SINGAPORE 2006-2007 INTERNATIONAL NARCOTICS CONTROL

UNCLAS SECTION 01 OF 05 SINGAPORE 003547 SIPDIS STATE FOR EB/ESC/TFS AND INL GWILLIAMS AND ERINDLER JUSTICE FOR OIA, ARMLS, AND OPDAT TREASURY FOR FINCEN MHAFNER SENSITIVE BUT UNCLASSIFIED SIPDIS E.O. 12958: N/A TAGS: KCRM EFIN KTFN PTER KSEP ETTC SNAR SN SUBJECT: SINGAPORE 2006-2007 INTERNATIONAL NARCOTICS CONTROL STRATEGY REPORT (INCSR) PART II, MONEY LAUNDERING AND FINANCIAL CRIMES REF: STATE 157136 ¶1. Per reftel instructions, Post submits its draft 2006-2007 International Narcotics Control Strategy Report, Part II Q Money Laundering and Financial Crimes. Part I was transmitted septel. ¶2. Begin text of the draft report: Singapore As a significant international financial and investment center, and, in particular, as a major offshore financial center Singapore is vulnerable to potential money launderers. Bank secrecy laws and the lack of routine currency reporting requirements make Singapore an attractive destination for drug traffickers, transnational criminals, terrorist organizations and their supporters seeking to launder money, as well as for flight capital. Structural gaps remain in financial regulation that may hamper efforts to control these crimes. To address some of these deficiencies, Singapore is beginning to map out legal and regulatory changes to implement the Financial Action Task Force's (FATF) recommendations on anti-money laundering (AML) and countering the financing of terrorism (CFT). Singapore amended the Corruption, Drug Trafficking, and Other Serious Crimes (Confiscation of Benefits) Act (CDSA) in May 2006 to add 108 new categories to its "Schedule of Serious Offenses." The CDSA criminalizes the laundering of proceeds from narcotics transactions and other predicate offenses, including ones committed overseas that would be serious offenses if they had been committed in Singapore. Included among the new offenses are crimes associated with terrorist financing, illicit arms trafficking, counterfeiting and piracy of products, environmental crime, computer crime, insider trading, and rigging in commodities and securities markets. With an eye on Singapore's two new multibillion-dollar casinos slated to be operational in 2009, the list also addresses a number of gambling-related crimes. However, tax and fiscal offenses are absent from the expanded list. Singapore has a sizeable offshore financial sector. As of September 2006, there were 109 commercial banks in operation, including five local and 24 foreign-owned full banks, 45 offshore banks, and 35 wholesale banks. All offshore and wholesale banks are foreign-owned. Singapore does not permit shell banks in either the domestic or offshore sectors. The Monetary Authority of Singapore (MAS),a semi-autonomous entity under the Prime Minister's Office, serves as Singapore's central bank and financial sector regulator, particularly with respect to Singapore's AML/CFT efforts. MAS performs extensive prudential and regulatory checks on all applications for banking licenses, including whether banks are under adequate home country banking supervision. Banks must have clearly identified directors. Unlicensed banking transactions are illegal. Singapore has increasingly become a center for private banking and asset management. Total assets under management in Singapore grew 26 percent between 2004 and 2005 to $450 billion, according to MAS. Private wealth managers estimate that total private banking and asset management funds increased nearly 300 percent between 1998 and 2004. Beginning in 2000, MAS began issuing a series of regulatory guidelines ("Notices") requiring banks to apply "know your customer" standards, adopt internal policies for staff compliance, and cooperate with Singapore enforcement agencies on money laundering cases. Similar guidelines exist for securities dealers and other financial service providers. Banks must obtain documentation such as passports or identity cards from all personal customers to verify names, permanent contact addresses, dates of birth and nationalities, and to check the bona fides of company customers. The regulations specifically require that financial institutions obtain evidence of the identity of the beneficial owners of offshore companies or trusts. They also mandate specific record-keeping and reporting requirements, outline examples of suspicious transactions that should prompt reporting, and establish mandatory intra-company point-of-contact and staff training requirements. Similar guidelines and notices exist for finance companies, merchant banks, life insurers, brokers, securities dealers, investment advisors, futures brokers and advisors, trust companies, SINGAPORE 00003547 002 OF 005 approved trustees, and money changers and remitters. Singapore is in the process of revising its AML/CFT regulations for banks and other financial