New Singapore law quadruples fines for corporate service providers that breach anti-money laundering duties
The new law will require all businesses that provide corporate services to register with ACRA, even if they do not transact with the authority.
More employees have returned to the office in the post-pandemic era. (File photo: iStock)
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SINGAPORE: A new law was passed in parliament on Tuesday (Jul 2) that will see fines quadruple for corporate service providers that do not comply with anti-money laundering obligations.
The Accounting and Corporate Regulatory Authority (ACRA), a statutory board under the Ministry of Finance, has taken an "increasingly strict stance" over corporate service providers and registered qualified individuals found to be non-compliant, said Second Minister for Finance Indranee Rajah.
Between 2021 and June this year, ACRA imposed 41 sanctions, with the registration of firms and individuals cancelled or suspended in 31 cases.
With the Corporate Service Providers Bill, firms and senior management staff who breach their duties to combat financial crime can be fined up to S$100,000 (US$73,650) - up from the current penalty of S$25,000.
The new law will require all businesses that provide corporate services to register with ACRA, even if they do not transact with the authority. This includes companies that provide corporate services exclusively to overseas clients.
This requirement will also extend to accounting businesses that carry out specific services defined by the Financial Action Task Force - a global money laundering and terrorism financing watchdog.
In Parliament on Tuesday (Jul 2), Second Minister for Finance Indranee Rajah responded to clarifications sought by Members of the House on the Corporate Service Providers Bill and Companies and Limited Liability Partnerships (Miscellaneous Amendments) Bill. The Bills were then passed.
Tabling the Bill for a second reading, Ms Indranee also noted that nominee directorship arrangements are a legitimate service that many corporate service providers offer. Nominee director refers to someone who is appointed as a director of a company, but acts according to another person’s instructions.
Currently, overseas-based clients who wish to set up a company in Singapore will need to have at least one local resident director.
“However, such arrangements are vulnerable to abuse and can lead to the conduct of illicit activities if the nominee directors do not perform their fiduciary duties well,” said Ms Indranee.
“In some cases, we have observed individuals who are clearly unfit to bear the responsibilities of being a director, but were arranged by errant (corporate service providers) to act as nominee directors.”
To address this, individuals can now only act as nominee directors if they have been arranged by registered corporate service providers and deemed fit and proper for the role.
WHY IT MATTERS
Money laundering has been a subject of significant public interest recently due to the S$3 billion case uncovered last year, said Ms Indranee, who is also Minister in the Prime Minister’s Office.
The 10 offenders in the case were nabbed as part of an islandwide operation two years in the making. Millions of dollars earned over the years from an illicit gambling ring were turned into luxury cars, extravagant watches, properties, designer goods and more.
“While insights from the incident have been incorporated, I would like to emphasise that the proposals in both Bills are part of (the Ministry of Finance’s) and ACRA’s ongoing enhancements and were in development even before the case was uncovered,” she said.
Parliament debated on the Corporate Service Providers Bill together with the Companies and Limited Liability Partnerships (Miscellaneous Amendments) Bill.
Ms Indranee noted that corporate service providers play an important role in anti-money laundering.
They support businesses in a number of key activities such as filing annual returns and arranging for directors, and serve as “gatekeepers” against the misuse of companies.
Today, non-residents looking to set up companies in Singapore must engage a corporate service provider to do so, said Ms Indranee.
Likewise, many locals still choose to engage with these providers for registering their companies, even though it is not mandatory to do so.
“Regardless of whether their clients are residents or not, all (corporate service providers) must conduct customer due diligence before incorporating a company,” she added.
During their speeches on Tuesday, Members of Parliament such as Mr Louis Chua and Mr Don Wee also brought up the topic of “Singapore-washing”, a term that appeared in foreign news publications, namely the Financial Times and Bloomberg.
It typically refers to a trend of Chinese firms relocating their headquarters or parent companies to Singapore to mitigate the geopolitical risks and scrutiny they face at home.
Mr Chua (WP-Sengkang) said it is important that the country's reputation cannot be associated with that of money laundering or “Singapore-washing”.
“We need to send a clear message to the world that we are not a haven where our financial system can be easily exploited.”
