As an international business and financial center in southeast Asia, Singapore welcomes legitimate businesses to establish a presence here. Every year close to 30000-40000 companies are registered in Singapore out of which a sizable number of companies are promoted by foreigners. Such legal persons, including companies and partnerships, can play important roles in supporting the entrepreneurship and economic growth of the country.
In recent years, Singapore also has become a startup hub, where hundreds of new startups have setup operations in the areas of logistics, Fintech, blockchain etc.
However, there is always a risk that these legal entities can also be misused for illicit purposes. Instances have happened where a company was established in Singapore, and later on funds of criminal origin were received in the company.
CSPs involved in the business of incorporation of companies for foreigners are exposed to certain ML / TF risks where there is a risk of clients using the corporate structure and the bank account for certain illegal or criminal purposes. Notably, the following few types are observed here.
In this typology, a promoter opens the company in Singapore, and avails services like Bank account opening, Nominee Director, Secretary etc. After the company and its bank account is operational, suddenly there is inflow of funds in the account and immediate outflow. So money is received over a short period where there can be many remittances, and it is moved out of the account in a very short period.
In most of the cases the money received is of criminal origin. Maybe it is from investment fraud, impersonation scams and anything like that. Once these activities happen in the bank account, the bank will close the account and the company will become inoperative. Attempts to contact the promoter will go futile. The promoter will simply vanish. It is also possible that the promoter might have used fake documents for company registration.
In this typology, a promoter opens the company in Singapore, and avails services like Bank account opening, Nominee Director, Secretary etc. After the company and its bank account is operational, normal transaction starts. Deceiving and fraudulent remittances from other people are not involved here (As in type 1 above).
But the transactions, that happen in the company are mostly fake. Meaning there is no actual delivery of products or services. It's just fake purchase/sales invoices, thereby creating fake profit.
So here somebody who has illicit funds stashed somewhere is using the Singapore Company structure to make that money white. Since this is the money which belongs to the promoter, there is no external trigger here to alert you.
In this typology, a promoter opens the company in Singapore, and avails services like Bank account opening, Nominee Director, Secretary etc. Afterword’s, dirty money is received in the company bank accounts. For example, bribe for some contract maybe remitted to this account. Since there is no real trade involved, most of the remittances received are pure profit. The promoter then declares almost all of the remittance as profit, pays taxes on it and then makes the dirty money white.
Government authorities have specifically noted that the risk of misuse of a corporate structure is high in the case of shell companies. The typical indicators that the company is a shell company are as follows.
Banks must detect shell companies, though challenging at account registration. By properly training the staff the banks should gather right information from the customer.
Banks should continually enhance controls to address gaps identified from post mortem reviews of relevant cases and STRs, to strengthen banks’ ability to detect potential shell companies.
MAS has asked banks to implement a multi-factor risk assessment protocol at the time of customer onboarding. A single red flag is typically not a sufficient indicator of suspicion,
But the presence of many factors requires banking institutions to be alert and ask for more data.
With the development in computing technologies the banking institutions are able to deploy advanced techniques for detecting the misuse of bank account. Some of these techniques are listed below.
In the past, banks use to spot the suspicious transactions only based on the specific data of a company or of a bank account. However modern software enables banks to spot these indicators now across the companies.
For example, if an account has come for approval, however, if the authorized signatory of the same was previously flagged as suspicious for a specific transaction in some other company, it can now be immediately alerted by the banks internal system.
Similarly, if the transactions for a specific authorised signatory are flagged as suspicious, then all other transactions in any other company where this signatory appears in any capacity can be highlighted for a review.
Many banks now have access to logistics data to check the validity of the goods moving through the international logistics network. This enables them to identify the nature of goods moving and ascertain the genuineness of the transaction.