Amendments to the Trustees Act and Regulations from the Anti-Money Laundering Perspective
On 31 March 2017, the Trustees (Amendment) Act 2017 (“TAA 2017”) took effect. The TAA 2017 makes it easier for lawyers to obtain information for compliance with existing customer due-diligence measures under the Legal Profession Act. The availability of information on trust parties however, places a heavier responsibility on lawyers to look out for suspicious circumstances when conducting customer due-diligence measures.
The new Trustees (Amendment) Act 2017 (TA) and its subsidiary legislation, the Trustees (Transparency and Effective Control) Regulations 2017, reinforce and supplement existing due diligence and record-keeping obligations. These existing obligations comprise:
- Part VA of the Legal Profession Act (LPA), read with its subsidiary legislation, the Legal Profession (Prevention of Money Laundering and Financing of Terrorism) Rules 2015; and
- The Law Society of Singapore’s Practice Direction 1 of 2015 on the Prevention of Money Laundering and Financing of Terrorism.
Rules under the Law Society’s Practice Direction are made in accordance with section 70H of the LPA. It sets out directions and guidance on Part VA and its concomitant rules, and must be read together with the LPA provisions.
Existing Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) Measures
Currently, AML and CFT practice rules apply to any “law practice” or “legal practitioner” defined in Part VA of the LPA. These measures need only be carried out in relation to a “relevant matter”, as defined in section 70A to mean any of the following:
“(a) acquisition, divestment or any other dealing of any interest in real estate;
(b) management of client’s moneys, securities or other assets, or of bank, savings or securities accounts;
(c) creation, operation or management of any company, corporation, partnership, society, trust or other legal entity or legal arrangement;
(d) acquisition, merger, sale or disposal of any company, corporation, partnership, sole proprietorship, business trust or other business entity;
(e) any matter, in which a legal practitioner or law practice acts for a client, that is unusual in the ordinary course of business, having regard to:
- the complexity of the matter;
- the quantum involved;
- any apparent economic or lawful purpose of the matter; and
- the business and risk profile of the client.”
Customer Due-Diligence and Record-Keeping
Under the LPA, a legal practitioner or law practice must:
- Not open or maintain any account for or hold or receive moneys from an anonymous source, or a client with an obviously fictitious name (section 70B LPA);
- Perform customer due diligence (CDD) measures as prescribed in the Rules (section 70C LPA);
- Maintain all documents and records obtained from each relevant matter it has acted in, or through CDD measures performed under section 70C LPA (section 70E LPA).
The Reporting Requirement
Under section 70D of the LPA, a lawyer or law practice who knows or has reasonable grounds to suspect that any property represents or is linked to the proceeds of criminal activity must disclose the matter to a Suspicious Transaction Reporting Officer by way of a suspicious transaction report under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap 65A) (CDSA), or an authorised officer under the CDSA.
New Amendments to the Trustees Act
Amendments to insert sections 83 to 84A into Part VII of the TA were passed in Parliament on 10 March 2017. It took effect on 31 March 2017 to enable the Minister of Law (Minister) to prescribe regulations requiring trustees of relevant trusts to maintain up-to-date information on controllers, agents and accounting records relating to the trust, and to disclose to a party in a prescribed transaction that it is acting for the trust.
The amendments accompany the Ministry of Law’s public consultation exercise in January, and introduce a framework that gives effect to the FATF (Financial Action Task Force) Recommendations on enhancing transparency and making information more accessible for law enforcement agencies. This will minimise the abuse of trust structures to conceal assets for money laundering, terrorism financing and tax evasion purposes.
The amendments will apply to any express trust:
- That is governed by Singapore law;
- That is administered in Singapore; or
- Of which any of the trustees is resident in Singapore.
As provided for in the Trustees (Transparency and Effective Control) Regulations 2017, the Minister has made the following regulations in exercise of the powers conferred by section 84A of the TA. Generally, a trustee must now:
- Obtain information on the identity and particulars of trust parties, including effective controllers of trust parties, and any agent of or service provider to the trust (Regulation 4–6);
- Maintain and keep up to date accounting records of the trust (Regulation 9), and an accurate record of the identities of the above persons and assets (Regulation 7). This must be retained for a period of at least five years after the trustee ceases to be a trustee of the trust;
- In the formation of a business relationship with any specified person under Regulation 8(5), take reasonable steps in a transaction with aggregate value or amount of more than $20,000, to disclose that the trustee is acting for the trust (Regulation 8). This includes dealings with both local and foreign lawyers.
Effect of the New TA Amendments on Existing AML and CFT Regulations
Under the LPA, lawyers and law practices are currently required to conduct customer due-diligence (“CDD”) measures to ascertain and take reasonable steps to verify information pertaining to clients who are entities or legal arrangements. Since the new TA amendments require trustees to obtain, maintain, and disclose trust information, lawyers and law practices will now find it easier to obtain information for compliance with existing CDD measures as prescribed by the LPA.
Summarily, these CDD measures require lawyers and law practices to:
- Ascertain and verify a client’s identity using objectively reliable and independent source documents, data or information;
- Take reasonable measures to determine whether the client is a politically-exposed individual, or a family member or close associate of any such individual.
The Legal Profession (Prevention of Money Laundering and Financing of Terrorism) Rules 2015 sets out exactly what information is required (Rule 6(2)), and also states that such checks must be carried out on agents of the client (Rule 7), clients who are entities or legal arrangements (Rule 8), and business relationships with clients (Rule 9).
Lawyers Who Are Professional Trustees
The new TA amendments and subsidiary legislation also supplement current regulations under Rule 10 for lawyers who are professional trustees. While the LPA broadly prescribes that up-to-date information relating to trust parties be obtained and maintained, the TA sets out specific information to be obtained where the trust party, or effective controller of a trust is an individual or entity. Lawyers must now be cautious in complying with such measures, since they can no longer rely on the broad requirements as set out by the LPA.
Apart from that, the TA in substance imposes similar requirements on lawyers who are professional trustees. They are now subject to similar disclosure requirements under the TA, and are also required to obtain and maintain up-to-date information regarding the identity and particulars of each trustee, the identities of controllers, settlors, protectors (if any), beneficiaries, service providers, and the nature of the trust. Similar to trustees of trusts governed by the TA, this information must be maintained for five years after he or she is no longer involved in any dealings with the trust.
Effect on Reporting Requirements
The new TA amendments may ultimately have implications on the standard of suspicious transaction reporting requirements where there is “reasonable grounds to suspect” under section 70D of the LPA. Lawyers and law practices must be cautious to conduct CDD measures — it may now be harder to claim ignorance of suspicious circumstances, if information on trust parties is now readily available, as required under the TA.