Singapore taps HSBC, Citi for rigid money laundering controls

City's lawmakers pass bill paving way for banks to cross-share information

The largest financial institutions operating in Singapore are to use the new information-sharing system, voluntarily at first.   © Reuters

DYLAN LOH, Nikkei staff writerMay 9, 2023 16:57 JST

 

SINGAPORE -- Foreign and local banks in Singapore will be required to share information with one another on a digital platform that will make it easier to raise red flags on potential money laundering acts, as the city-state tightens oversight on illicit capital flows.

The tiny nation's lawmakers on Tuesday passed a bill paving the way for the platform, called COSMIC, which is expected to come online in the second half of 2024.

"The bill seeks to strike a balance between protecting the privacy of legitimate customers and also preventing criminal abuse of this protection to conceal serious financial crime," said Alvin Tan, Singapore's minister of state for trade and industry. "The bill will permit sharing of information between financial institutions for financial crime prevention and detection purposes within tightly circumscribed parameters."

Amid increased interest from wealthy families in the region to manage assets out of the Asian financial hub, the largest financial institutions with operations in the city will use the new system. Collectively, these institutions account for more than 90% of Singapore's commercial banking market.

Local lenders DBS Group Holdings, Oversea-Chinese Banking Corp. and United Overseas Bank as well as foreign players HSBC, Citibank and Standard Chartered form the initial batch of companies that will kick off the digital initiative, with more players potentially joining later.

The Monetary Authority of Singapore, the city-state's financial regulator and central bank, expects that in COSMIC's first two years participants will use the platform to voluntarily share information on acts of suspected money laundering and transfers that might finance terrorism.

After that, the MAS intends to make such practices mandatory, with penalties to be imposed on lenders who do not share information on COSMIC, which stands for COllaborative Sharing of ML/TF Information & Cases.

"Current customer confidentiality and data protection laws can prohibit banks from sharing financial crime concerns with other unsuspecting banks," Jamil Ahmed, HSBC Singapore's chief compliance officer, noted in an opinion piece on his company's website. "COSMIC establishes a framework underpinned by legislative changes which will collectively enable HSBC and five other major banks who are the initial participants to request and provide customer information in a secure manner."

Currently, banks share information on suspicious activities on a piecemeal basis under the MAS's watch. Authorities identified a weakness in banks' ability to effectively detect illicit financial flows where no medium existed on which lenders could alert one another to unusual activity in their customers' accounts.

This inability could allow criminals to make illicit transactions through a web of accounts at different banks, hopscotching from one to another to avoid detection.

COSMIC is meant to plug this gap by allowing widescale financial sector information sharing. Jurisdictions elsewhere have also tried to address the information-sharing gap.

In the U.S. for instance, the Patriot Act permits financial institutions, upon giving notice to the Department of the Treasury, to share information with one another to identify and report to the federal government activities that might involve money laundering or terrorist activity.

According to the MAS's last enforcement report, released in April 2022 and covering the period from July 2020 to December 2021, 2.4 million Singapore dollars ($1.8 million) in penalties for money laundering and terrorism financing-related breaches were meted out.

In the previous report covering January 2019 to June 2020, fines amounted to SG$3.3 million. Within the past decade, Singapore had served as a channel for laundered funds linked to scandal-hit Malaysian state-owned investor 1MDB.

From 2014, the MAS carried out probes on banks that were suspected to have been used as conduits for 1MDB transfers. It subsequently shut down BSI Bank and Falcon Private Bank in Singapore for breaches of anti-money-laundering rules.

The passing of the bill on Tuesday will allow the MAS to access information via COSMIC for supervisory purposes, such as checking whether banks are using the platform appropriately.

"MAS is the owner and operator of the COSMIC platform," Singapore's Tan said on Tuesday. "MAS will ensure that COSMIC information is exchanged and stored securely."

https://asia.nikkei.com/Business/Finance/Singapore-taps-HSBC-Citi-for-rigid-money-laundering-controls