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Singapore corporate regulator plans changes to stiffen AML prevention

This article is produced by CMS Holborn Asia, a Formal Law Alliance between CMS Singapore and Holborn Law LLC. 

Introduction 

Amidst a high-profile money laundering investigation involving (currently) at least S$2.8 billion in domestic assets, Singapore’s government has recently announced plans to introduce additional measures to strengthen Singapore’s anti-money laundering (“AML”) regime.[1]

The Proposed Measures

The additional measures primarily target:

  • the role of corporate service providers (“CSPs”) authorized by the Singapore Accounting Corporate and Regulatory Authority (“ACRA”), also known as Registered Filing Agents (“RFAs”); and

  • nominee directorships.

    • Registered Filing Agents

    As part of their activities in incorporating companies (and other entities), RFAs play an important role as the ‘first line’ of mitigation when it comes to conducting customer due diligence / KYC checks, including on sources of funds. RFAs are legally required to conduct customer due diligence and file Suspicious Transaction Reports (“STRs”) with the Suspicious Transactions Reporting Office should they know of or have reasonable grounds to suspect that a transaction may include the proceeds of crime.

    With the aim of strengthening Singapore’s AML regime, ACRA has proposed to increase penalties where RFAs have failed to comply with their AML obligations. Under section 31(9) of the Accounting and Corporate Regulatory Authority Act 2004 of Singapore (“ACRA Act”), RFAs have the following obligations:

  • to perform such customer due diligence measures to detect or prevent money laundering and the financing of terrorism as may be prescribed;

  • to cease to act as filing agent for a person if the RFA is unable to complete the prescribed customer due diligence measures in respect of that person; and

  • to keep, in such manner and for such minimum period as may be prescribed, all records obtained through the prescribed customer due diligence measures, including (but not limited to) all copies or records of any identification document, accounts and business correspondence, as well as the results of any analysis undertaken.

    • Currently, a failure by an RFA to comply with any of the above obligations could result in a financial penalty of up to S$25,000 per breach, in accordance with section 31(13)(d) of the ACRA Act. However, ACRA has now proposed to increase the maximum financial penalty for breaches by RFAs to at least S$50,000 per breach.

    Nominee Directorships

    Under Singapore law, every company is required to have at least one director who is an ordinary resident of Singapore. It is, however, common for companies established by offshore entities or residents to appoint local nominee directors to meet this requirement and to act on their behalf on matters relating to the company. Corporate secretarial providers (who are regularly also RFAs) typically offer nominee directors as part of their secretarial services and, accordingly, certain individuals who may be part of such organizations or contracted by them, can end up holding multiple directorships. ACRA has proposed potential new restrictions on directorships – such as limiting the number of nominee directorships that an individual can hold, and requiring that nominee directors be “fit and proper” to take up the role. The proposed measures seek to ensure that nominee directors fulfill the same legal obligations incumbent on all directors – that is to discharge their director duties responsibly, with honesty and reasonable diligence.

    Material Changes

    ACRA put forward a range of proposals for public consultation in 2022, many of which will (if passed) have a significant impact on the way CSPs undertake their business activities and interact with clients. The main changes include:

  • enacting a new Corporate Service Providers Bill (“CSP Bill”) requiring all entities or persons providing corporate secretarial services in and from Singapore to register with ACRA as CSPs under the new CSP Bill, regardless of whether they need to transact with ACRA;

  • increasing the maximum financial penalty for breaches of terms and conditions of registration by RFAs and CSPs from $25,000 per breach to at least $50,000 per breach;

  • increasing the maximum financial penalty for breaches of terms and conditions of registration by Registered Qualified Individuals from $10,000 per breach to $20,000 per breach;

  • introducing a fine not exceeding $100,000 for breaches of AML/countering the financing of terrorism (“CFT”) obligations by, inter alia, directors, owners, partners of CSPs, committed with the connivance of, or attributable to any neglect by these individuals;

  • introducing a requirement for CSPs to conduct screening of their customers against prescribed sources of information, and to perform risk assessment on their customers;

  • introducing a requirement for CSPs to introduce group-wide AML/CFT obligations covering their branches or subsidiaries in Singapore or elsewhere to mitigate the risks of money laundering/terrorism financing;

  • introducing a requirement for CSPs to provide ACRA with copies of STRs that they file with the Suspicious Transaction Reporting Office;

  • removing the existing exemptions which provide that RFAs do not have to inquire on the existence of beneficial owners in relation to a customer which is a Singapore government entity or a foreign government entity;

  • introducing a requirement for CSPs to ensure that individuals they appoint to act as nominee directors are fit and proper; and satisfy prescribed training requirements, if they hold more than a legally prescribed number of nominee directorships by way of business (unless they are qualified persons); and

  • introducing a new requirement for nominee directors and shareholders to disclose their nominee status and the identity of their nominator to ACRA and for ACRA to maintain such information. The nominee status of the director/shareholder will be made publicly available.

    • We expect to see legislative changes made next year as Singapore focuses on tightening up potential risk areas that could be exploited by sophisticated money laundering and financial crime activities.

    Link to the report: Singapore corporate regulator plans changes to stiffen AML prevention (cms-lawnow.com)

    Footnotes

    [1] Singapore Parliamentary Debates, Official Report (3 October 2023), accessed here on 16 October 2023.

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