No precious stone left unturned: the burden of AML compliance in Singapore
28 Oct 2019

Marilyn Monroe may have sung that diamonds are a girl’s best friend, but when it comes to sparklers, regulators here are keeping their friends close – and their enemies closer. Precious stones and metals dealers (PSMDs) must register with the Ministry of Law (MinLaw)to keep plying their trade, under legislation passed in February. Close to 1,600 dealers signed up by the deadline of Oct 9.

In the biggest shake-up under the brand-new Precious Stones and Precious Metals (Prevention of Money Laundering and Terrorism Financing) Act, dealers must keep records, carry out due diligence on customers, and report certain trades in eight precious metals and alloys, as well as six precious stones: diamonds, sapphires, rubies, emeralds, jades and pearls.

Dealers previously had to take these steps only for cash transactions of more than S$20,000, in a reporting regime that was rolled out in 2014. Now, the new law mandates customer due diligence not just for transactions that bust that budget, but also if the dealer suspects money laundering or has doubts about other information that was given by the customer.

There’s also a set of enhanced due diligence rules for customers who are deemed “politically exposed persons” or have been assessed as higher-risk, such as through ties to sanctioned jurisdictions – for example, Iran and North Korea.

With such customers, a salesman won’t just need to verify personal particulars and check a list of known terrorists, as in standard due diligence. The salesman must also establish these customers’ income and source of wealth, and have a senior manager sign off on the transaction.

Norton Rose Fulbright partner Wilson Ang, a dispute resolution lawyer, explains that staff must lodge reports “if there is any suspicion that there are proceeds associated with criminal conduct; and it’s just a suspicion, it doesn’t even have to be actual knowledge” of criminal goings-on.

But Stefanie Yuen Thio, joint managing director of TSMP Law Corp, says that “I struggle with how retailers are to make such assessments and I wonder how effective these rules will be in truly weeding out criminals”.

Taking her husband – whose sister used to sit in Parliament – as an example, she laments: “When he goes to buy me that 10-carat diamond to celebrate our 25th wedding anniversary this year, he will need to be vetted up and down by some hapless salesperson trying to close a sale.”

Nearly 383,800 cash transaction reports were filed with Suspicious Transaction Reporting Office last year, up by 1 per cent year on year, according to the police. The Commercial Affairs Department, which compiles the statistics, declined to share how many of these reports were from PSMDs; cash transaction reports are also filed by casino operators.

To be sure, PSMDs say that money laundering and terrorism financing are rare in the industry in Singapore: a spokesperson for Hong Kong’s Chow Tai Fook Jewellery Group, which has three branches here, tells The Business Times that the chain has not seen large cash transactions or suspicious transactions that need reporting.

But, erring on the side of caution, it has appointed staff members – including one in Singapore – as anti-money laundering reporting officers.

PSMDs have also been tasked with making sure that their own suppliers have clean hands. For example, MinLaw considers it a red flag if rough diamonds are not accompanied by a valid Kimberley Process certificate, or if the suppliers route precious stones or metals through countries linked to money laundering or terrorism “for no apparent economic reason”.

Regulators may be focusing on retailers with the new Act because, “on the origination side, I think companies are already well aware of those risks involved” in some markets, and “there already are bribery and anti-corruption laws” for mining and other business activities, Mr Ang adds.

Hagen Rooke, a lawyer who handles financial regulations and technology at law firm Reed Smith, remarks that the new Act must be taken as part of a bigger anti-money laundering campaign.

“Singapore wants to very much prevent itself from being used as a hub for laundering of money or as a hub for channelling of terrorist finance. Similarly, it doesn’t want to be used as a hub for drug trafficking… So I see this additional regime, really, as just a logical extension of that policy focus.”

Widening the net

Retailers acknowledge that compliance has become tougher under the new law, as they ring up costs from upgrading systems and processes.

Aspial Corp, which operates pawnbroker Maxi-Cash and the Niessing and Lee Hwa jewellery brands, also hired a vendor to carry out screening and due diligence for politically exposed people and their associates.

But, beyond the outlay for due diligence, vendors fear that customers may bristle at being probed over their source of funds.

“There are certain subtle cues that can be taken: ‘Oh, what do you do for a living? Do you work around here?'” Pamela Seow, assistant general manager at family business Poh Heng Jewellery, says. “But actually asking your customers where their money comes from is a very sensitive question.”

By Annabeth Leow, Business Times, 26 October 2019

Read more at Business Times

RiskScreen: Eliminating Financial Crime with Smart Technology

You can claim CPD minutes for this content, by signing up to our CPD Wallet

FREE CPD Wallet