Introduction

As a global financial and trade hub, Singapore is especially focused on combating risks pertaining to money laundering (ML) and the financing of terrorism (TF). To combat these risks, Singapore has in place various regulatory regimes which impose stringent requirements on industry players. This article looks at two (2) such regimes which apply to:

1. Digital payment tokens (DPT) – which are poised to play a significant role in the future economy; and
2. Dealing in precious metals and precious stones – a more traditional, but no less prevalent, means by which ML/TF may be conducted.

General principles

Generally, a risk-based approach should be adopted by DPT service providers licensed under the Payment Services Act 2019 and regulated dealers registered under the Precious Stones and Precious Metals (Prevention of Money Laundering and Terrorism Financing) Act 2019 (Regulated Entities).

Regulated Entities are expected to:

1. Identify, assess and understand the ML/TF risks, and
2. Take reasonable steps to manage and mitigate such risks.

Regulated Entities should develop and implement policies, procedures and controls covering, among other things:

1. Customer due diligence (CDD),
2. Transaction monitoring,
3. Suspicious transactions reporting, and
4. The maintenance of proper records.

Enhanced measures should be implemented and performed for transactions with higher identified ML/TF risks. 

Digital payments

While DPTs are not new, their adoption is likely to increase significantly as society continues to shift from cash payments to digital payments. Higher penetration also increases the risk that DPTs will be abused to facilitate illicit activities. DPT service providers must therefore understand their obligations and vigorously review their anti-money laundering and countering the financing of terrorism (AML/CFT) policies.

The Monetary Authority of Singapore (MAS) has issued two (2) notices, PSN01 and PSN02, setting out the AML/CFT requirements for certain payment service providers. PSN02 sets out the specific requirements applicable to DPTs. Two (2) salient points are set out below:

1. Value transfers

A “value transfer” means any transaction carried out on behalf of a value transfer originator (i.e. the account holder who allows the value transfer from that account, or where there is no account, the natural person, legal person or legal arrangement that places the value transfer order with the ordering institution to perform the value transfer) through a financial institution with a view to making one (1) or more DPTs available to a beneficiary person at a beneficiary institution. Value transfers include all forms of electronic transmission including, but not limited to, email, facsimile, short message service or other means of secure electronic transmission for payment instructions.

Paragraph 13 of PSN02 sets out the requirements (Value Transfer Requirements) applicable to three (3) categories of DPT service providers involved in value transfers: (i) Ordering Institutions, (ii) Beneficiary Institutions, and (iii) Intermediary Institutions (as defined in PSN02). DPT service providers must comply with the Value Transfer Requirements set out in Paragraph 13 of PSN02, which are largely similar to the requirements applicable to wire transfers under PSN01.

The MAS has stated that it does not intend to prescribe how DPT service providers should comply with the Value Transfer Requirements, save that DPT service providers should ensure that they are carried out immediately and securely.

2. Collection of additional CDD information

DPT service providers are expected to collect additional (or alternative) CDD information where additional verification measures are required, or where the customer is identified to be of a “higher risk” and therefore warrants enhanced CDD.

Such additional CDD information include, but are not limited to: (i) customer device identifiers, time-stamped IP addresses and geo-location data, (ii) DPT sending or receiving wallet addresses, and (iii) receipts or other forms of documentation of original purchase of the DPT(s) from an exchange or similar intermediary.

A DPT service provider may also implement checks requiring the customer to demonstrate control over the relevant DPT wallet address (for example, by effecting a transfer of an amount specified by the DPT service provider).

Precious metals and precious stones

For precious metals and precious stones, in addition to compliance with the other AML/CFT requirements, regulated dealers are required to submit a cash transaction report to the Suspicious Transaction Reporting Office within 15 business days after entering into any Designated Transaction (as defined below). Regulated dealers that carry out or intend to enter into Designated Transactions are also required to have an independent audit function to test their internal policies, procedures and controls.

A “Designated Transaction” means a transaction involving the sale or purchase of any precious stone, precious metal, or precious product, or the sale of an asset-backed token, involving consideration exceeding S$20,000 or its equivalent in value (Threshold Amount) paid in cash or a cash equivalent. Where a customer is involved in multiple transactions in the same day, the total value of which exceeds the Threshold Amount, such transactions will be considered Designated Transactions (even though the value of each transaction may be less than the Threshold Amount).

Regulated dealers may operate from multiple places of business. In order to comply with the abovementioned requirements, such regulated dealers must put in place adequate measures to ensure that transactions across all their places of business are properly recorded and that such information is readily accessible across their organisation. This is so that customers who make multiple small transactions across different places of business can be flagged out if their transactions in the same day exceed the Threshold Amount.

Concluding remarks

To quote Singapore’s AML/CFT Policy Statement issued by the Ministry of Finance, “Singapore’s AML/CFT policy objectives are to: (i) detect, deter and prevent money laundering, associated predicate offences and terrorism financing, and (ii) protect the integrity of its financial system from illegal activities and illicit fund flows”. It is therefore critical for Regulated Entitles to do their part by paying utmost attention to the ML/TF risks that they are vulnerable to and implementing adequate measures to address such risks.

Dentons Rodyk thanks and acknowledges Practice Trainee Ian Low for their contributions to this article.