Legal Digest. Money Laundering Offences In Singapore. Naina Parwani. An online repository of various articles published by our lawyers

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1 An online repository of various articles published by our lawyers Money Laundering Offences In Singapore Naina Parwani 1 Rajah & Tann 4 Battery Road #26-01 Bank of China Building Singapore Tel: Fax: eoasis@sg.rajahandtann.com Website:

2 Money Laundering Offences In Singapore Naina Parwani This article gives an overview of the provisions of the Drug Trafficking (Confiscation of Benefits) Act that deal with when a person assists another to launder money. Assistance can occur either knowingly or where there is knowledge or suspicion that there has been criminal conduct. Criminal conduct is also not confined just to drug trafficking, but also to a range of criminal acts. Guidance is also given as to the circumstances when suspicion should be aroused. Overview Mention the term money laundering and one automatically thinks of it as affecting only banks. While banks are, no doubt, the prime target of money launders, professions such as solicitors and accountants too may find themselves being involved unwittingly in money laundering. Recognising this, the Law Society of Singapore issued Money Laundering - Guidance Notes For Solicitors on 30 September 1998 (hereinafter referred to as Law Society's Guidance Notes ). Hence, it is important for solicitors to have an understanding of the offences in relation to money laundering in Singapore, the reporting requirements under money laundering legislation and regulations, and the protection accorded to parties who provide information on suspected money laundering operations. Definition Of Money Laundering The term money laundering is a term of art generally used to describe the process designed to change the identity of the source and ownership of money illegally derived so that it appears to have come from legitimate sources. The process generally involves three stages, during which there may be numerous transactions made by launders that could alert the party dealing with the money launder. In the first stage, the initial proceeds from the criminal activity are physically disposed of, for example, by someone depositing in a bank the proceeds of drug trafficking. In the second stage, layers of financial transactions are created in order to disguise the audit trail and provide anonymity. For instance, the proceeds in the bank account may be transferred to different accounts in a different bank or banks, or used to purchase bankers drafts. In the third stag e, the funds that have been layered are made to appear as legitimate business funds by using the funds to purchase clean (legitimate) assets such as shares in a company or property. Relevant Legislation Although there is no specific legislation in Singapore prohibiting money laundering as such, there is legislation prohibiting the laundering of benefits derived from drug trafficking, namely the Drug Trafficking (Confiscation of Benefits) Act, Chapter 84A (hereinafter referred to as the Act ). Guidelines aimed at preventing the laundering of benefits derived from drug trafficking have also Page 1

3 been issued by the Monetary Authority of Singapore to banks, merchant banks, investment advisers and insurance companies. While at present the Act only deals with the laundering of the benefits of drug trafficking, this may soon change if the Drug Trafficking (Confiscation of Benefits) (Amendment) Bill (B16/99) (hereinafter referred to as the Amendment Bill ) is passed in its present form. The Amendment Bill was introduced into Parliament on 4th May 1999 and it seeks, inter alia, to extend the money laundering offences to the benefits derived from criminal conduct. This is discussed further below. Offences There are various offences under the Act that deal with the laundering of the benefits of drug trafficking, some of which are directed primarily against the drug trafficker himself. The offences that would be of concern to professionals are the secondary offences of providing assistance under sections 41(1) and 43(2) of the Act as well as the offence of prejudicing investigation under section 44 of the Act. Knowing assistance with respect to the benefits of drug trafficking A person will be liable for a criminal offence under section 41(1) of the Act if he knowingly assists another person to retain or conceal the benefits of the latter s drug trafficking. Knowingly assists essentially means entering into an arrangement with a person whom you know carries on or has carried on drug trafficking or has benefited from drug trafficking. Further, one enters into the arrangement knowing that: it has the effect of aiding the retention or control of the benefits of the drug trafficking, whether by concealment, removal from Singapore, transfer to nominees or by some other means; 1 or by that arrangement, the benefits of the drug trafficking are used as security to obtain funds, or used to acquire property by way of investment. 2 Apart from the defence of absence of knowledge, it is also a defence if the person concerned reported his suspicions or belief that the funds or investments are derived from drug trafficking, at the first available opportunity to an authorised officer. An authorised officer is defined in the Act as an officer of the Central Narcotics Bureau or any police officer. Any person found guilty of providing knowing assistance is liable, under section 41(5) of the Act, to a maximum of 7 years of imprisonment or a maximum fine of S$100,000, or both. The Amendment Bill seeks to increase the maximum fine to S$200,000. The other provision dealing with secondary offences is section 43(2) of the Act. This makes it an offence for a person, knowing that any property is derived from the benefits of drug trafficking, to 1 Section 41(1)(a) of the Act. 2 Section 41(1)(b) of the Act. Page 2

