Upcoming new anti-money laundering and countering of terrorism financing responsibilities for developers
30 January 2019
Property transactions can be and have been exploited for money laundering and terrorism financing activities, enabling the transfer of large amounts of money across borders, giving money launderers and terrorists access to financial systems and an avenue to account for the legitimacy of their funds. This has been highlighted by local and international law enforcement and supervisory authorities including the Financial Action Task Force (FATF) which is an inter-governmental body set up to combat money laundering, terrorism financing and related threats.
By enacting the Developers (Anti-Money Laundering and Terrorism Financing) Act 2018, Singapore has stepped up its efforts to prevent the local real estate industry from being used to facilitate the movement of illicit funds. The new law is not yet in force and will come into operation on a date to be appointed.
Responsibilities of developers under the new law
The new law amends the Housing Developers (Control and Licensing) Act (“HDCL Act”) and the Sale of Commercial Properties Act (“SCP Act”). It mandates a number of requirements for developers, some of which will be new and unfamiliar. These include:
- Implementing adequate programmes and measures and training employees to mitigate money laundering and terrorism financing risks having regard to the size of the developer’s business;
- Performing customer due diligence measures by carrying out checks on prospective purchasers;
- Keeping records of the customer due diligence procedures;
- Making suspicious transaction reports if the developer knows or suspects that money used to purchase property may be connected to money laundering, terrorism financing or other criminal conduct; and
- Ensuring that accounts are not opened in the names of, nor money accepted from, anonymous or fictitious buyers.
Penalties for failure to comply with the new requirements include a fine of up to S$100,000 and revocation or suspension of the developer’s licence. In addition, persons convicted of money laundering or terrorism financing offences may be disqualified from engaging in real estate development activities (see below).
New monitoring and enforcement powers for Controller of Housing
Under the new law, the Controller of Housing will also be given new enforcement powers to ensure compliance with the new provisions. These include powers to require developers to produce relevant information, retain documents and disclose information for purposes of investigation and any subsequent criminal proceedings.
The Controller of Housing will also have new powers to bar a person who has been convicted of money laundering and terrorism financing offences in Singapore from being a licensed developer, or holding positions of responsibility in developers, or from being a substantial shareholder of a developer.
These powers will add to the existing powers that the Controller of Housing already has to refuse, revoke, or suspend a housing developer’s licence for offences involving fraud or dishonesty, or when a developer is carrying on its business in a manner that is detrimental to the interests of its purchasers or to the public.
Developing an effective compliance program
One of the first things developers will need to do will be to develop policies and procedures to help them comply with their new obligations. These policies and procedures will need to address, among other things, the following issues:
- Board of directors and senior management commitment to the management of money laundering and terrorism financing risks;
- Roles and responsibilities within the organisation for ensuring compliance with the new law;
- Risk awareness and appreciation;
- On-boarding of prospective purchasers;
- Measures for dealing with high risk clients such as foreign buyers;
- Monitoring on-going transactions such as stage payments;
- Establishing processes for making suspicious transaction reports;
- Training for management and employees; and
- Appointment of a compliance officer at management level.
Each developer’s policies and procedures will also need to be reviewed periodically to take into account developments in technology, market practices and potential levels of criminal activity.
The new law allows developers to adopt a risk based approach to compliance - this means that there will be some flexibility to develop procedures according to the different risks identified based on each developer’s business model and client base. To do this, the developer will have to undertake periodic risk assessments to evaluate its risk profile and adapt the scale and sophistication of its processes accordingly.
Given established practices in the industry, developers will have to consider the extent to which they can outsource some of the checks on purchasers to third parties such as sales agents. Developers will remain responsible for the adequacy of the checks but it is likely that a significant amount of the information gathering will be done by such third parties. If developers are to rely on these third parties, they will have to ensure that their contractual arrangements reflect the delegation of these responsibilities and employees of these third parties are trained to the same standards as their own staff.
Outlook
The new law is a timely and necessary addition to the suite of measures needed to combat international money laundering and terrorism financing. In the short term, developers will have to invest time and effort to put in place policies and procedures to mitigate their risks. In the longer term, these steps will result in higher and more robust standards of safety and soundness, bringing about greater confidence in the industry.
Reference materials
The Developers (Anti-Money Laundering and Terrorism Financing) Act 2018 can be accessed from the Singapore Statutes Online website sso.agc.gov.sg.