Red Flag Indicators – Reporting Suspicious Transactions
Your Reporting Obligations
An obligation to make a suspicious transaction report in certain circumstances is imposed by various statutes:
- The Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA);
- The Legal Profession Act (LPA) and its Legal Profession (Prevention of Money Laundering and Financing of Terrorism) Rules 2015 (AMLRules); and
- The Terrorism (Suppression of Financing) Act (TSFA).
Section 39(1) CDSA mandates a person to make a suspicious transaction report if, in the course of his profession or employment, he “knows or has reasonable grounds to suspect” that any property1 “Property” is defined in section 2 CDSA as “money and all other property, movable or immovable, including things in action and other intangible or incorporeal property”. represents the proceeds of or is connected with drug dealing or criminal conduct. The drug dealing offences and the offences that constitute criminal conduct are set out in the schedules to the CDSA (“predicate offences”).
Failure to make a suspicious transaction report under section 39(1) CDSA may amount to an offence, and upon a conviction, a fine not exceeding $20,000 can be imposed.
Under section 70D of the Legal Profession Act (LPA), a lawyer or law practice that knows or has reasonable grounds to suspect any matter referred to in section 39(1) CDSA must make a suspicious transaction report. This obligation to report relates to not only an existing client but also to a prospective client.2 “Client” is defined in Rule 2 AML Rules to include a person who is “about to retain or employ” a lawyer or law practice. Given that section70D LPA effectively imports section 39(1) CDSA, failure to make a suspicious transaction report may result in a prosecution under the CDSA, disciplinary proceedings against an individual lawyer under the LPA, or regulatory action against the law practice under the LPA.3 Section 133, section 145, section 161, section 174–7 LPA.
If you have knowledge that the property is the proceeds of an offence, you must make a suspicious transaction report. This article focuses on your reporting obligations under section 39(1) CDSA where you suspect the property to be proceeds of an offence.
Drug dealing offences are set out in the First Schedule to the CDSA, while the serious offences that amount to criminal conduct are set out in the Second Schedule to the CDSA. There are over 400 offences in the Second Schedule to the CDSA, which include offences under the TSFA.
You need not link the property in question to a particular predicate offence when making a suspicious transaction report.
This was explained by then Senior Minister of State for Home Affairs, Associate Professor Ho Peng Kee in 2007 as follows:
“A suspicious transaction report should be made when there is knowledge or reason to suspect that something is amiss with a particular transaction, and there is no requirement to link this to a specified CDSA predicate offence. A suspicious transaction report is not a specific complaint or allegation of criminal wrongdoing… [T]he duty to make a report will arise if, for example, a person reasonably suspects the property to be the proceeds of any offence, so long as the possibility that they may be the proceeds of a serious offence cannot be ruled out.” [Emphasis added.]
(Singapore Parliamentary Debates, Official Reports (19 September 2007) Vol 83 at Cols 1970–1971)
In Public Prosecutor v Rahmad Bin Ibrahim  SGDC 349, which was the first prosecution under section 39(1) CDSA, the District Court commented that “[in] money-laundering, the true source of the funds or property are almost always hidden or disguised. In a majority of cases, persons dealing with such funds will not have clear evidence before them of the source of these funds, rendering it nearly impossible for them to link the funds to a specific predicate offence.”
Reasonable Grounds to Suspect
In Public Prosecutor v Rahmad Bin Ibrahim, the District Court held that the test of having “reasonable grounds to suspect” under section 39(1) CDSA is a partly subjective and partly objective test, and a matter is “determined from the perspective of the accused person (ie, a person with his knowledge and experience) and on the standards and belief of a reasonable man in his shoes”.
The court commented that a suspicion that something exists is more than a mere idle wondering whether it exists or not. It is a positive feeling of actual apprehension or mistrust, amounting to, as Chambers’ Dictionary expresses it, “a slight opinion, but without sufficient evidence”.
In that case, the court observed that the test “would be whether there were facts which would have caused a reasonable person with the Accused’s experience and knowledge to have a positive feeling of actual apprehension or fear that the property he was dealing in directly represented the proceeds of criminal conduct.”
Red Flag Indicators
The presence of high risk factors or red flag indicators in relation to your client may be a basis for suspecting that the property is proceeds of an offence.
High risk factors may include but are not limited to the following:4 Para 3.5 ‘Law Society’s Prevention of Money Laundering & Financing of Terrorism Practice Direction 2015’.
Type of Client (Client Risk Factors)
- Non-resident client and client who has no address or multiple addresses.
- Client or beneficial owner who is a politically-exposed individual or a family member or close associate of any such individual.
- Legal persons or arrangements that are personal asset holding vehicles.
- Companies with nominee shareholders or bearer shares.
- Businesses that are cash-intensive.
- Client with criminal convictions involving fraud or dishonesty.
- Client shows an unusual familiarity with respect to the ordinary standards provided for by the law in the matter of satisfactory client identification.
- Client who asks for short-cuts and unexplained speed in completing the transaction.
- Client is overly secretive or evasive (eg, of who the beneficial owner is, or the source of funds).
- Client is actively avoiding personal contact without good reason.
- Client is willing to pay fees without requirement for legal work to be undertaken (other than deposits as requested by you in advance of the work to be undertaken).
Type of Client (Country/Territory Risk Factors)
- Client is from or in any country or jurisdiction in relation to which the FATF has called for countermeasures or enhanced client due diligence measures.
- Client is from or in any country or jurisdiction known to have inadequate measures to prevent money laundering and the financing of terrorism.
The Business Relationship with the Client
- Instructions to a lawyer or law practice at a distance from the client or transaction without legitimate or economic reason.
