By MP for Aljunied GRC, Sylvia Lim
[Delivered in Parliament on 7 July 2014]
As crimes increasingly cross borders and the proceeds of crime are easily anonymised, it is important that we continue to address weaknesses that may make Singapore an unwitting facilitator of organized and transnational crime. To this end, the global Financial Action Task Force (FATF) has been prolific in its issuance of guidelines and mutual evaluations to help countries tighten up their system weaknesses. Singapore has also been subject to such evaluations and criticisms by FATF, and has been responding to them.
In recent years, the government has introduced or supported due diligence and reporting requirements to specific sectors that may facilitate money-laundering e.g. corporate service providers and the legal profession. On the enforcement side, the director of the Commercial Affairs Department (CAD) recently revealed in a Business Times interview (BT 30 June 2014) that CAD had tripled its financial investigation resources, as it was seeing a trend of overseas criminals seeking to launder money through Singapore bank accounts.
Given the challenges we face as an open economy, the amendments being proposed in this Bill are another anti-money laundering measure, meant to bring Singapore in further compliance with the many recommendations of FATF. I support the principles of the Bill. That being said, I have some comments and clarifications about two aspects of the Bill: cash transaction reporting for precious stones and metal dealers, and substitute property confiscation orders.
Cash Transaction Reporting for Precious Stones and Metal Dealers
Clause 19 introduces a new Part VIB on Cash Transaction Reports. This Part will require prescribed persons to perform customer due diligence and internal control measures before entering cash transactions exceeding a prescribed amount. Though the class of persons has not yet been prescribed, it is clear from the Ministry’s media release of 28 May 2014 that it is to apply it to dealers of precious stones and metal (PSMDs).
PSMDs are within the FATF list of Designated Non-Financial Businesses and Professions considered vulnerable to money-laundering. Diamonds and gold are high value commodities. FATF noted in a special report in 2013 (Money Laundering and Terrorist Financing Through Trade in Diamonds, October 2013) that by changing proceeds of crime into diamonds and jewellery, criminals can conceal proceeds of crime over long periods of time to avoid seizure and confiscation, transfer very high value across borders while keeping their investment relatively safe, and use them as a form of payment later. Alternatively, it has been found that syndicates may use the bank accounts of diamond dealers as conduits to transfer large sums of money to persons not in the diamond trade. Domestically, the government has identified pawnbrokers as a sector needing attention, as they are dealing in gold on a cash basis (Singapore Money-Laundering and Terrorist Financing National Risk Assessment Report 2013).
It thus makes sense to require PSMDs to take extra care that they are not unwitting accomplices in money-laundering by criminals. However, in order for businesses to do due diligence and suspicious transaction reporting, they need to have a sound understanding of the risks and be able to exercise sound judgment. Businesses would clearly benefit from information sharing by government authorities on matters such as which countries are of higher risk, how money launderers have abused dealers in actual cases, and even certain intelligence information. The requirements placed on such businesses should also not be too onerous, as there are compliance costs involved; businesses would need to build expertise through training, need to seek professional advice and keep records. I understand that at a recent local seminar on Know Your Customer requirements, even corporate service providers, like corporate secretarial firms, were wary and worried about how to do risk-based assessments of their clients, the extent of record-keeping needed and how much their business costs would increase.
PSMDs in Singapore encompass a wide range of businesses, from those with international reputations like De Beers to small family-owned gold or jewellery businesses and pawn shops. Requiring such businesses to assess the risk of their customers and to do appropriate reporting and tracing may be novel and unfamiliar. The proposed reporting requirements appear rule-based, requiring reporting of cash transactions above a certain value. How far will PSMDs be required to assess risk rather than just follow rules? How will the Suspicious Transactions Reporting Office (STRO) or other government agency assist such dealers to understand what is required and to make any necessary risk as
sessments?
One final observation about PSMDs. Under the Bill, due diligence is required only for cash transactions. However, in a report by FATF 2013, it was noted that the usage of cash in the diamond trade had diminished. Almost 50% of laundering cases reported concerned non-cash payment means such as wired funds or credit terms, while only 10% of cases involved cash as the sole method of payment. In this regard, FATF observed that there might be a need to scrutinise non-cash transactions as well.
Substitute Property Confiscation Orders
Under the existing Act, proceeds or benefits of crime are liable for confiscation. Clause 5 of this Bill introduces a new Part IVA on Substitute Property Confiscation Orders, which will apply when a defendant has used or intended to use any property (termed “an instrumentality”) to commit the offence, and the instrumentality is not in the hands of the defendant. The new provisions will allow confiscation of other properties of the defendant of equivalent value to the instrumentality. An example would be where a defendant used a car to deliver drugs, and the car is not in the defendant’s ownership. The new S 29B would enable the court to confiscate other property belonging to the defendant of equivalent value to the car, say money in the bank or furniture. In addition, the new S 29B (3) and (4) make clear that the substitute confiscation order will be for the defendant to pay the full value of the instrumentality i.e. the full value of the car. Thus, if the substitute property confiscated is realized for less than the full value of the car, the defendant is still liable to pay the difference.
The wording of S 29B makes it mandatory for the court to make the substitute confiscation order if the Public Prosecutor applies for it.
Madam, provisions for confiscation of substitute property are found in the laws of other countries as well. Their purpose is to ensure that crime does not pay, by reducing the economic incentives and increasing the pecuniary loss from criminal activity. While I appreciate the efficacy of such provisions to cripple syndicates financially, I believe the clause as worded in the Bill could operate too harshly in certain circumstances.
First, under this Bill, the instrumentality used to or intended to be used to commit the crime need not have belonged to the defendant at all, as the section simply requires that the defendant used or intended to use “any property” for the crime. Secondly, property used for the crime can encompass a wide range of scenarios. Under the CDSA, “property” is defined to include “money and all other property, movable or immovable”. Property used to facilitate crime thus includes not just firearms or getaway vehicles, but even premises used for commission of crime. Thirdly, the property used or intended to be used for commission of crime may have been used just once for the crime but was generally used for legitimate purposes e.g. a flat used as a dwelling. To take the example of a flat being used for drug dealing, if S 29B is triggered, the defendant will be liable to pay the full value of a flat he may have no share in.
By way of comparison, the model policy for confiscation of substitute assets proposed by the American Legislative Exchange Council allows asset substitution only if the State proves by a preponderance of the evidence that the defendant intentionally transferred, sold, or deposited property with a third party to avoid the court’s jurisdiction. In the Ministry’s press release of 28 May on the Bill, there is a mention that the substitute property confiscation order is meant to apply to cases where the defendant has dissipated or disposed the instruments of crime. However, in the Bill itself, the section will kick in so long as the instrument of crime is not held by the defendant; there need not be any dissipation by him (S 29B(2)).
I have no issue with the benefits of crime and instruments of crime being subject to a confiscation order in every case. However, in the case of substitute confiscation orders, the confiscation of other property of equivalent value to an instrumentality is less clear-cut for the reasons I mentioned. It seems that the Public Prosecutor is expected to be the gatekeeper of this provision, since he is the one who decides whether to apply for the substitute confiscation order. Even so, would it not have been possible to give the court a limited discretion to refuse to make the orders if they would operate unjustly in particular cases? At least the defendant should be allowed to make some representations to the court before his substitute assets are confiscated.