The recent crackdown on money laundering in Singapore is a reminder of the growth of money laundering activities worldwide. Asia Thinkers looks at the global situation to understand the spread in the ASEAN region and the efforts being made to implement preventive measures.
Understanding why money laundering occurs
The rising concern over international economic crime has seen money laundering emerging as a new form of organized crime that transcends national borders. Driven by criminal activities that has taken advantage of new technology, cryptocurrency and the greater mobility of people and resources across international borders. Enforcement Agencies worldwide recognize the increasing linkages between international economic crime and money laundering as well as other forms of organized crime, such as cybercrime, illicit drug trafficking, illicit trafficking of wildlife and timber, trafficking in persons, arms smuggling and terrorism.
Money laundering has devastating social consequences on society as criminals manipulate financial systems, left unchecked money laundering can erode the integrity of a nation’s financial institutions as evident in many South American countries.
Interpol describes money laundering as concealing or disguising the origins of illegally obtained proceeds so that they appear to have originated from legitimate sources. A former Senior Police officer from the Hong Kong Police Commercial Crime Unit commented “Fighting money laundering goes hand in hand with investigating crime and it is a worldwide problem. Criminal gangs move illegally obtained funds around the globe using banks, shell companies, intermediaries and money transmitters, attempting to integrate the illegal funds into legal businesses and economies. Nowadays, money mules play a key role in this context. These are people who act as intermediaries for criminal gangs, even when they are not aware of the fact they are laundering illegal funds.”
Image: GLOBAL MONEY LAUNDERING BY ACTIVITY-Fintech
Where is the illegal money coming from?
The source of illegal funds often differs from region to region. For example, Russia and Eastern Europe are a key hotspot and the source of illicit assets in the United Kingdom, Europe and the United States, with funds often moving globally. According to Russia’s national risk assessment, published in 2023, the criminal activity most often seen to be generating illicit proceeds includes embezzlement of public funds, crimes related to corruption and abuse of power, fraud in the financial sector, and drug trafficking.
Organized crime perpetrators often move their illicit proceeds to countries with a stable economy and currency, while concealing or disguising their connection to it. Thus, money generated by illegal activity in Russia or elsewhere in the region typically finds its way into a bank that has failed to implement adequate anti-money laundering (AML) safeguards, it is disbursed from there to other Western countries or even Asia where it may be invested in real property, used to acquire luxury goods, or otherwise integrated into the country’s economy. A well-known example is the Magnitsky case. Sergei Magnitsky the senior partner of a Moscow-based accounting firm, uncovered a fraud where more than $230 million was allegedly stolen from the Russian Treasury, spirited out of the country, and laundered through a network of criminals and officials. His investigation resulted in his imprisonment and death.
South East Asia money laundering challenge
Southeast Asia is another region suffering from significant financial crime and money laundering. A region of rapid economic growth with a rising number of businesses and financial institutions operating in the area. The region has increasingly become a hub for money laundering activities, with countries such as Cambodia, and the Philippines being particularly susceptible. According to the United Nations Office on Drugs and Crime (UNODC), money laundering is a “serious threat” to most member states in ASEAN. The UN office cited a combination of deficient legal frameworks, weak border controls, poor regulatory mechanisms, and a lack of law enforcement, and judicial and regulatory capacities as challenges. ”An AML specialist based in Malaysia, advising Financial Institutions in the wake of the 1Malaysia corruption and money laundering scandal, commented: “Criminals are predictably attracted to areas of rapid economic growth. Many countries in the region have thriving black markets that provide ample opportunities for criminals to launder money through various means, such as real estate, gambling, and illegal trade.”
According to UN estimates, the region loses more than USD 100 billion annually in illicit cash flows primarily related to offences such as drug trafficking, migrant smuggling, illegal transport of timber and wildlife and counterfeit goods trade. Corrupt practices and weak AML systems provide ample opportunities for criminals to launder money. The rise in digital transactions and the globalization of the financial sector has only made the problem more pronounced. Interpol has further identified the proliferation of casinos and scam centres in Cambodia, Laos, Myanmar and the Philippines, as engaging in large-scale money laundering and facilitating cyber fraud. As these profits continue to grow, Asia financial hubs should expect to see an increase in these crimes.
