The art of deterrence: Singapore’s anti-money laundering regimes

Author:Veltrice Tan
Position:London School of Economics and Political Science, London, UK
Pages:467-498
SUMMARY

Purpose In light of the recent 1MDB Scandal in Singapore, this research paper aims to examine the deterrent effect of Singapore’s sanctions against money laundering within financial institutions. Design/methodology/approach Case laws and legislations are examined as are relevant reports by regulators. Findings Singapore’s anti-money laundering (AML)... (see full summary)

 
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The art of deterrence: Singapores
anti-money laundering regimes
Veltrice Tan
London School of Economics and Political Science, London, UK
Abstract
Purpose In light of the recent 1MDB Scandal in Singapore, this research paper aims to examine the
deterrenteffect of Singapores sanctions against money launderingwithin nancial institutions.
Design/methodology/approach Case laws and legislations are examined as are relevantreports by
regulators.
Findings Singaporesanti-money laundering (AML) regimes may notact as an effective deterrent against
money laundering activities within nancial institutions. This is due to the overreliance on the theory of
deterrence-based thinking, the lack of an enforcement pyramidand economic factors which inuence
regulatorsto be lenient towards nancial institutions.
Research limitations/implications There are limited data available in relation to regulators in
Singapore and the prevalence of money laundering activities within Singaporesnancial institution. Any
discussions within this article is based on the impressionistic observations of this author, which may not
reect the true stateof affairs in Singapore.
Practical implications Those who are interested in examining the relationship between money
launderingand the deterrent effect of sanctions against nancial institutionswill have an interest in this topic.
Originality/value The value of the paper is to demonstratethat Singapores AML regimes may not act
as an effectivedeterrence against money laundering activitieswithin nancial institutions.
Keywords Singapore, Money laundering, Deterrence, Financial institutions, 1MDB Scandal,
Anti-money laundering sanctions
Paper type Research paper
1. Introduction
The concept of white-collar crime involves the examinationof criminal activity in corporate,
commercial, professional and political life (Sutherland, 1939;Geis and Meier, 1977).
Although criminologists have often argued that white-collarcrime is more widespread, and
more damaging to society, than many other common crimes such as robbery, burglary or
theft, it has been suggested that white-collar crime is not generally regarded as part of the
crime problem(Croall, 1994). This is because the public are more afraidof being mugged
or robbed by a stranger than being exploited by powerful corporations (Croall, 1994).
Moreover, despite the damaging effect that white-collar crime can have on society, it has
been observed that most economists are only well-acquainted with business methods, but
are not accustomed to consider such business methods from a criminal perspective; many
sociologists are well acquainted with crime, but are not accustomed to consider it in the
business context (Sutherland, 1939). This arguably means that it would be easier for many
well-educated and socially successful business executives in legitimate businesses to break
the law and get away with it (Gobert and Punch, 2003).
Despite the lack of attentiongiven to white-collar crime in the past, in recent years, white-
collar crime has often been associatedwith scandals in the nancial and business industries
(Croall, 1994). These scandals often include the activities of powerful corporations which
The art of
deterrence
467
Journalof Financial Crime
Vol.25 No. 2, 2018
pp. 467-498
© Emerald Publishing Limited
1359-0790
DOI 10.1108/JFC-01-2018-0001
The current issue and full text archive of this journal is available on Emerald Insight at:
www.emeraldinsight.com/1359-0790.htm
exploit powerless individuals such as consumers, workers and citizens. Even so, it is
submitted that many white-collar criminals frequently escape sanctions, and those who
were exposed for illegal violationsrarely suffered the stigma attached to ordinary criminals
(Gobert and Punch, 2003). This arguably means that many modern-day white-collar
criminals, who are more suave and deceptive, are able to avoid both civil and criminal
sanctions that have been implemented to punishthose who make unscrupulous gains from
corporate crime.
Although white-collar criminality in business is most frequently expressed in the
forms of commercial bribery , embezzlement and misapplic ation of funds (Sutherland ,
1939), it is submitted that the launde ring of dirty money is often th e lubricant of crime
(Lloyd, 1997). This is because many organized crim es are dependent upon the availability
of funding, and the laundering of the proceeds of earlier exploits is frequently used to
facilitate such crimes.
This suggests that even a countr y like Singapore, which was re cently ranked the
seventh least corrupt coun try in the world (Salleh, 2017), remains vulnerable toward s the
