How Do New AML/CFT Regulations Affect the Precious Metals Industry?

By SBMA

Published on March 28, 2019

Singapore introduced the Precious Stones and Precious Metals (Prevention of Money Laundering and Terrorism Financing) Bill on 11 February 2019 to strengthen anti-money laundering and countering the financing of terrorism (AML/CFT) measures in the precious stones and precious metals dealers (PSMDs) sector.

At a session organised for SBMA members, Jason Chan, SBMA Honorary Legal Counsel, provided a short briefing on the changes introduced by the new legislation, while Ingenique Solutions, an AML/CFT customer screening solution provider for non-bank entities, discussed how to implement AML/CFT measures in practice while striking a balance between compliance requirements and business needs, as well as the importance of ongoing monitoring.

How the law affects the PSMD sector

In line with the broader AML/CFT framework, Singapore has introduced various measures to mitigate money laundering and terrorism financing (ML/TF) risks in the PSMD sector. However, PSMDs were previously not subject to AML/CFT supervision or requirements beyond the Cash Transaction Reporting regime introduced in 2014, which requires PSMDs to perform customer due diligence, keep records and file cash transaction reports for cash transactions exceeding S$20,000.

In 2018, the Ministry of Law said that stronger AML/CFT laws were necessary for PSMDs as they were inherently exposed to money laundering and terrorism financing risks, and to bring Singapore’s regime in line with international standards set by the Financial Action Task Force.

Mr Chan summarised the key differences with the previous legislation being that the new regime integrates the Suspicious Transaction Reporting and Cash Transaction Reporting regimes in the context of precious stones/metals/products. There are more steps in which CDD is required, though its requirements are the same. Anti-money laundering and terrorism financing measures also have the same requirements, but see a change in terminology (from “internal control measures” to “adequate programmes and measures”). Record-keeping requirements, as well as cash and suspicious transaction reporting requirements, remain the same. Additionally, there are increased penalties to disincentivise dealers from internalising the risks, and a requirement for PSMDs to register with the Ministry of Law.

Under the Bill, failure to register will result in a fine of up to $75,000 or 3 years’ imprisonment, or both, while failure to carry out CDD, ML/TF requirements or maintain records will result in a fine of up to $100,000. Failure to report cash transactions carries a penalty of up to S$20,000 or 2 years’ imprisonment or both. Failure to report suspicious transactions has a fine for individuals of up to S$250,000 or 3 years’ imprisonment or both, and a fine of up to S$500,000 for corporate entities.

Implementing AML/CFT measures

Martin Lim from Ingenique Solutions helped participants make sense of the tighter regulatory framework by explaining how AML/CFT measures can be implemented in practice. He explained the various stages in risk assessment and customer due diligence, what to do for CDD, how to identify relevant persons, when to conduct enhanced CDD, and how to report suspicious transactions.

His colleague Leonard Soh explained the benefits of automated customer screening with Ingenique’s SentroWeb-DJ platform, which can cut the time spent on customer screening significantly. The platform is a consolidated database of persons and entities known to be involved in global terrorist activities, fugitives wanted by international law enforcement agencies, and politically exposed persons (PEPs). It is linked to Dow Jones’ database of more than 2 million profiles of terrorists, criminals, and politically exposed persons.

In particular, software like this can be integrated with individual company policies, procedures, and controls. This would help in ongoing monitoring, as over time, the risk profile of the customer may change, Mr Soh said.

Mr Soh emphasised a risk-based approach in risk assessment, while illustrating the importance of ongoing reporting. He cited a recent court case in which a veteran Managing Director lawyer with 15 years of experience in conveyancing work and a Senior Marketing Director of an international real estate agent were both charged in Singapore for failing to report a suspicious property deal in the Sentosa Cove district to the authorities.

This was despite the fact that the transaction pre-dated the arrest of the buyer, who was implicated in a Ponzi scheme in China. As such, Mr Soh recommended using a commercial tool like SentroWeb-DJ, which automatically monitors names previously searched, and check it against updates to the Dow Jones’ AML database, drastically reducing the time needed to check on clients regularly.