In 2023 Singapore was rocked by a major money laundering scandal that has so far resulted in 10 arrests and the seizure of assets of organised crime committed overseas, worth 1.8 billion Singaporean dollars and the proceeds filtered through the country’s financial institutions.The crackdown on money laundering in Singapore has focused attention on the continuing risk of money laundering in the region. Despite this, Singapore has demonstrated a strong anti-money laundering and counter-financing of terrorism legislative framework. It was ranked as the fifth least corrupt country in 2022, according to Transparency International’s Corruption Perceptions Index in itself a major achievement and is considered an example of good financial governance within South East Asia.
So what went wrong?
According to a recent review by the Financial Action Task Force (FATF ) the global money laundering and terrorist financing watchdog, twenty countries have been evaluated based on its new approach which moves away from an assessment of technical compliance, such as laws on the books, to the actual effectiveness of the laws. The majority of countries reviewed by FATF were found to have significant weaknesses in effective implementation. Countries now find themselves under more pressure to demonstrate that they enforce their laws. Not only are they required to comprehensively understand their money laundering risk exposure, but also to have effective anti-money laundering measures in place. Singapore for example received good marks for their AML laws but was rated mediocre overall due to poor implementation.
According to the FATF report, Singapore was vulnerable to the misuse by criminals of a range of corporate structures and legal arrangements available in the jurisdiction [i.e. offshore companies and trusts] and would need to enhance its understanding of the risks associated with such structures. FATF evaluators also found that risk awareness specifically amongst non-bank financial institutions needs to be improved i.e. real estate agents, lawyers and accountants and applying stricter sanctions when breaches of the law occur. On the other hand, Singapore has also been praised for its recent proactive enforcement action. One Singapore Lawyer approached by Asia thinkers commented that: “the current case highlights the effectiveness of Singapore’s authorities and its suspicious reporting transaction system. To pull off an investigation of this scale, with a considerable degree of success both in terms of persons apprehended and assets seized, demonstrates the competence and sophistication of law enforcement here.”
In a September interview with Aljazeera, Eugene Tan, an associate law professor at Singapore Management University (SMU), said the city-state is attractive to money launderers because funds are less likely to be regarded with suspicion once they enter the financial system. Money launderers are willing to take a punt because the benefits of being able to launder the money here make it easier to move the funds to other jurisdictions like the UK and the EU, rather than laundering the money in those jurisdictions.” He also commented although he is not aware of gaping loopholes in enforcement. Still, “downstream checks appear to be lax” once the funds are in Singapore’s financial system. In the same interview Mak Yuen Teen, a corporate governance expert at the NUS Business School said the latest case has shone a spotlight on what responsibility, if any, belongs to other links in the money laundering chain, such as property developers, luxury car dealers, golf and country clubs, luxury watch dealers and intermediaries such as real estate agents, accountants and lawyers.
The Singapore Government has been proactive and has put in place new tools and standards such as developing a digital platform, COSMIC, to allow financial institutions to securely share information on customers who exhibit multiple “red flags” that may indicate potential financial crimes. New rules in June also mandated due diligence checks by property developers on potential buyers and reports on any suspicious practices.
Asian countries need to be constantly on the alert, money laundering schemes are constantly evolving. New money laundering schemes emerge all the time. Criminals’ number one goal is to effectively hide money which has illicit sources. Authorities and financial institutions need to constantly monitor data and patterns to catch new schemes when they emerge. ASEAN continues to play a pivotal role in shaping and supporting AML policies within the Southeast Asian region through its corruption watchdog the” Southeast Asia Parties Against Corruption” (SEA-PAC) by providing practical assistance, training and the sharing of information and best practices. Through these initiatives, It hopes to bolster the resilience of its member states against money laundering and associated criminal offences.