Prevention of Money Laundering and Financing of Terrorism
Revision and Update of Council’s Practice Direction 3.2.1 on Prevention of Money Laundering and Financing of Terrorism
It is estimated that up to US$ 2 trillion of dirty money is laundered globally every year. Although the main focus on anti-money laundering (AML) is on financial institutions, non-financial professionals such as lawyers also have an important role to play.
With this in mind, the Legal Profession (Prevention of Money Laundering and Financing of Terrorism) Rules (the Rules) came into operation on 23 May 2015. In conjunction with the enactment of the Rules, the Law Society released a Practice Direction (PD 2015) providing practical guidance on how to apply the Rules.
Over the last two years the Law Society’s Anti-Money Laundering (AML) Committee has conducted a review of PD 2015 and updated it to reflect developments (both globally and in Singapore) in the AML landscape.
The updated Practice Direction (PD 2020) was released on 11 September 2020 and is available on the Law Society’s AML webpage. All practitioners are strongly encouraged to familiarise themselves with PD 2020.
The main changes in PD 2020 are:
- Expanded guidance the Risk-Based Approach (RBA) for Client Due Diligence (CDD);
- Sections dealing with the responsibilities of lawyers acting as trustees or as corporate service providers have been updated in light of legislative changes since 2015;
- Expanded guidance on legal professional privilege;
- A new section on virtual assets; and
- Guidance on filing Suspicious Transaction Reports (STR).
FATF Guidance for a Risk-Based Approach
In June 2019, the Financial Action Task Force (FATF), an inter-governmental body that develops and promotes policies to counter money laundering, published “Guidance for a Risk Based Approach for Legal Professionals”. PD 2020 has been updated to include material from this Guidance.
Lawyers in Singapore are obliged to adopt a RBA to identify, assess and understand the money laundering/terrorist financing risks to which they are exposed to in their practices (see Rule 12). This understanding enables lawyers to implement the appropriate policies, procedures and initial and ongoing CDD measures to mitigate those risks.
Client Due Diligence Pursuant to the New Trustees (Amendment) Act 2017 (TAA 2017) and Trustees (Transparency and Effective Control) Regulations 2017
PD 2020 now references the CDD measures for legal practitioners who act as trustees introduced by the amendments to the Trustees Act and regulations thereunder.
Creation, Operation and Management of Companies and Other Legal Entities
The Accounting and Corporate Regulatory Authority (Filing Agents and Qualified Individuals) Regulations 2015 introduced an AML regime for corporate service providers. This is an important practice area for many lawyers in Singapore. Unfortunately, there was inadequate time for it to be addressed in PD 2015. The omission has now been rectified.
Legal Professional Privilege
One of the most contentious issues for legal professionals is reconciling their obligation to report suspicious money laundering activities with legal professional privilege. PD 2020 contains an expanded section on legal professional privilege and provides practical guidance on some of the issues that practitioners are likely to face.
Guidance on Virtual Assets
Lawyers in Singapore are obliged to identify and assess money laundering risks from new practice areas and new technologies. One practice area that has become increasingly important since 2015 is virtual assets e.g. crypto currencies such as bitcoin. Taking reference from “Guidance for a Risk-Based Approach to Virtual Currencies” from FATF, the PD 2020 provides new guidance on the risks and red flags involved in this area.
A key plank of the AML regime is for professionals to report to the Suspicious Transaction Reporting Office (STRO) when they come across activities that they suspect involve money laundering.
Suspicious Transaction Reports (STR) have to be filed with the STRO via the STRO Online Notices and Reporting Platform or SONAR. SONAR provides a template for the STR and expedites the process for filing.
PD 2020 recommends that all law practices create an account with SONAR.
PD 2020 strives to be a comprehensive and practical guide for practitioners to assist them to fulfil their AML obligations. Lawyers have an important role to play in AML. The Law Society hopes that PD 2020 will go some way in helping to develop and maintain a culture of compliance in the profession.
Further updates to the Practice Direction will be made when circumstances warrant it.