institutions. The relevant Notices should further align certain parts of Singapore's AML/CFT regime more closely with FATF recommendations. Among the proposed regulations are new provisions that would proscribe banks from entering into, or continuing, correspondent banking relationships with shell banks; require originator information on cross-border wire transfers; clarify procedures for customer due diligence (CDD),including adoption of a risk- based approach; and mandate enhanced CDD for foreign politically exposed persons. Terrorist financing activities will also be addressed in the Notices for the first time. As part of this process, MAS issued for public comments draft regulations for banks in January 2005. In August 2006, it issued for public comments revised draft regulations for banks and new draft regulations for other financial institutions. Singapore is also considering regulations governing designated non-financial businesses and professions to bring them into conformity with FATF recommendations. In addition to banks that offer trust, nominee, and fiduciary accounts, Singapore has 12 trust companies. All banks and trust companies, whether domestic or offshore, are subject to the same regulations, record-keeping, and reporting requirements, including for money laundering and suspicious transactions. In August 2005, Singapore introduced regulations under the new Trust Companies Act (enacted in January 2005 to replace the Singapore Trustees Act) that mandated licensing of trust companies and MAS approval for appointments of managers and directors. In August 2006, MAS issued for public comments draft regulations that would require approved trustees and trust companies to complete all mandated CDD procedures before they could establish relations with customers. Other financial institutions are allowed to establish relations with customers before completing all CDD-related measures. Singapore amended its Moneylenders Act in April 2006 to require moneylenders under investigation to provide relevant information or documents. The Act imposes new penalties for giving false or misleading information and for obstructing entry and inspection of suspected premises. In April 2005, Singapore lifted its ban on casinos, paving the way for development of two integrated resorts scheduled to open in 2009. Combined total investment in the resorts is estimated to exceed $5 billion. In June 2006, Singapore implemented the Casino Control Act. The Act establishes the Casino Regulatory Authority of Singapore, which will administer the system of controls and procedures for casino operators, including certain cash reporting requirements. Internet gaming sites are illegal in Singapore. Any person who wishes to engage in for-profit business in Singapore, whether local or foreign, must register under the Companies Act. Every Singapore-incorporated company is required to have at least two directors, one of whom must be a resident in Singapore, and one or more company secretaries who must be resident in Singapore. There is no nationality requirement. A company incorporated in Singapore has the same status and powers as a natural person. Bearer shares are not permitted. Financial institutions must report suspicious transactions and positively identify customers engaging in large currency transactions and are required to maintain adequate records. However, there is no systematic reporting of large currency transactions. There are no reporting requirements on amounts of currency brought into or taken out of Singapore. Singapore is considering legal changes that would allow for implementation of FATF Special Recommendation Nine, which requires either a declaration or disclosure system for monitoring cross-border movement of currency and bearer negotiable instruments. The Singapore Police's Suspicious Transaction Reporting Office (STRO) has served as the country's Financial Intelligence Unit (FIU) since January 2000. Procedural regulations and bank secrecy laws limit STRO's ability to provide information relating to financial crimes. In December 2004, STRO concluded a Memorandum of Understanding (MOU) concerning the exchange of financial intelligence with its U.S. counterpart, FinCEN. STRO has also signed MOUs with counterparts in Australia, Belgium, Brazil, Canada, Greece, Hong Kong, Italy, Japan and Mexico. To SINGAPORE 00003547 003 OF 005 improve its suspicious transaction reporting, STRO has developed a computerized system to allow electronic online submission of STRs as well as the dissemination of AML/CFT material. It plans to encourage all financial institutions and relevant professions to participate in this system Singapore is an important participant in the regional effort to stop terrorist financing in Southeast Asia. The Terrorism (Suppression of Financing) Act that took effect January 29, 2003 criminalizes