4 conceal, disguise, convert or remove the property from Singapore, for the purpose of assisting another person to avoid prosecution for a drug trafficking offence or enforcement actions by the authorities. The terms concealing and disguising property have been defined under section 43(4) to include concealing or disguising its nature, source, location, dispositions, movement or ownership or any rights with respect to it. The punishment on conviction is the same as for an offence under section 41(1), i.e., a maximum of 7 years of imprisonment or a maximum fine of S$100,000, or both. The Amendment Bill also seeks to increase the maximum fine for this offence to S$200,000. Widening the mens rea requirement Currently, the mens rea under both the above offences is knowledge. It is not clear whether knowledge is restricted to actual knowledge or includes a wider test founded on the concept of wilful blindness as favoured by a line of English cases. See in this respect, James & Son Ltd v Smee [1955] 1 QB 78 and Westminster City Council v Croyalgrange Ltd & Anor [1986] 2 All ER 353. Even if knowledge is taken to be limited to actual knowledge, the prosecution may no longer be limited to proving actual knowledge of the facts. This is because the Amendment Bill proposes an additional mens rea requirement of having reasonable grounds to believe for the offences under sections 41(1) and 43(2). With the proposed amendments, a person would be liable if he had reasonable grounds to believe in the existence of the relevant facts. This would be wider than the concept of wilful blindness. Interestingly, the proposed changes would bring section 41(1) of the Act in line with similar legislation in England and Hong Kong, which have a wider mens rea concept than under the Act at present. Section 41(1) of the Act was based on section 25(1) of the Hong Kong Drug Trafficking (Recovery of Proceeds) Ordinance 1989 and the latter legislation includes reasonable grounds to believe in addition to the mens rea of knowledge. Section 41(1) of the Act is also similar to section 50 of the English Drug Trafficking Act 1994 which includes the mens rea of suspicion. Knowing assistance with respect to the benefits derived from criminal conduct The Amendment Bill seeks to introduce new sections 41A and 43A. These new sections are almost identical to section 41 (when amended) and section 43 (when amended) respectively, except that the assistance is provided to a person whom one knows or has reasonable grounds to believe, has engaged in criminal conduct or has benefited from criminal conduct. The term criminal conduct is defined as inter alia doing or being concerned in, whether in Singapore or elsewhere, any act constituting (a) a serious offence, or (b) a foreign serious offence. A foreign serious offence is an offence committed in a foreign country where the act or omission constituting the offence would, if it had occurred in Singapore, have constituted a serious offence. A description of the serious offences is contained in a new Second Schedule proposed to be inserted in the Act. A total of 182 offences have been listed in the Second Schedule and they Page 3

