This article was first published on Mar 23 2018 by Thomson Reuters Regulatory Intelligence
The Monetary Authority of Singapore’s (MAS) recent sanction against Standard Chartered Bank for anti-money laundering/countering terrorist financing breaches reinforces its stance on tax evasion, which it will not tolerate.
MAS announced on Monday that it has imposed a S$5.2 million fine on Standard Chartered Bank’s Singapore branch and a S$1.2 million fine on Standard Chartered Trust (Singapore) Ltd for breaching MAS’ anti-money laundering and countering the financing of terrorism (AML/CFT) requirements.
These breaches occurred when the trust accounts of Standard Chartered Bank Singapore branch’s customers were transferred from Standard Chartered Trust (Guernsey) to Standard Chartered Trust (Singapore) between December 2015 and January 2016.
The transfers took place shortly before Guernsey implemented the Common Reporting Standard (CRS) for the Automatic Exchange of Financial Account Information in Tax Matters.
“The timing of the transfers raised questions of whether the clients were attempting to avoid their CRS reporting obligations,” MAS said.
Common Reporting Standard and automatic exchange of information
MAS’ latest enforcement action against Standard Chartered Bank is significant against the backdrop of a global initiative that called for automatic exchange of information (AEOI) among tax authorities around the world, which resulted in the Common Reporting Standard, said Nizam Ismail, head of financial services at RHTLaw Taylor Wessing in Singapore.
“Singapore is doing its part and is committed to implementing CRS by September 2018. The message is that if there is any suspicious activity that is linked to evading tax obligations under the CRS framework and it affects Singapore’s position as an international financial centre, MAS will not hesitate to take action,” he said.
The Common Reporting Standard, which came to fruition in 2013, has 94 jurisdictions committed to implementing it between 2017 and 2018. The AEOI is an initiative driven by the Organisation for Economic Cooperation and Development (OECD) aimed at increasing tax transparency.
Singapore does not tolerate tax evasion
Nizam also pointed out that any attempt on the part of financial institutions’ clients to evade taxes could trigger the AML law. Tax evasion was made a predicate offence under Singapore’s AML law which took effect on July 1, 2013.
The sanction against Standard Chartered Bank reinforces MAS’ stance that tax evasion in whatever form, be it local or foreign, will not be tolerated and that Singapore is neither a tax haven nor a hiding place for foreigners, said a head of compliance at a Singapore-based private bank who spoke on condition of anonymity.
“MAS will continue such further actions to reinforce that message,” he said.
The message behind MAS’ enforcement action against Standard Chartered Bank has been consistent, reflecting a promise which Ravi Menon, its managing director, delivered in MAS’ 2016 annual report in which he said the regulator would focus on enforcement action as well as naming and shaming, according to Nizam.
“Naming and shaming is the name of the game now [in Singapore’s financial services sector],” he said.
Risk management and controls fell short
MAS said the risk management and controls at Standard Chartered Bank Singapore branch and Standard Chartered Trust (Singapore) in relation to the transfers were unsatisfactory, and concluded that both of Standard Chartered’s entities in Singapore failed to adequately assess and mitigate this risk factor, and also failed to file suspicious transaction reports in a timely manner.
“It’s a case where a business decision was taken without consulting the risk managers, and the risk experts belatedly discovered the breaches after obtaining the information. The mitigating factor is that Standard Chartered Bank self-declared the case. Otherwise the fines could have been much higher,” the head of compliance said.
The case also showed that the employees at Standard Chartered Bank did not apply their minds to assess the client and failed to see that the client could be trying to evade its tax obligations, Nizam said.
Discrepancies in the annual income of account holders, the amount of funds in the account and the funds transferred should raise suspicions, said Mohammed Reza, partner at Simmons & Simmons JWS in Singapore.
“Financial institutions should assess the nature and extent of the risk posed by their customers, verify their identity and inquire about sources of funds. Financial institutions need to demonstrate to MAS that they are putting in place more robust internal risk management and controls, and that they adhere to safeguards that are already in place,” he said.
While the fines imposed on Standard Chartered Bank Singapore branch and Standard Chartered Trust (Singapore) are not considered high, they are nonetheless significant considering the reputational risk for being embroiled in AML/CFT offences, Nizam said.
This is Standard Chartered Bank’s second AML/CFT breach in Singapore following the penalties it received for its role in the case involving Malaysian state fund 1Malaysia Development Berhad (1MDB) last year, also amounting to S$5.2 million.
Patricia Lee is chief correspondent, banking and securities regulation, Asia
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