Mr Speaker, the Corporate Service Providers (CSP) Bill is an important piece of legislation that is begging to be enacted, in the face of rising concerns over the use of Singapore as a home base or transition country by financial criminals. Over the past year, Singaporeans and many others across the world were shocked and captivated by the discovery of one of the largest money laundering operations globally happening on our shores, even as memories of the money laundering of 1MDB funds remain fresh in our minds. As we reflect on the money laundering risks and vulnerabilities in the wake of these incidents, it is important that the reputation of our country cannot be associated with that of money laundering or “Singapore-Washing”, a term which I first read about in a Financial Times article from November 2022, and which was once again brought up in a Bloomberg Opinion article in June last month titled “Singapore-Washing Has Hit a Wall”.
We need to send a clear message to the world that we are not a haven where our financial system can be easily exploited. When it comes to tightening our regulations, we need to err on the side of caution, even as we continually enhance our supervisory and enforcement methods, as we should. And it is in this spirit that I wish to raise several areas of concerns and seek clarifications to the CSP Bill in this house today.
Misuse of nominee directors – a key concern
One of the key areas of concern when it comes to the role of CSPs in facilitating or abetting money laundering operations is the misuse of nominee directors and the multiple layers of companies involved in money laundering networks. This arises from the requirement for companies to have at least one director who is ordinarily resident in Singapore, and hence a foreigner may engage CSPs to incorporate companies in Singapore while procuring nominee director services from CSPs.
In December last year, it was reported that a Singaporean was helping his clients from China set up companies in Singapore and became a director of a whopping 980 companies! He was subsequently sentenced to multiple charges of failing to exercise his duties as a director and other related charges under the Companies Act, with more than US$5 million being laundered through some of the companies under him.
The Companies Act requires each company to have at least one director who is ordinarily resident in Singapore. Additionally, foreigners must engage the services of CSPs to incorporate a Singapore company. As such, a foreigner might also procure nominee director services from CSPs.
In a Ministerial Statement in October last year, Minister Indranee shared that “ACRA has been studying restrictions on directorships, both to ensure that nominee directors are fit and proper to take up the role and whether it would be useful to limit the number of nominee directorships that one can hold”.
While the introduction of Clause 16 of the Bill meant that a registered CSP must not arrange for a person to act as a nominee director of a company unless he is satisfied that the person is fit and proper, the proposal to requires CSPs to ensure appointed nominee directors satisfy prescribed training requirements, if they hold more than a legally prescribed number of nominee directorships by way of business was ultimately not proceeded with. I view this as a lost opportunity.
The proposal first introduced in ACRA’s public consultation already provides for qualified persons to be exempt from such requirements, where qualified persons include an advocate and solicitor of the Supreme Court of Singapore, registered public accountants and members of the Institute of Singapore Chartered Accountants.
Moreover, the requirement is merely to ensure that such persons satisfy prescribed training requirements. Today, banks have to take steps to ensure that all of its employees are regularly and appropriately trained on Anti-Money Laundering laws, and their responsibilities in combating money laundering and terrorism financing. Even property agents have to fulfil an increased number of training hours a year from October 2025 onwards. For nominee directors, whose legal obligations are the same as other directors in discharging their duties responsibly, I do not think that minimum training requirements that were initially considered are a step too far but are in fact essential.
While it can be argued that it is difficult to come up with a “magic number” on the prescribed number of nominee directorships, the key here is that the proposed legislation would not have prevented non-qualified persons from taking on such nominee directorships. ACRA’s justification in not proceeding with this proposal was that it will “enhance its supervisory and enforcement efforts on persons who hold a large number of nominee directorships and exhibit other high-risk indicators”. My question is, does this have to be mutually exclusive? What is the Minister’s estimate of the number of nominee directors who would have been covered under this new proposal, especially when 99% of directors hold fewer than 10 directorships, and that many nominee directors are likely to be qualified persons themselves?
I do hope that the Government will reconsider this training requirement proposal in due course, to further strengthen our regulatory safeguards against the abuse of nominee directorships.
Other clarifications
I have several other clarifications specific to the Bill.
Firstly, in relation to the appointment of nominee directors, and the requirement for CSPs to take all reasonable steps to be satisfied that the person he or she is appointing is a fit and proper person, I understand that such details will be provided in subsidiary legislation or guidance. In what way would such guidelines and thresholds be similar or different to that of the MAS guidelines on the fit and proper criteria?
Given that all directors, nominee or otherwise owe a fiduciary duty to the company and have a range of other serious duties and responsibilities, it is important that we uphold high standards in determining the fit and proper criteria that should be expected of the nominee directors appointed by CSPs. Doing so will uplift the corporate governance standards of the companies on which they serve on, and also complement the work of regulators in anti-money laundering efforts.
At the same time, support in the form of training and resources should also be made available to CSPs, in guiding them on making such fit and proper assessments, as well as on other broader matters relating to money laundering, terrorism financing and proliferation financing. Would the relevant agencies and ministries be spearheading such training and briefings on a regular basis, to ensure that the conduct fit and proper assessments is aligned with both legislation and the latest AML developments?
Next, I recognise that there are close to 2,800 Registered Filing Agents (RFAs) and 3,500 Registered Qualified Individuals (RQIs) in Singapore as at the end of 2023. Within this sizable group of CSPs, there could be many which are very small entities, and could also be largely dominated by one or two dominant customer groups. In such cases, the independence of judgement in the assessment of money laundering risks may be at risk of being clouded in view of commercial considerations. Are there requirements for CSPs to declare their customer concentration risks to certain groups of customers, which are ultimately related to the same beneficial ownership? Doing so could aid ACRA in its risk assessment of the broad swathe of CSPs currently.
In addition, under Section 9(1)(e) of the Bill, registration or renewal of a CSP will be refused if any of the Key Appointment Holders (KAHs) did not successfully complete a prescribed course or training. What is the level of intensity or duration of such prescribed courses or training? In addition, as the definition of KAHs is sufficiently broad such that “any person who is principally responsible for the management and conduct of X’s business activities in providing corporate services” would be considered a KAH, there could be a large number of company employees that would have managerial responsibilities, albeit being a junior member of the company. And the level of scrutiny and standards required of a qualified individual (QI) supervising the CSP should be well higher than that of a junior assistant manager.
Finally, a group of companies that are connected to each other may provide different corporate services to the same set of clients. To what extent do the current provisions in the Bill mean that duplicate registration is required, and hence duplicate monitoring of the clients for money laundering risks? For example, there could be efficiency gains for such companies and for ACRA, in holding a Qualified Individual responsible for the implementation of the CSP Bill requirements.
Conclusion
To conclude Mr Speaker, while we do not want to unnecessarily stifle legitimate activities and investments, it is important that we do our utmost to prevent and detect money laundering and the use of our financial systems to facilitate illicit fund flows. I am confident that most professionals in the legal, accounting and finance functions in Singapore carry out their duties diligently and ethically, and a tightening of rules and regulations could be seen as unnecessary given that they are doing no wrong. But when it comes to our commitment to tackling money laundering and illegal activities, we need to take a clear and strong stand, making sure we examine the sector with a fine tooth comb and not water down our regulatory standards, so that current and prospective businesses which are legitimate can have the confidence of operating in Singapore, and dealing with entities operating in Singapore.
Notwithstanding my clarifications, I support the Bill.