This article delves into the definitions of money laundering and terrorism financing, their differentiators, exposed risks, potential impact on our lives, and what we can do to prevent/combat them.
Recently, not a day goes by without news coverage on money laundering (ML) or terrorism financing (TF) charges against corrupt individuals. Media coverage surrounding Panama Papers and 1MDB especially shone light into this web of secrecy, made up of shell companies and private banking services used by criminals to obscure links to their ill-gotten gains.
Money Laundering and Terrorism Financing
Money laundering is the process that criminals use to delink themselves from their ill-gotten gains, so that the money can be used legitimately without fear of prosecution. Typically, this process involves complex schemes to insert the money into the financial system, moving the money through various layers and jurisdictions so that it becomes untraceable.
Terrorism financing on the other hand, involves the collection of money from seemingly legitimate sources (e.g. donations), transferring the money through various financial and non-financial channels to avoid detection or surveillance, and finally distributing the money to fund terrorist activities.
It is important to note that the topology and motives of ML and TF are uniquely different. For instance, money that flows in ML and TF move in opposite directions. ML moves money from places where crime is conducted, to places where the money can be used legitimately; TF on the other hand, moves money from legitimate sources to acts of terrorism.
Money Laundering Risks
As a global finance and logistics hub, Singapore is a natural target for criminals and terrorists due to its open economy. Successful placement of ill-gotten gains by criminals or terrorists into Singapore’s financial system will facilitate the movement of funds due to Singapore’s reputation as a “clean” and efficient economy.
Besides exploiting our banking system, criminals tend to engage the services of Singapore professionals like accountants, lawyers, or corporate services providers to front their businesses, as these professions lend legitimacy to their businesses, and hence make it easier to move funds around. In addition, the stable Singapore dollar also attracts criminals to park their money locally in the form of real estate, investments, or shell companies. Hence, it is important even for companies outside of the financial system to screen through their clients and partners.
Terrorism Financing Risks
In August 2016, Australia’s financial intelligence agency (AUSTRAC) and its Indonesian counterpart, PPATK, released a report on Regional Risk Assessment on Terrorism Financing in South-East Asia and Australia, which identified three main ways terrorists in Southeast Asia move funds around:
Physical movement of cash or value (e.g. precious metals) across borders,
Banking system, and
Alternative remittance and money services businesses. Particularly the centuries-old Hawala system, where agents transact based on an honour system to receive and pay out monies across countries with little or no paper trails and without wire transfers, has been abused to move funds for terrorism activities.
PPATK, further revealed that in 2014 and 2015, Indonesian migrant workers transferred a total of US$763,000 from Malaysia, Singapore, and Middle Eastern countries to fund terrorism activities in Indonesia. Moreover, in 2016, Singapore charged and convicted six Bangladeshi migrant workers claiming to be members of Islamic State of Bangladesh (ISB) on terrorism financing charges. Recent arrests in Singapore also revealed the threat of local self-radicalised individuals as amongst the arrests were a managing director of a logistics company, two auxiliary police officers, and an infant care assistant.
At the national level, Singapore established a Steering Committee for combating ML/TF in 1999 to ensure that various national agencies have effective AML/CFT measures and to coordinate efforts in AML/CFT. The committee has been swift and decisive in dealing with ML and TF threats, as demonstrated in the following instances:
Enacting laws like the Accounting and Corporate Regulatory Authority (ACRA) (Amendment) Act 2014 to beef up AML/CFT measures in corporate service providers and accountants, and the Company Act (2017) to make available beneficial ownership information.
Closing down banks like BSI and Falcon Bank in 2016 that are deficient in their AML/CFT processes, and convicting individuals involved for money laundering offences.
In addition, the Anti-Money Laundering and Countering the Financing of Terrorism Industry Partnership (ACIP) formed by MAS, Commercial Affairs Department (CAD) and eight local and foreign banks helps the authorities work with industry partners to share information on ML/TF.
In the past, AML/CFT used to just be the responsibility of financial institutions. However, with the globalisation of trade and Singapore’s open economy, all businesses big and small are exposed to ML and TF risks, albeit to different degrees depending on the type of businesses. Businesses should incorporate ML and TF risk as a part of their business-wide risk assessment and mitigation framework. Some basic steps that could be adopted by businesses include:
Evaluate the ML/TF risks faced by the business. Conduct an assessment on how the business can be used by criminals or terrorists to facilitate their activities,
Conduct due diligence processes on customers and partners of the business. This can include basic screening with software solutions such as SentroWeb. This is especially important if the business deals with customers or partners from countries with weak AML/CFT laws, and
Conduct awareness programmes for employees to look out for suspicious activities or behaviours of customers, partners, and fellow colleagues.
The fight against ML and TF is real. Everyone has the responsibility to defend Singapore against criminals and terrorists, and the only way we can weed out these criminal activities is to begin on the ground.
AUSTRAC, PPATK, 2016, Regional Risk Assessment on Terrorism Financing in South-East Asia and Australia, pp 20–32, assessed via http://www.austrac.gov.au/sites/default/files/regional-risk-assessment-SMALL_0.pdf.
IPAC, 21 July 2017, Marawi, The “East Asia Wilayah” and Indonesia, pp 16, http://file.understandingconflict.org/file/2017/07/IPAC_Report_38.pdf.
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