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Singapore to counter trade-based money laundering with new platform

The Monetary Authority of Singapore (MAS) is readying the launch of a new digital platform to tackle financial crime in the city-state’s banking sector, with the initial phase of the project set to focus on the illicit use of trade finance.

Singapore’s financial regulator has begun developing the platform, known as Cosmic, alongside six major commercial banks including Citi, DBS, HSBC, Standard Chartered, OCBC and UOB.

By allowing these banks to share information with one another about suspect customers and transactions, the platform will work to tackle money laundering, terrorism financing and proliferation financing in Singapore’s banking sector.

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“A common challenge that FIs [financial institutions] in most jurisdictions face is that they are unable to warn one another about unusual activity in customers’ accounts. This gap is frequently exploited by financial criminals to make illicit transactions through a web of entities with accounts in different FIs, such that each FI on its own does not have sufficient information to detect these transactions in a timely manner,” the regulator says.

According to the regulator, the platform will go live in the first half of 2023 and there will be an initial two-year phase when information sharing will be voluntary for banks to give them time to adjust to the new regime.

Three main financial crime risks will be considered during this first stage of development, namely the abuse of shell companies, the misuse of trade finance for illicit purposes and proliferation financing.

But MAS says that certain aspects of information sharing will subsequently be made mandatory, while the platform will also be progressively extended to a wider segment of the financial sector and become broader in scope.

 

Tackling TBML?

There have been rising concerns over the threat of trade-based money laundering (TBML) globally, as criminals continue to use the international trade system to shift the proceeds of crime.

A report released in February 2020 by the US Government Accountability Office, an independent congressional watchdog, warned that the amount of illicit money being laundered through global trade was believed to be “large and growing”.

Financial crime authorities have upped their efforts this year to tackle the problem, and in March urged lenders to watch out for complex corporate structures or trade flows, circular payment arrangements and inconsistencies in documentation.

Given the volume and value of trade that passes through Singapore each year, the global trading hub is inherently exposed to such risks – with criminals using all manner of tricks to try to deceive banks, including fictitious trade documents, shell companies and multiple banks accounts spread across different FIs.

The new platform aims to enhance the due diligence and suspicious transaction monitoring of banks in the trade finance space.

MAS is currently running a consultation on the accompanying regulatory framework for the Cosmic platform, which will require commercial banks to communicate with other lenders on the platform in each of three ways: request, provide and alert.

Firstly, a bank will be able to request further information from another lender involved in a transaction if it believes their shared customer raises potential red flags for money laundering, terrorist financing or proliferation financing.

Banks will also be able to provide information to other lenders involved in a deal, where a customer’s unusual activities pass a certain “threshold” and indicate the entity is involved in illicit activity.

Finally, where a client’s activities exhibit the higher threshold of red flags – the FI has filed a suspicious transaction report  on the customer and decided to terminate the relationship – the FI will be expected to place an alert on this customer and add it to a watchlist on the platform.

Banks could face possible penalties for disclosing information in instances where certain risk thresholds have not been met, with MAS noting that there are “legitimate concerns” over customer confidentiality, information security and privacy.

But lenders will also have to be careful of failing to uphold their request, provide and alert duties on the platform and – under the proposed framework – could face fines of as much as US$1mn.

The post Singapore to counter trade-based money laundering with new platform appeared first on Global Trade Review (GTR).

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