ever-increasing acts of mon ey laundering. This vulnerab ility is reected in the recent
1Malaysia Development Berh ad (1MDB) scandal, which reveal ed lapses in the anti-
money laundering (AML) regi mes of The Development Bank of Singapore (DBS), UBS
AG Bank Singapore (UBS), BSI B ank Singapore (BSI) and Falcon Pri vate Bank
Singapore (Falcon). In light of the proliferation of money l aundering in Singapore, this
article aims to examine why money laun dering remains a pertinent issue wi thin the
nancial institutions (FI) in Sin gapore and whether sanctions imposed by the Moneta ry
Authority of Singapore (MAS) act as effec tive deterrence against AML violations.
2. Thesis
In light of the recent 1MDB Scandalin Singapore, this article serves to examine the deterrent
effect of sanctions against AML violations in FIs. In doing so, the followingsub-issues will
be addressed, namely:
whether there is a relationship between the theory of deterrence-based thinking
and the effectiveness of sanctions against deliberate and non-deliberate AML
violations within a FI;
whether the nature of sanctions (i.e. criminal, civil, nancial or non-nancial) affect
the degree of deterrence against AML violations; and
whether economic factors affect the deterrent effect of sanctions against AML
violations.
Before examining these issues, this article will establish the following conceptual
background, namely,the:
money laundering process;
1MDB Scandal;
meaning of AML violations;
purpose of regulation;
meaning of sanctions;
distinction between criminaland civilsanctions;
distinction between nancialand non-nancialsanction;
regulator in Singapore;
JFC
25,2
468
courtsrole in Singapore;
FIs in Singapore; and
AML regimes.
3. Background
3.1 Purpose and process of money laundering
The primary purpose of money laundering is to conceal the origins of ill-gotten gains
because often, it is the spending or general disposalof illicit gains that leads to the detection
of the original crime (Lloyd, 1997, p. 1). There are threestages to money laundering (Lloyd,
1997, p. 1). The rst stage is knownas the placement stage. The placement stage arguably
entails the greatest risk, as it often requires the deposit of substantial sums of illicit gains
across banks and other FIs (Lloyd,1997, p. 1). The second stage is known as the layeringor
agitation stage. At this stage, the deposited illicit gains are fragmented using a variety of
transactions which act as a smoke screento disguise the true origins of the illicit gains
(Lloyd, 1997, p. 2). Often, moneylaunderers make use of gold to disguise the true origins of
dirty money because its valueremains constant (Lloyd, 1997, p. 2). The nal stage is known
as the integration or re-integration stage. At this stage, the illicit gains have been safely
placed and layered to the extent that such gains have been cleaned, and that it is safe to
return the cleaned moneyto the money launderers through a legitimate nancial system
(Lloyd, 1997, p. 2). Although money laundering is often described as a three-stage process,
its process is highly complexed,as many money launderers have implemented new ways of
disguising the origins of cleanedmoney (Lloyd, 1997, p. 2). In light of the sophisticated
nature of money laundering, it is inevitable that even the nancial system of Singapore
(which is often describedas corrupt-free) may be preyed upon.
3.2 The 1MDB Scandal in Singapore
In July 2016, the US Department of Justice led lawsuits to seize properties tied to 1MDB,
which is the subject of money laundering investigations in at least six countries, including
Singapore and the USA (Daga and Franklin, 2016). Following the US lawsuit, the MAS in
Singapore seized about SG$240m worth of assets in relation to various 1MDB-related fund
ows. Moreover, the MAS found that DBS, UBS and Falcon had weaknesses in their
processes for accepting clients and monitoring transactions, as well as undue delays in
detecting and reporting suspicious transactions. Although the lapses in DBS and UBS were
serious in their own right, the MAS stated that there was no pervasive control
weaknesses or staff misconduct(Leong, 2017). In contrast, BSI had its merchant bank
status withdrawn by the MAS in May 2016 after breaches of AML regimes as wellas gross
misconduct by its staff (Leong, 2017). As for Falcon, the MAS ceased Falcons operations
and imposed a SG$4.3m ne on it for 14 breachesof MASNotice 1014 (Prevention of Money
Laundering and Counteringthe Financing of Terrorism). In contrast, a SG$1m and SG$1.3m
ne were imposed on DBS and UBS, respectively, for 10 and 13 breaches of the same
regulation. These breaches include the failure to implement an efcient customer due
diligence (CDD) system and the failure to le suspicious transaction reports (STRs)
(Williams, 2016). On 2 December 2016, Standard Chartered Bank and Coutts & Co Private
Bank were ned SG$5.2m and SG$2.4m, respectively, for 28 and 24 breaches of AML
regulations in relation to 1MDB-related fund ows (Daga and Franklin, 2016). In light of
space constraints, thisarticle will focus on comparing the sanctions imposedagainst Falcon
and BSI to that of those imposed against DBS and UBS.
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