terrorist financing, although the provisions of the Act are actually much broader. In addition to making it a criminal offense to deal with terrorist property (including financial assets),the Act criminalizes the provision or collection of any property (including financial assets) with the intention that the property be used (or having reasonable grounds to believe that the property will be used) to commit any terrorist act or for various terrorist purposes. The Act also provides that any person in Singapore, and every citizen of Singapore outside Singapore, who has information about any transaction or proposed transaction in respect of terrorist property, or who has information that he/she believes might be of material assistance in preventing a terrorism financing offense, must immediately inform the police. The Act gives the authorities the power to freeze and seize terrorist assets. The International Monetary Fund/World Bank assessment of Singapore's financial sector published in April 2004 concluded that, because it is a party to the UN International Convention for the Suppression of the Financing of Terrorism, the country imposes few restrictions on intergovernmental terrorist financing-related mutual legal assistance, even in the absence of a Mutual Legal Assistance Treaty. However, the IMF urged Singapore to improve its mutual legal assistance for other offenses, noting serious limitations on assistance through the provision of bank records, search and seizure of evidence, restraints on proceeds of crime, and the enforcement of foreign confiscation orders. Based on regulations issued in 2002, MAS has broad powers to direct financial institutions to comply with international terrorist financing obligations. The regulations bar banks and financial institutions from providing resources and services of any kind that will benefit terrorists or terrorist financing. Financial institutions must notify the MAS immediately if they have in their possession, custody or control any property belonging to designated terrorists or any information on transactions involving terrorists' funds. The regulations apply to all branches and offices of any financial institutions incorporated in Singapore or incorporated outside of Singapore, but located in Singapore. The regulations are periodically updated to include names of suspected terrorists and terrorist organizations listed on the UN 1267 Sanctions Committee's consolidated list. Singapore's approximately 600,000 foreign guest workers are the main users of alternative remittance systems. As of September 2006, there were 395 money-changers and 95 remittance agents. All must be licensed and are subject to the Money-Changing and Remittance Businesses Act (MCRBA),which includes requirements for record-keeping and the filing of suspicious transaction reports. Firms must submit a financial statement every three months and report the largest amount transmitted on a single day. They must also provide information concerning their business and overseas partners. Unlicensed informal networks, such as hawala, are illegal. In August 2005, Singapore amended the MCRBA to apply certain AML/CFT regulations to remittance licensees and money-changers engaged in inward remittance transactions. The Act eliminated sole proprietorships and required all remittance agents to incorporate under the Companies Act with a minimum paid-up capital of S$100,000 (approximately $60,000). In August 2006, MAS issued for public comments regulations that would require licensees to establish the identity of all customers; currently, no such identification is mandatory for transactions in aggregate of up to S$5,000 (approximately US$3,000). MAS would also be required to approve any non face-to-face transactions. Singapore has five free trade zones (FTZs),four for seaborne cargo and one for airfreight, regulated under the Free Trade Zone Act. The FTZs may be used for storage, repackaging of import and export cargo, assembly and other manufacturing activities approved by the Director General of Customs in conjunction with the Ministry of Finance. SINGAPORE 00003547 004 OF 005 Charities in Singapore are subject to extensive government regulation, including close oversight and reporting requirements, and restrictions that limit the amount of funding that can be transferred out of Singapore. Singapore had a total of 1,807 registered charities as of December 2005. All charities must register with the Commissioner of Charities which, since September 1, 2006, has reported to the Minister for Community Development, Youth and Sports instead of the Minister for Finance. Charities must submit governing documents outlining their objectives and particulars of all trustees. The Commissioner of Charities has the power to investigate charities, search and seize records, restrict the transactions into which the