COMMENT: What Singapore's New Tax Evasion Definition Means For Firms

Tara Loader Wilkinson

16 October 2012

New legislation on tax evasion, including an ongoing consultation from the Monetary Authority of Singapore will require firms to conduct an overarching review of their AML procedures, say experts.

Earlier this month, the MAS confirmed new legislation to criminalise the laundering of proceeds of tax evasion by 1 July 2013.

Singapore's financial watchdog also released a consultation paper titled 'Designation of Tax Crimes as Money Laundering Predicate Offences in Singapore', which includes a proposed definition of serious tax crimes to be included as money laundering predicate offences.

Tax evasion is currently not a predicate offence under Singapore's main anti-money laundering legislation. A predicate offence is a crime that is a part of another offence. The MAS proposes to apply the definition of tax evasion and serious fraudulent tax evasion, as predicate offences.

According to a client circular from law firm Baker & McKenzie, this means that financial institutions will need to review their existing internal AML policies, controls and procedures. They will need to incorporate and identify tax specific red flag indicators and undertake a critical review for all existing accounts, to assess the tax legitimacy and identify high risk accounts.

With this change, the suspicious transactions reporting requirements in the existing AML rules will, from 1 July 2013, apply when financial institutions become aware or have reasonable grounds to suspect that they are dealing with the proceeds of tax evasion, said Baker & McKenzie.

"Interestingly, the consultation paper highlights that there is no one-size-fits-all approach and the financial institutions will need to factor in institution specific variances such as differences in core business activities, product offerings, clientele, geographical concentration and internal risk tolerances in reviewing its internal risk management policies," said Baker & McKenzie.

The closing date for comments to the consultation paper is 9 December 2012.

Next steps

The swift response by MAS to adopt the Financial Action Task Force's recommendations sends a clear message that Singapore will not tolerate inflows of illicit funds, and will be proactive in safeguarding the integrity and reputation of Singapore as a clean financial centre, said the law firm.

Financial institutions should embrace this change, as this will be crucial for Singapore in maintaining its growth as a global financial centre. It will discourage would-be tax evaders from sending their funds to Singapore and further encourage inflows of legitimate funds to Singapore (particularly from offshore jurisdictions that have acquired the unsavory reputation of harbouring illicit funds).

As there are less than nine months before the effective date of the legislation, financial institutions should start reviewing their existing AML procedures to incorporate control measures to deal with indicators of tax evasion.

As other key financial hubs such as Australia, Hong Kong, the Netherlands and the UK already have tax evasion as a predicate offence, financial institutions can leverage off the existing compliance policies in these other markets as a base for reviewing the Singapore compliance policies. In the meantime, the Private Banking Industry Group is working on defining industry best practices for the new AML requirements, said Baker & McKenzie.

These best practices should help guide financial institutions operating in Singapore on the implementation of these requirements.