- Instructions to a lawyer or law practice without experience in a particular specialty or without experience in providing services in complicated or especially large transactions.
- Use of client account without underlying legal services provided.
- Payments are made by the client in actual cash (in the form of notes and coins).
- The transaction relates to, any country or jurisdiction in relation to which the FATF has called for countermeasures or enhanced client due diligence measures.
- Disproportionate amount of private funding for the purchase of real estate/property which is inconsistent with the socio-economic profile of the client.
- Large cash payments made for purchase of interest in land whose value is far less, or the method of funding is unusual such as funding from a third party who is not a relative or known to the buyer, or there is an absence of any logical explanation from the parties why the property is owned by multiple owners or by nominee companies.
- Unusually high levels of assets or unusually large transactions in relation to what might reasonably be expected of clients with a similar profile.
- Transfer of real estate between parties in an unusually short time period.
- Requests by the client for payments to third parties without substantiating reason or corresponding transaction.
- Instructions by the client for the creation of complicated ownership structures where there is no legitimate or economic reason.
- Disputes which are settled too easily, with little involvement by the lawyer or law practice (may indicate sham litigation).
- Abandoned transactions with no concern for the fee level.
- Loss making transactions where the loss is avoidable.
- An absence of documentation to support the client’s story, previous transactions or company activities.
- Unexplained use of express trusts.
- Unexplained delegation of authority by the client through the use of powers of attorney, mixed boards and representative offices.
- In the case of express trusts, an unexplained relationship between a settlor and beneficiaries with a vested right, other beneficiaries and persons who are the object of a power.
- In the case of an express trust, an unexplained (where explanation is warranted) nature of classes of beneficiaries and classes within an expression of wishes.
If there are such risk factors, you could ask your client for an explanation as part of your client due diligence. If you are unable to obtain the information required, or if you do not receive a satisfactory response, you must not commence any new business relationship, and must terminate any existing business relationship. And you must consider whether to make a suspicious transaction report.5 Rule 15 AML Rules.
If you have reasonable grounds to suspect that the property in question is the proceeds of an offence, you must not establish any new business relationship with, or undertake any new matter for, the client; and you must make a suspicious transaction report.6 Rule 5(1) AML Rules. If it is an existing business relationship, and you consider it appropriate to retain the client:
- You must substantiate the reasons for retaining the client, and document those reasons; and
- The business relationship must be subjected to commensurate risk mitigation measures, including enhanced ongoing monitoring.7 Rule 9(3)(c) AML Rules.
Factors to Consider in Making a Suspicious Transaction Report
In considering whether to make a suspicious transaction report under section 39(1) CDSA, the following aspects should be taken into account:
- Failure to disclose any information or matter which is an item subject to legal privilege is not an offence.8 Section 39(4) CDSA. Section 2A CDSA sets out the meaning of “item subject to legal privilege”.
- If a suspicious transaction report is made in good faith, the disclosure will not be a breach of any restriction upon the disclosure imposed by law, contract or rules of professional conduct;9 Section 39(6) CDSA.
- A defence to a charge of failing to make a suspicious transaction report is that you had a reasonable excuse for not disclosing; 10 Section 39(5) CDSA.
- For certain offences under the CDSA — assisting another to retain benefits of drug dealing,11 Section 43 CDSA. or assisting another to retain benefits from criminal conduct12 Section 44 CDSA. — it may be a defence that a suspicious transaction report was made.
You must document the basis for your determination whether to file a suspicious transaction report.13 Rule 25 AML Rules.
If you decide to make a suspicious transaction report, the report must be made as soon as is reasonably practicable after the matter comes to your attention.14 Section 39(1) CDSA.
If you have made a suspicious transaction report, you cannot tell anyone that you have reported, including your client, as doing so may amount to “tipping-off” (which is an offence).15 Section 48 CDSA. If you terminate the business relationship, you should give an appropriate reason to the client for terminating the relationship. Your law practice could, for example, cite compliance requirements as a reason:
- Risk management or compliance department instructs to decline representation. We are unable to give details; or
- The matter did not accord with internal risk management policies and we are unable to give details.
(For further information, you may refer to the Frequently Asked Questions compiled by the Suspicious Transaction Reporting Office of the Commercial Affairs Department on the Law Society website.)
How to Make a Suspicious Transaction Report
A suspicious transaction report may be made in writing (addressed to Head, Suspicious Transaction Reporting Office, Commercial Affairs Department) via e-mail to [email protected]; or via the web-based Suspicious Transaction Report Online Lodging System (STROLLS). More details are available on the Commercial Affairs Department website.
The Law Society of Singapore
|↑1||“Property” is defined in section 2 CDSA as “money and all other property, movable or immovable, including things in action and other intangible or incorporeal property”.|
|↑2||“Client” is defined in Rule 2 AML Rules to include a person who is “about to retain or employ” a lawyer or law practice.|
|↑3||Section 133, section 145, section 161, section 174–7 LPA.|
|↑4||Para 3.5 ‘Law Society’s Prevention of Money Laundering & Financing of Terrorism Practice Direction 2015’.|
|↑5||Rule 15 AML Rules.|
|↑6||Rule 5(1) AML Rules.|
|↑7||Rule 9(3)(c) AML Rules.|
|↑8||Section 39(4) CDSA.|
|↑9||Section 39(6) CDSA.|
|↑10||Section 39(5) CDSA.|
|↑11||Section 43 CDSA.|
|↑12||Section 44 CDSA.|
|↑13||Rule 25 AML Rules.|
|↑14||Section 39(1) CDSA.|
|↑15||Section 48 CDSA.|