Singapore must send a clear message to the world that it is not a haven whose financial system can be easily exploited, said MP Louis Chua in Parliament on Tuesday (Jul 2). He said the discovery of one of the world’s biggest money laundering operations in Singapore in the past year “shocked and captivated” people here and abroad, and that the term “Singapore-washing” has even been coined. He raised several concerns about a Bill proposing tighter regulation of corporate service providers (CSPs). For example, it was decided not to proceed with a proposal to require CSPs to ensure they appoint nominee directors who satisfy prescribed training requirements if they hold more than a legally prescribed number of nominee directorships. This was “a lost opportunity”, said Mr Chua. He asked if CSPs will be given training and resources to assess if nominee directors are “fit and proper”, so that their assessments are aligned with legislation and the latest anti-money laundering developments. Mr Chua also noted that among the thousands of CSPs in Singapore, many could be very small entities dominated by one or two customer groups. He asked if their independence of judgement might be “clouded” by commercial considerations and whether CSPs will be required to declare their customer concentration risk.
CONCERNS RAISED
MPs supported the Bill, but also raised concerns on the penalties and compliance costs businesses may incur.
Mr Lim Biow Chuan (PAP-Mountbatten), for one, said that imposing too many requirements and high penalties seems to be an “excessive reaction” to the current measures against money launderers.
He noted that many corporate service providers typically offer secretariat services and do not deal with huge flow of money or funds into companies.
As such, it could be an “overkill” to impose onerous requirements on these providers to carry out stringent customer due diligence for every company that they incorporate or service, he added.
Mr Lim also highlighted that there will be higher compliance costs that will be passed on to businesses, many of which may be small companies.
In Parliament on Tuesday (Jul 2), MP Lim Biow Chuan said he supported, in principle, the need to tighten regulations on all corporate service providers (CSPs) to strengthen Singapore’s efforts to combat money laundering. However, he said many existing registered filing agents (RFAs), which will in future be classified as CSPs, typically do not deal with huge flows of funds into companies - unlike banks, financial institutions or remittance companies. He questioned whether imposing onerous requirements on them to carry out stringent customer due diligence is “overkill”. Mr Lim also asked if clear guidelines will be issued for CSPs to assess who is considered a “fit and proper” person to be a nominee director. If the criteria is not clear and easy to comply with and foreigners have to wait “months” to start a business or open a bank account here, Singapore could risk losing its competitive edge as a business-friendly country, said Mr Lim.
This issue was raised by Nominated MP Neil Parekh as well, who said the additional financial costs could be “substantial”.
“This reallocation of resources in terms of time and people and system upgrades to meet new standards can cause temporary interruptions in service delivery,” he said.
Ms Indranee said the government has consulted stakeholders extensively, and that the requirements have been carefully calibrated. This way, appropriate measures can be taken when obligations are breached, but Singapore remains open and friendly to legitimate businesses.
“On the whole, we do not expect the new requirements in the Bill to significantly increase compliance costs on (corporate service providers) or affect the ease of doing business in Singapore,” she said.
“The requirements in the Bill are existing best practices that (corporate service providers) should already be adopting.”
Mr Chua pointed to an initial proposal that required corporate service providers to ensure appointed nominee directors satisfy the necessary training requirements if they hold more than a legally prescribed number of nominee directorships.
Noting that it was a “lost opportunity” that the proposal was not proceeded with, Mr Chua asked if the government would reconsider the decision to further strengthen regulations against the abuse of nominee directorships.
In response, Ms Indranee said the proposal was shelved after discussions with government agencies and a public consultation.
“This was because prescribing the number of nominee directorships that an individual can hold could be a blunt tool that is unnecessarily restrictive.
“It would make it difficult for individuals who are capable of fulfilling their obligations despite holding more than the prescribed number, and who may have legitimate reasons for holding multiple nominee directorships,” she said.
It could also raise the cost of doing business for companies that need to source for more people to fulfil the requirement. Meanwhile, bad actors could likely easily circumvent the rule.
Instead of a limit, the Bill states that people can only act as nominee director by way of business if arrangements are made by a corporate service provider. The providers are also required to ensure that those chosen to be nominee directors are fit and proper.
The Companies and Limited Liability Partnerships (Miscellaneous Amendments) Bill was debated together with the Corporate Service Providers Bill, as both are meant to enhance Singapore’s anti-money laundering regime.
The former raises the penalties for companies and LLPs that fail to maintain registers of people who have significant interest or control in the firms, and their nominee directors and nominee shareholders.
It also makes it an offence for persons to provide false or misleading information about their registers to ACRA, and requires companies and LLPs to verify and update their controllers’ information annually.
Companies will also have to provide full information of nominee arrangements to ACRA for transparency.
