Singapore - Ministry Of Law Consults On Proposed Anti-money Laundering Regime For Dealers In Precious Stones And Precious Metals.
Legal News & Analysis - Asia Pacific - Singapore - Regulatory & Compliance
9 October, 2018
On 17 July 2018, the Ministry of Law (“MinLaw”) announced that it will put in place a new anti-money laundering and countering the financing of terrorism (“AML/CFT”) regulatory regime for precious stones and metals dealers (“PSMDs”) in Singapore. The new regime aims to strengthen Singapore’s overall effort in countering money laundering and terrorism financing (“ML/TF”) in the PSMD sector. Under the new regime, PSMDs will be required to, among other things, identify, assess and understand ML/TF risks posed by its customers and transactions, put in place internal policies, procedures and controls to mitigate these risks, and register with MinLaw.
In this regard, MinLaw has recently issued a consultation paper containing the specific proposals and has invited the public to provide feedback from 13 September 2018 to 12 October 2018.
This update outlines the key elements in MinLaw’s public consultation.
Currently, PSMDs are required to comply with the cash transaction reporting requirements established under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (“CDSA”). This currently includes the requirement to conduct customer due diligence (“CDD”) whenever PSMDs are handling cash transaction exceeding S$20,000, but otherwise PSMDs are not required to observe other AML/CFT requirements, such as conducting assessments of the ML/TF risks they face or introducing appropriate internal controls to address these risks. MinLaw considers that this renders the PSMD sector vulnerable to ML/TF risks, particularly given to the relative mobility and liquidity of precious stones and metals.
To plug this gap, MinLaw is proposing to enact a new law to establish an AML/CFT regulatory regime for the PSMD sector, as further discussed below.
Overview of the Regime
The new regime will adopt a risk-based approach, and will require PSMDs to:
(a) Register with MinLaw, if the PSMD falls under the scope of regulation; and
(b) Comply with the following AML/CFT requirements:
(i) File Suspicious Transaction Reports (“STRs”);
(ii) File Cash Transaction Reports (“CTRs”);
(iii) Perform CDD;
(iv) Keep records of CDD transactions and relevant documents;
(v) Conduct internal assessments of ML/TF risks; and
(vi) Introduce internal policies, procedures and controls to address ML/TF risks.
Scope of the Regime
Who is a PSMD?
Under the regime, a PSMD will be defined as any person who, in the course of the person’s business, manufactures, sells, offers for sale, imports for sale or possesses for sale, any precious stone, metal, or product. This adopts the same definition as that provided in the Corruption, Drug Trafficking and Other Serious Crimes (Cash Transaction Reports) Regulations 2014 (“CDSR”).
Auctioneers and providers of trading platform services for other PSMDs will also be regulated.
Definition of in-scope products
The definitions of precious stones, metals, and products will be identical to the existing definitions under the CDSR as follows:
(a) Precious stones include diamonds, sapphires, rubies, emeralds, jade (including nephrite and jadeite), and pearls;
(b) Precious metals include gold, silver, platinum, iridium, osmium, palladium, rhodium, ruthenium, or an alloy with at least 2% of weight in any of the aforementioned metals; and
(c) Precious products include any finished product (other than any industrial tool or medical device) that derives 50% or more of its value from any precious stone or precious metal contained in or attached to that product.
Requirements under the New Regime
All PSMDs will be required to register with the AML/CFT Registrar, an official under the auspices of MinLaw. Registration is expected to commence in the second quarter of 2019. As part of the registration process, PSMDs will minimally be required to:
(a) Submit to the Registrar basic information concerning their business, as prescribed. The information will be used to conduct checks if the applicant is fit and proper, to prevent criminal influence in the sector; and
(b) Declare to the Registrar whether they will or will not conduct cash transactions exceeding S$20,000 during the period of registration.
Applications must be submitted online. Each registration will be valid for a period of three (3) years.
