December 18, 2023

When the news came out earlier this year that the government was working on a big money laundering bust, one of the first comments already indicated that the regulations in the island state were not fool proof and perhaps needed reinforcement – some more can be read here

In the meantime a lot is bubbling (we’ve added some recent news articles below for your information and entertainment) but no major overhaul of the regulations has been announced. Yet. The question is of course as well if that is going to solve the problem. The sentiment in the market can almost be called a relief ….‘finally! How could it take so long to bust some money launderers with all that money floating around and being poured into Singapore” and with that the expectation is that this bust was only the beginning and the first of many cases yet to come.

Singapore has a reputation of being strict with regulations in many aspects. It’s called a ‘fine city’ for a reason. But just having a strict reputation and have a thorough and state-of-the-art regulatory framework for banks and a limited set of other financial institutions is not enough. So what is necessary then?

1. Make sure regulations cover all sectors, so ‘entry points for dirty money’ are all covered.
Money launderers are not stupid and will not pick just any bank to place dirty money. They do their homework, make sure there’s a credible story for their Source of Wealth and will use banks, insurance companies, money service providers, VASPs but also real estate agents, jewellers, yacht builders and many other institutions both domestically and abroad to bring dirty money into the system. And they will select jurisdictions and companies with weak controls before it’s brought into Singapore.

2. More random inspections
Inspections are periodic, thorough, announced well in advance and happen only once every couple of years. To better understand what the state of affairs is in the financial system it would make sense to combine these central bank audits with pulse checks, short unanounced inspections, regular round tables with leaders in the financial industry and interviews with employees actually performing client onboarding, transaction monitoring or sanctions checking.

3. Training
The big (international) banks train their staff without fail but smaller organisations often don’t. Or improvise; have a compliance officer talk about money laundering for an hour over video while staff are playing solitaire with their camera off. Not to speak about most accountants, real estate agents, car dealers and other luxury goods businesses who don’t train their staff at all. As a company providing e-learning services to financial institutions globally we’re of course biased. But we see the positive effects of a proper, automated training program every week. So just do it.

4. Tone at the top
Leading by example is of the essence and yet we still see many companies where senior management just doesn’t care. Only if the top makes fighting financial crime a priority, people in the rest of the organisation – employees that deal with clients, process transactions or provide customer services – will take the fight seriously.

5. Focus on operational compliance
Many parties, regulators, consultants, service and system providers have ideas and solutions mostly focused on what is called the second line of defense; the compliance function. But that’s not where the real action is… on a day-to-day basis front office staff, customer service teams, relationship managers, sales people and transaction processing departments need to be aware of the policies and procedures and actually apply them. Decisions are made in the first line of defense – bar a few exceptions that are escalated to senior management and second line – and there it is determined if an organisation complies yes or no.
People in the front line stop financial crime, policies and regulations don’t.

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