charity can enter, suspend staff or trustees, and/or establish a scheme for the administration of the charity. Charities must keep detailed accounting records and retain them for at least seven years. Singapore will implement tighter regulations under the Income Tax Act governing public fund-raising by charities, effective January 1, 2007. Charities authorized to receive tax-deductible donations will be required to disclose the amount of funds raised in excess of S$1 million (approximately $600,000), expenses incurred, and planned use of funds. Under the Charities (Fund-raising Appeals for Foreign Charitable Purposes) Regulations 1994, any charity or person that wishes to conduct or participate in any fund-raising for any foreign charitable purpose must apply for a permit. The applicant must demonstrate that at least 80 percent of the funds raised will be used in Singapore, although the Commissioner of Charities has discretion to allow for a lower percentage. Permit holders are subject to additional record-keeping and reporting requirements, including details on every item of expenditure or disbursement, amounts transferred to persons outside Singapore, and names of recipients. The government issued 36 permits in 2005 related to fund raising for foreign charitable purposes. There are no restrictions or direct reporting requirements on foreign donations to charities in Singapore. To regulate law enforcement cooperation and facilitate information exchange, Singapore enacted the Mutual Assistance in Criminal Matters Act (MACMA) in March 2000. Parliament amended the MACMA in February 2006 to allow the government to respond to requests for assistance even in the absence of a bilateral treaty, MOU or other agreement with Singapore. The MACMA provides for international cooperation on any of the 292 predicate "serious offenses" listed under the CDSA. In November 2000, Singapore and the United States signed the Agreement Concerning the Investigation of Drug Trafficking Offenses and Seizure and Forfeiture of Proceeds and Instrumentalities of Drug Trafficking (Drug Designation Agreement or DDA). This was the first agreement concluded pursuant to the MACMA. In force since early 2001, the DDA facilitates the exchange of banking and corporate information on drug money laundering suspects and targets, including access to bank records. It also entails reciprocal honoring of seizure/forfeiture warrants. This agreement applies only to narcotics cases, and does not cover non-narcotics-related money laundering, terrorist financing, or financial fraud. Singapore has not prosecuted any drug-money laundering cases under the DDA. In May 2003, Singapore issued a regulation pursuant to the MACMA and the Terrorism Act that enables the government to provide legal assistance to the United States and the United Kingdom in matters related to terrorism financing offenses. Singapore concluded mutual legal assistance agreements with Hong Kong in 2003 and with India in 2005. In November 2004, it signed a Treaty on Mutual Legal Assistance in Criminal Matters with seven other members of ASEAN -- Brunei, Cambodia, Indonesia, Laos, Malaysia, the Philippines, and Vietnam; Thailand and Burma signed in January 2006. The treaty will come into effect after ratification by the respective governments. Singapore, Malaysia, Vietnam and Brunei have ratified the treaty thus far. In addition to the UN International Convention for the Suppression of the Financing of Terrorism, Singapore is also party to the 1988 UN Drug Convention and has signed, but not yet ratified, the UN Convention against Transnational Organized Crime. In addition to FATF, Singapore is a member of the Asia/Pacific Group on Money Laundering, the Egmont Group, and the Offshore Group of Banking Supervisors. Singapore hosted the June 2005 Plenary meeting of the FATF, the first time a FATF Plenary was held in Southeast Asia. FATF is slated to review SINGAPORE 00003547 005 OF 005 Singapore's AML/CFT regime, most likely in 2007. Singapore should continue close monitoring of its domestic and offshore financial sectors. As a major financial center, it should also adopt measures to regulate and monitor large currency and bearer negotiable instrument movements into and out of the country, in line with FATF Special Recommendation Nine, adopted in October 2004, that mandates countries to implement measures such as declaration systems in order to detect cross- border currency smuggling. The conclusion of broad mutual legal assistance agreements is also important to further Singapore's ability to work internationally to counter money laundering and terrorist financing. Singapore should lift its rigid bank secrecy restrictions in order to enhance its law enforcement cooperation in areas such as information sharing and to conform with international standards and best practices. HERBOLD