The Monetary Authority of Singapore (“MAS”) recently announced that it has withdrawn approval from the Singapore branch of an international bank due to serious breaches of anti-money laundering (“AML”) requirements, poor management oversight, and gross misconduct by certain bank staff.

1. http://www.mas.gov.sg/News-and-Publications/Media-Releases/2016/MAS-directs-BSI-Bank-to-shut-down-in-Singapore.aspx

MAS also imposed financial penalties on the bank and referred members of staff and senior management to be assessed for possible criminal prosecution.

The MAS took this action in parallel with criminal proceedings taken by the Office of the Attorney General of Switzerland (“OAG”), the regulator of the parent international bank.

The OAG stated that the criminal proceedings arose from information revealed by the criminal proceedings in the 1MDB case.

2. https://www.news.admin.ch/message/index.html?lang=en&msg-id=61830

The OAG suspects deficiencies in the internal organisation of the BSI SA bank. It is believed that due to these deficiencies, the bank was unable to prevent the commission of offences currently under investigation in the criminal proceedings relating to 1MDB.

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1. This enforcement action highlights AML risk faced by many financial institutions doing business – It also suggests that financial regulators in Asia and Switzerland (at least) are increasingly focused on using enforcement actions to curb money laundering.
2. A particular risk facing financial institutions is that local enforcement agencies may pursue money laundering enforcement actions in parallel with tax evasion enforcement actions taken by US authorities.

THE UNITED STATES HAS BEEN ACTIVELY TARGETING TAX EVASION

3. The United States has been actively targeting tax evasion by US persons who hold undeclared foreign accounts, and financial institutions that assist them in doing so, in recent years.
   1. Since 2008, the US Department of Justice (“DOJ”) has brought a series of enforcement actions against major banks who are alleged to have aided and abetted US taxpayers in evading taxes through secret offshore accounts. These actions have resulted in settlements with well-known institutions involving payments of hundreds of millions of dollars.
   2. In August 2013, the DOJ announced the “Swiss Bank Program,” which, subject to certain conditions, encourages Swiss banks to disclose information about accounts held by US taxpayers and pay a penalty in exchange for a non-prosecution arrangement.
   3. The Swiss banks participating in the program are required to disclose information about their cross-border activities and cooperate with the DOJ’s investigations.
   4. Thus far, the Swiss Bank Program has resulted in resolutions with nearly 80 Swiss banks involving total fines of USD 1.36 billion. The program has been seen as a successful, innovative approach in pursuing tax evasion.

FOREIGN ACCOUNT TAX COMPLIANCE ACT (“FATCA”)

4. Meanwhile, the United States has also enacted and implemented the Foreign Account Tax Compliance Act (“FATCA”), which imposes certain record-keeping and reporting requirements on foreign financial institutions regarding US account holders. In addition, to enforce FATCA in practice, the US has entered into intergovernmental agreements (“IGAs”) with many governments around the world (including Singapore and Hong Kong) to assist the identification of and enforcement actions against US persons trying to evade tax through the ownership of foreign bank accounts.
   1. There are signs that the US government is likely to turn its attention to banks in jurisdictions other than Switzerland, including Singapore and Hong Kong.
   2. Both cities are popular financial hubs where wealthy individuals are believed to have transferred assets after the Swiss bank secrecy laws became compromised in light of US tax enforcement actions.
   3. Notably, the DOJ recently filed a federal case enforcing an administrative summons issued by the US Internal Revenue Services (“IRS”), which asked a Swiss bank to turn over certain bank records concerning a US taxpayer’s account held at its Singaporean branch.

TAX IS ML

5. Financial institutions should be aware that US tax enforcement actions not only may lead to severe consequences imposed by the US authorities, but can trigger money laundering investigations as well. FOR EXAMPLE
   1. In September 2014, “foreign serious tax offence” was included in the list of specified predicate offences in Singapore’s Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (“Singapore CDSA”).
   2. In Hong Kong, tax evasion has long been recognized as an “indictable offence” (the specific term used for a predicate offence under Hong Kong AML laws), and an indictable offence includes conduct which would constitute an indictable offence if it had occurred in Hong Kong.
6. Therefore, if a financial institution in Singapore or Hong Kong AND ELSWHERE (Guernsey/Jersey/Mauritius/Seychelles etc.) becomes aware that a customer is or was evading US taxes, the institution might also be at risk of money laundering investigation or prosecution in the local jurisdiction on the theory that the institution engaged in transactions with funds that were the proceeds of tax evasion.

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7. The mere fact that there are foreign tax evasion risks may trigger separate suspicious reporting obligations under the AML regime for financial institutions, regardless of whether AML offences have actually occurred. Failing to report in itself constitutes a violation of AML laws. Regulatory actions may be based on such AML failures as well.
   1. In Singapore, the reporting threshold is a “reasonable ground to suspect;”
   2. in Hong Kong, the threshold is a mere suspect.
8. In short, the MAS action demonstrates that the MAS will pursue AML actions against local banks where appropriate.

CLOSING STATEMENT

1. Financial institutions in Singapore and Hong Kong AND ELSEWHERE should take ALL TAKE NOTE AND TAKE actions to safeguard against both international and local AML risks, especially in light of the heightened US tax enforcement efforts in the region. Otherwise, US tax evasion issues can “spill over” to local AML enforcement actions.