5 include kidnapping, counterfeiting, murder, theft, extortion, robbery, misappropriation of property, cheating and criminal breach of trust. Failure to disclose knowledge or suspicion Another significant change proposed by the Amendment Bill is with respect to the repeal and substitution of section 38 of the Act. The present section 38 allows a financial institution that has information about an account which the institution knows may be relevant to law enforcement agencies, to give the information to an authorised officer and provides protection to the financial institution that does give such information. Section 38 as proposed by the Amendment Bill will not be limited to a financial institution but will apply to any person who knows or has reasonable grounds to suspect the following in connection with any property: (a) (b) (c) that it directly or indirectly represents the proceeds of; it was used in connection with; or it is intended to be used in connection with, drug trafficking or criminal conduct. Where the information or matter on which the above knowledge or suspicion is based came to the person s attention in the course of his trade, profession, business or employment, he will be under a duty to disclose the knowledge or suspicion to an authorised officer as soon as is reasonably practicable after it comes to his attention. Any person who fails to do so will be guilty of an offence and liable on conviction to a maximum fine of S$10,000. However, he will not be liable if he had a reasonable excuse for failing to disclose the information. Legal privilege exception Solicitors may be relieved to note that the Amendment Bill proposes an important exception to the above duty so as to protect legal privilege. To this end, no offence would be committed under the proposed section 38 if a solicitor, his clerks or employees, or an interpreter, fail to disclose any information or other matter which are subject to legal privilege. In this respect, legal privilege attaches to communications between a solicitor and his client made in connection with the giving of legal advice to the client, or in relation to legal proceedings (including those being contemplated). 3 The proposed exception would cover not only litigation work but would likely extend to other work such as correspondence in conveyancing so far as it relates to the giving of legal advice. See in this respect Ex p Baines & Baines (a firm) [1987] 3 All ER See the existing definition of items subject to legal privilege under section 33(2) of the Act which will also apply to the new section This decision deals, inter alia, with the construction of section 10 of the English Police and Criminal Evidence Act which is identical in material terms to section 33(2) of the Act. Page 4

6 Tipping Off The aim of preventing money laundering would be thwarted if professionals were allowed to inform their clients about on-going investigations against them. At present under the Act, section 44 of the Act makes it an offence for a person who knows or suspects that an investigation is taking place to make any disclosure that may prejudice the investigations. However, this is limited to a situation where in relation to the investigation, a production order under section 26 of the Act has been applied for or a warrant under section 31 has been issued. It is a defence to a charge of prejudicing investigations that the accused did not know or suspect that the disclosure was likely to prejudice the investigation, or that he had lawful authority or reasonable excuse for making the disclosure. The Amendment Bill proposes a new offence of tipping-off under the new section 43B. Section 43B, which is wider than section 44, makes it an offence for any person who knows or has reasonable grounds to suspect that there is an investigation underway (or being proposed) in connection with the Act, to disclose any information which is likely to prejudice such investigation. Further, if a person knows or has reasonable grounds to suspect that a disclosure has been made to an authorised officer under the Act, that person will also commit an offence under section 43B if he discloses information which is likely to prejudice any possible investigation. The proposed section 43B also provides a defence to a charge of tipping of where the person disclosing did not know and had no reasonable grounds to suspect that the disclosure was likely to prejudice the investigation or proposed investigation. Since both the above offences carry a penalty of a maximum fine of S$30,000 or a maximum term of imprisonment of 3 years or both, it is likely that the proposed section 43B will act as an effective deterrent to professionals from alerting their clients to the fact that suspicions about their activities have been reported to the authorities. There is an important exception relating to solicitors in that it is not an offence for a solicitor or his employee to disclose any information to: (a) to his client (or the client s representative) in connection with the giving of advice to the client in the course of the solicitor s professional employment; or (b) to any person in contemplation of, or in connection with, legal proceedings. However, the exception does not apply where the information is disclosed with a view to furthering any illegal purpose. Suspicious Circumstances How does one, as a solicitor, know or reasonably suspect that money is being laundered? After all, a drug trafficker is not going to come into the office with a pocket stuffed with cocaine and a suitcase full of money. While there is no sure-fire way of knowing a drug trafficker, there are a Page 5