All PSMDs will be required to implement and comply with the following requirements when conducting transactions involving precious stones, metals, or products:
(a) Perform CDD during transactions:
(i) When carrying out cash transactions exceeding S$20,000;
(ii) When there is suspicion of ML/TF; or
(iii) When there are doubts about the veracity or adequacy of previously obtained customer identification data. When performing CDD, PSMDs are required to perform enhanced due diligence for customers whom the PSMD assesses to be of higher ML/TF risk (e.g. politically exposed persons and their family members and close associates, persons from higher risk countries, etc.);
(b) Keep records of all cash transactions exceeding S$20,000, including any relevant information obtained through CDD measures. The records must be kept for five (5) years and must be sufficient to permit reconstruction of transactions to provide, if necessary, evidence for prosecution of criminal activity;
(c) File STRs when there are reasonable grounds for suspecting that any property is linked to criminal activity (this is an existing requirement for all PSMDs under the CDSA); and
(d) File CTRs for cash transactions exceeding S$20,000 (this is an existing requirement for all PSMDs under the CDSA).
In addition, PSMDs will be required to fulfil the following entity-based requirements:
(a) Conduct risk assessments, i.e. take appropriate steps to identity, assess and understand the ML/TF risks faced by the business, and document these risk assessments;
(b) Develop and implement internal policies, procedures and controls to monitor, manage and mitigate the risks identified in the risk assessment. This includes:
(i) Appropriate compliance management arrangements, such as the appointment of a compliance officer;
(ii) Employee screening procedures; and
(iii) Ongoing training of employees; and
(c) PSMDs which conduct cash transactions exceeding S$20,000 will be additionally required to:
(i) Include an independent audit function as part of their internal policies, procedures and controls;
(ii) Implement group-wide programmes against ML/TF; and
(iii) Ensure that foreign branches and majority-owned subsidiaries apply AML/CFT measures consistent with Singapore’s requirements if the host country’s requirements are less strict.
For entity-based requirements, MinLaw will provide comprehensive guidance on how PSMDs may conduct risk assessments, and develop and implement internal policies, procedures and controls. Where appropriate, templates and checklists will be provided to aid PSMDs.
Supervision and compliance
PSMDs will be required to submit to or provide MinLaw access to records kept, including documents on their risk assessment, and internal policies, procedures and controls.
MinLaw will also conduct outreach and engagement sessions to help PSMDs understand the requirements of the new regime, manage compliance costs, and identify and address potential difficulties the sector might face in meeting the requirements under the new regime. Failure to comply with the requirements under the regime will result in administrative or criminal penalties, which will be meted out depending on the nature and severity of the contravention or offence committed.
The following persons will be exempted from the AML/CFT requirements under the new regime:
(a) Pawnbrokers that are currently regulated under the Pawnbrokers Act. However, Pawnbrokers will be subject to the requirement to file CTRs, as mentioned above; and
(b) Foreign PSMDs, i.e. dealers which are not registered as businesses in Singapore, but conduct business in Singapore on a temporary basis, e.g. during a trade fair. However, foreign PSMDs will still be required to:
(i) Perform CDD during transactions;
(ii) Keep records of CDD transactions and relevant documents;
(iii) File STRs, as long as trade or business is conducted physically in Singapore; and
(iv) File CTRs for cash transactions exceeding S$20,000.
It is important to note that presently the consultation does not specifically cater to financial institutions (“FIs”) who are already regulated by the Monetary Authority of Singapore (“MAS”) for AML/CFT measures. Recognising that there could be duplication in regulatory requirements, MinLaw has specifically invited FIs to provide feedback to MinLaw as to the extent to which their activities might come under the regime, whether such activities would already be subjected to their existing AML/CFT controls, and if so, the basis for this; so that MinLaw might consider whether exemptions are appropriate.
The consultation closes on 12 October 2018.
A copy of the Consultation Paper can be assessed here.