effort to push for greater transparency across the world in this regard? Common Reporting Standard (CRS) is a good step forward but beyond tax transparency, wouldn't ultimate beneficial ownership transparency be a more fundamental disclosure to begin with?
Separately, for accountants as well as precious stones/metal dealers other than licensed pawnbrokers, FATF questions the effectiveness of what's currently in place given the requirement not being legislated somewhat. More changes coming up I suspect.
Lastly, there is also an action point regarding NPOs where Singapore is recommended to conduct a more comprehensive review of the sector to identify higher TF risk for different NPO types and take appropriate preventive measures to raise awareness. Read in conjunction with FATF recent changes made to Recommendation 8 in Jun 16 where it recognised that there are different types of NPOs and therefore, a risk-based approach is required in considering CTF measures for the sector. This means a more granular review of the sector is necessary and thereafter applying appropriate supervision and enforcement actions.
Quoting Mr. Ian Wong, Deputy Director, Financial Investigation Group in its CAD Annual Report 2015, referring to the FATF MER, he reported "There are always ways to improve and we will accept the assessors’ recommendations in this spirit. This is also an opportune time for the FIG to take stock of our current AML/CFT situation and assess whether we need to recalibrate our approach and reprioritise our objectives. Money laundering and terrorism financing risks are not static, and we need to periodically determine whether our resources are correctly allocated to address the risks."
Till the next FATF Follow Up Review, this will keep regulators, Compliance folks, and Cynopsis Solutions (fingers crossed) busy for a while.
Full FATF Mutual Evaluation Report available HERE.