7 wide variety of transactions or situations that can give rise to suspicion that money is being laundered. These include the following: 5 Unusual Settlement Requests Settlement by cash of any large transaction involving the purchase of property or other investment, or payment by way of a third party cheque or money transfer where there is a variation between the account holder, the signatory and a prospective investor. Large Sums of Cash Client requesting the solicitor to hold large sums of cash in client account, either pending further instructions from the client or for no other purpose than for onward transmission to a third party. The Secretive Client A personal client who is reluctant to provide details of his identity. Power of Attorney a client who has no apparent reason for authorising a third party to deal with property on his behalf by way of creating a power of attorney or trust. Suspect Personality Client who is known or suspected to be a triad, drug trafficker or criminal or is introduced by a known or suspected triad, drug trafficker or criminal. Caution should be exercised when faced with the above situations, and in particular, in dealing with a client whom you do not meet in person. At the very least, the existence of the above circumstances should prompt the solicitors concerned to make enquiries about the source of the funds or request for further details on the identity of the client. Where a solicitor decides to make a disclosure, the report should disclose the source of one's knowledge or the reasons for the suspicion. The report should be made to the Director of Commercial Affairs Departments or any police officer. 6 Protection For Party Disclosing Information Presently under the Act, disclosure may be made to an authorised officer pursuant to section 41(3) of the Act where one suspects or believes that any funds or investments are derived from drug trafficking; or used in connection with drug trafficking. Section 41(3), unlike the proposed section 38, does not impose an obligation to disclose one's suspicion or belief, but such disclosure will provide a defence to a possible charge of knowing assistance under section 41(1) of the Act. Protection is also provided to those who make reports disclosing their suspicions or belief of money laundering transactions. This is important to allay concerns of what would happen if it transpires that the suspicion or belief was wrong and that there was no money laundering at all. 5 Law Society's Guidance Notes, para See the definition of authorised officer under section 2 of the Act, and Law Society's Guidance Notes, para 18. Page 6

8 First, a disclosure of information under section 41 of the Act would not be treated as a breach of the prohibitions against disclosure as imposed by law, under contract or rules of professional conduct. 7 Thus, the solicitor making the disclosure would not be taken to have violated section 128 of the Evidence Act, Chapter 97 (which prohibits the disclosure of professional communications by a solicitor), the common law rules on confidentiality or provisions dealing with confidentiality undertakings in agreements. Second, neither the solicitor making the disclosure nor the law firm would be liable in damages for any loss arising out of such disclosure, or anything done or not done in relation to the funds or investments in consequence of the disclosure. 8 The Amendment Bill provides the same protection to a disclosure of information under the amended section 38 as well as the proposed section 41A (which deals with benefits derived from or used in connection with criminal conduct). If, however, the report is made for malicious reasons, where there is no genuine suspicion or actual knowledge of the laundering of drug benefits, this may lead to a defamation action, since the disclosure would not have been made for the purposes of the relevant provision of the Act. Conclusion The Amendment Bill underscores the importance of law firms being vigilant against money laundering and providing proper training to their staff. Such training should give the staff a general appreciation of the background of money laundering, the consequent need to be able to identify suspicious transactions and reporting such transactions to the appropriate officers within the firm, as well as providing them information on money laundering offences under the Act. After all, a firm's reputation would be badly affected should any of its staff be found guilty of assisting in drug money laundering activities. This article was published in both the Law Gazette, May 1999, and in slightly amended form in the SES Journal, July Rajah & Tann is one of the largest law firms in Singapore. It is a full service firm and given its alliances, including US premier firm Weil, Gotshal & Manges, is able to tap into a number of countries. Rajah & Tann is firmly committed to the provision of high quality legal services. It places strong emphasis on promptness, accessibility and reliability in dealings with clients. At the same time, the firm strives towards a practical yet creative approach in dealing with business and commercial problems. The information contained in this newsletter is correct to the best of our knowledge and belief at the time of writing. Specific professional advice should be sought before any action is taken. In this regard, you may call the lawyer you normally deal with in Rajah & Tann or the Knowledge Management team at eoasis@sg.rajahandtann.com Rajah & Tann Knowledge Management. All rights reserved. 7 Section 41(3)(b) of the Act. 8 Section 41(3)(c) of the Act. Page 7