Fighting sophisticated crime – Further anti-money laundering legal developments in Singapore

The two bills presented were issued for consultation in March 2024, and were introduced in Parliament for their first reading in May 2024. Together, these bills represent a continuation of efforts made by ACRA since 2022 to strengthen standards of corporate transparency.

The first bill, the Corporate Service Providers Bill (CSP Bill), seeks to enhance the regulatory regime of the CSP sector in Singapore. The second, the Companies and Limited Liability Partnerships (Miscellaneous Amendments) Bill (the CLLPMA Bill), proposes legislative amendments to the Companies Act 1967 of Singapore (the Companies Act) and the Limited Liability Partnerships Act 2005 of Singapore, with the objective of increasing the transparency of beneficial ownership of the entities governed by these two statutes.

The CSP Bill

Registration of CSPs

Currently, CSPs that file transactions with ACRA on behalf of their clients are required to register with ACRA as registered filing agents (RFAs). Critical services performed by RFAs include incorporating companies in Singapore for clients, including for non-resident persons, and submitting the declarations, undertakings, or other periodic reports required by ACRA of such companies.

As noted above, the requirement to be registered with ACRA applies only to RFAs (i.e., CSPs that file transactions with ACRA for their clients). The CSP Bill seeks to close the existing gap by stating that all companies that carry on the business of providing corporate services in Singapore must be registered with ACRA as CSPs, even if they do not file any transactions with ACRA on their clients’ behalf.

In addition to incorporating companies on their clients’ behalf, examples of other services provided by CSPs include arranging individuals to act as nominee directors or nominee shareholders, providing registered office or business addresses, and carrying out designated activities relating to accounting services.

As the MOF noted in its initial summary of the CSP Bill, the current regulatory gap creates the risk that criminal persons may engage CSPs that are not RFAs to facilitate illicit or disreputable activities. This is a non-trivial risk: following the publication of the Paradise and Panama Papers, several CSPs were found to have incorporated shell companies of trusts in overseas secrecy jurisdictions, on behalf of customers who represented an elevated risk of money laundering or corruption.

Compliance with AML and CTF requirements

In addition to being exempt from the need to be registered as RFAs under the existing regulatory regime, CSPs that do not file transactions with ACRA on their customers’ behalf are currently not subject to Singapore anti-money laundering (AML) or counter-terrorism financing (CTF) legal requirements. In contrast, RFAs are required to comply with them.

The CSP Bill would also close this regulatory gap, by requiring all CSPs to comply with Singapore’s AML and CTF requirements. In so doing, the CSP Bill would standardise and strengthen the AML and CTF regulations to apply across all entities that provide corporate services in Singapore. In addition, the CSP Bill would require registered CSPs to comply with laws preventing the financing of proliferation of weapons of mass destruction (PF) – the precise requirements will be set out in subsidiary legislation to follow.

Criminal liability for CSPs and senior management

Existing laws do not impose regulatory sanctions on the senior management of RFAs that breach AML or CTF laws. The CSP Bill would address this omission, by stating that a registered CSP that breaches AML, CFT or PF requirements may be subject to criminal liability and fines of up to S$100,000 for each breach.

Senior management members who fail to ensure that their registered CSP complies with AML, CFT and PF requirements would also be subject to criminal liability and fines. In setting out these fines, the CSP Bill seeks to impose penalties sufficient to deter violations of such laws in Singapore.

Requirements for nominee directors

Under the CSP Bill, a registered CSP must not arrange for a person to act as a nominee director of any company, unless it is satisfied that the person is fit and proper. To satisfy itself, a CSP would need to take reasonable steps to ensure that such person has not been disqualified from acting as a company director under applicable laws, and to consider other factors, which will be prescribed in subsidiary legislation.

Under current law, RFAs are not required to ensure that the individuals they arrange to act as nominee directors are fit and proper. This omission creates the risk that unqualified individuals may act as nominee directors, which could in turn facilitate the misuse of such directorships by companies that conduct criminal activities. The CSP Bill addresses this risk.

The CLLPMA Bill

The CLLPMA Bill sets out proposals that seek to raise the regulatory standards for companies, especially in relation to nominee shareholders and nominee directors. Key proposals include:

Publicising the status of nominee directors and shareholders

The CLLPMA Bill mandates that all companies in Singapore, both Singapore-incorporated and foreign, must submit all information found in their registers of nominee shareholders and nominee directors to ACRA. ACRA would make publicly available the nominee status of any director or shareholder; but only government agencies would have access to the full information maintained by ACRA in respect of these nominee directors and nominee shareholders, to administer or enforce any laws.

Under existing law, while companies are required to maintain registers relating to nominee directors and nominee shareholders, this information is neither submitted to ACRA nor made publicly available (though ACRA may require companies to make such information available on request).

By increasing the transparency with respect to a company's nominee arrangements, the proposed change would allow AML-obligated entities, such as financial institutions, to carry out enhanced customer due diligence on a company where appropriate, thereby reducing the risks of money laundering. The proposed change is also consistent with the requirements set forth by the Financial Action Task Force (FATF) regarding beneficial ownership standards.

Increasing the fines for breaches relating to company registers

The CLLPMA Bill would increase the maximum fine that applies to a violation to maintain proper registers of nominee directors or nominee shareholders: from S$5,000 to S$25,000. This amendment seeks to ensure the accuracy of information reflected in these registers, and to deter related misconduct.

Broadening the definition of nominee shareholders

The CLLPMA Bill proposes that “nominee shareholders”, as defined in the Companies Act, would include any shareholder who satisfies either one or both of the following conditions:

• a shareholder under an obligation to vote in accordance with the directions, instructions or wishes of another person; or
• a shareholder who receives a dividend on behalf of another person.

In contrast, the existing definition requires the relevant shareholder to satisfy both these conditions. The proposal would align the definition of “nominee shareholders” in the Companies Act with the definition adopted by the FATF, thereby ensuring that Singapore’s regime in relation to nominee shareholders is consistent with FATF standards.

Takeaways

CSPs constitute a natural area of focus as Singapore seeks to bolster its AML and CTF regime, given their critical role in incorporating companies for third-party and non-resident clients, and in assisting such clients to comply with filing requirements in compliance with the Companies Act post-incorporation.

The CSP Bill seeks to address AML and CTF risks relating to this important sector, by: (1) mandating the registration of all CSPs in Singapore; (2) standardising the AML, CTF and PF requirements for all CSPs; and (3) ensuring that nominee directors appointed by CSPs are fit and proper persons.

Similarly, the CLLPMA Bill seeks to strengthen the beneficial ownership transparency standards that companies and limited liability partnerships, in general, must comply with. Its provisions reflect the importance of ensuring transparency into the appointment, by these corporate entities, of nominee shareholders and directors. Such transparency would help to mitigate any related AML and CTF risks, by allowing regulated institutions to perform enhanced due diligence, if needed, to ascertain the true beneficial owners behind such nominees.

“Money laundering is a sophisticated crime, requiring equally sophisticated counter-measures.” That view, expressed by a U.S. Attorney-General in the early 2000s, remains true today. It is particularly relevant to Singapore, given its role as a major international financial centre and the significant financial inflows that it continues to attract.

While the final contents of both bills remain subject to change, the principles that they espouse show a constructive development in Singapore’s efforts to mitigate a persistent – and persistently complex – problem.

Authored by Nick Williams, Han Liang Lie, Nigel Sharman, and Paris Buti.