Round-Up Speech by Minister Lawrence Wong on the Developers (Anti-Money Laundering and Terrorism Financing) Bill
Nov 20, 2018 20:00
Mr Deputy Speaker Sir, I thank the Members of the House who have risen in support of the Bill, as well as the Members who have shared their comments and feedback. I will now address some of the points raised in the course of this debate.
Scope of the Bill
I believe that Members who have spoken generally agreed that as a responsible member of the international community, there is a need for Singapore to do our part to strengthen our levers to effectively detect, deter and prevent money laundering and terrorism financing.
However, several members, including Er Dr Lee Bee Wah and Ms Foo Mee Har, asked why there was a need to impose these requirements on developers in particular, since the funds they receive would eventually have to pass through financial institutions, and banks which already have to carry out checks.
Er Dr Lee is right in that in general, most money laundering and terrorism financing activities are concentrated in the financial sectors. But as Ms Foo Mee Har and Mr Louis Ng said, real estate is also an established method of laundering worldwide, and so, such activities can occur in real estate, and be exposed to questionable practices.
For the real estate sector in particular, besides bankers and lawyers, developers are a key party that deal with property buyers. They do play an important role in the detection and prevention of such activities. That is why we are introducing these requirements by amending two Acts that regulate developers to better facilitate our anti-money laundering and counter-terrorism financing, or AML/CTF, activities. That is also the reason why this Bill does not cover transactions involving completed properties, because the Bill pertains to the two Acts that regulate the sale of uncompleted housing and commercial properties by developers. These are the sale of properties typically sold off-plan and they are exposed to more risks.
How about Completed Properties?
Our main objective of the Bill is to get developers who are involved in the sale of such uncompleted properties involved in our AML/CTF efforts, and bring them up to the same level as the other players that are involved in real estate transactions, namely the bankers and lawyers.
For the sale of completed properties, these typically do not involve developers directly, and so we rely on other players in the real estate chain, such as bankers and lawyers, who already have similarly robust obligations under their respective legislation to conduct customer due diligence checks and to report suspicious transactions. This is really about levelling up and making sure that we cover comprehensively the same requirements, not just on bankers and lawyers, but also now on real estate developers. That is why the Bill covers the two Acts that regulate the sale of uncompleted properties.
For real estate agents in particular, CEA currently has guidelines to require estate agents to perform due diligence checks for suspicious transactions. These are guidelines by the regulator. However, we do intend to make amendments next year to the Estate Agents Act so as to impose similar anti-money laundering and counter-terrorism financing requirements for estate agents.
Compliance Burden and Responsibility of Developers
I understand and hear the feedback from Members who have spoken. All of you have highlighted and asked if the proposed legislation would be overly onerous on developers, and where it would impact their business operations.
We share the concerns, and that is why in drafting the provisions and implementing these requirements, we have been careful to implement a calibrated, risk-based approach. In tabling this Bill, we would like to strike a balance between complying with the requirements recommended by the FATF, and ensuring that the burden on developers is not excessive. Mr Louis Ng noted that there are these terminologies which are set out in very broad language; but it is deliberately done so, so that businesses then have flexibility to develop procedures according to their business size, customer profile and nationality, and different levels of money laundering and terrorism financing risks which they identify using their own AML/CTF programmes.
Er Dr Lee, for example, talked about the 12-month deadline when due diligence checks are to be conducted. These are not hardcoded in the Bill; these are more detailed regulations that will be set out in subsidiary legislation, and we have not decided on them yet. We will take the time to engage the industry and review these specific requirements before we set them out in subsidiary legislation.
That said, I would like to highlight that developers today already collect most of the know-your-customer (KYC) information that we have in mind for the rules. I would expect developers today to already collect most of the KYC information that we have in mind for the rules, such as identity documentation. So the incremental compliance cost should not be excessive, and should not adversely affect purchasers, especially genuine purchasers.
Er Dr Lee also asked how long developers would have to keep records of their diligence checks. The prescribed period will be set out in the rules and will be at least five years after the completion of the transaction. This is consistent with what is prescribed in the FATF recommendations and in other sectors’ legislations, such as for financial institutions and pawnbrokers.
Responsibilities of Developers
Some Members asked about the extent of the developer’s responsibilities in adhering to the requirements of the new Bill. Specifically, Mr Gan Thiam Poh asked about the point at which the developer’s duty to monitor their buyers ends, given that the profile of buyers can change after the signing of the sale and purchase agreement.
Under the new section 12B of the Housing Developers (Control and Licensing) Act and new section 5A(2) of the Sale of Commercial Properties Act, under these new requirements, a developer is required to perform such customer due diligence measures as may be prescribed, at such times as may be prescribed. The provisions are broad, but I want to assure members that we will not be requiring developers to monitor their buyers perpetually. Instead, the rules will make clear that the requirements on developers will only apply until the project is completed, which is also the point at which the developer is no longer regulated under the two Acts. Developers should ensure that the information obtained with respect to the purchasers and its beneficial owners are kept updated. At any point during the monitoring, if the developer comes to know about property which represents proceeds of, or is used or intended to be used in connection with, any act which may constitute drug dealing or criminal conduct, the developer will then have to report such suspicious activity to a Suspicious Transaction Reporting Officer. But the point is that the rules will not be imposed on the developer perpetually.
Ms Foo Mee Har asked if developers could rely on third parties, such as estate agents, lawyers or banks, to conduct the necessary checks on their behalf.
The answer is yes. Developers will have flexibility to determine how best to do their checks, including through third parties. As mentioned, we are adopting a calibrated risk-based approach to compliance and we will not rule out the use of third parties. But ultimately, the developer bears full responsibility for adhering to the requirements under this new Bill. Hence, the developer should ensure that the third party hired has the appropriate capabilities and resources to comply with these measures, and are able to provide the relevant information to developers without delay, upon request.
Er Dr Lee and Mr Louis Ng asked who specifically would be held responsible if the due diligence measures were found to be inadequate, or not complied with. Ms Foo also asked about the need for the burden of compliance to fall on senior management and throughout the organisation for accountability.
Indeed, the developer will be primarily responsible for failing to perform any due diligence measures as required by law. However, where the offence was committed with the consent or connivance of an officer of the company, or the commission of the offence was attributable to the officer’s negligence, that officer may also be held liable for the offence. So it will really be a case-by-case basis, depending on the circumstance. That officer could be any director, member of the management team, CEO, manager, secretary or other persons acting in such capacity in the developer company. This is the position today under section 27 of the Housing and Developers (Control and Licensing) Act and section 9 of the Sale of Commercial Properties Act.
Er Dr Lee asked about the role of the compliance officer that developers must appoint. This compliance officer can be any appointee at the management level, and will be responsible for reviewing the developer’s anti-money laundering and terrorism financing policies. It need not result in additional expenses, but the developer must designate the compliance officer and appoint with clear responsibilities.
Ms Foo asked how developers can mitigate the risk brought on by the use of shell companies and other corporate entities to purchase property. Indeed, the Government is aware of such concerns and we have made legislative amendments to address this issue. For example, the Companies Act was amended last year to make the ownership and control of business entities more transparent, and thereby reduce opportunities for the misuse of corporate entities for illicit purposes. The FATF recommendations also include requirements for regulated entities to obtain information of beneficial ownership. In elaborating and crafting the rules, we will make clear the duties of developers in this particular requirement of checking beneficial ownership as well.
Ensuring Effective Implementation of Regulations and Enforcement
Some Members expressed concern that developers could fail to effectively comply with the new rules due to a lack of understanding of how to implement them, or merely go through the motions.
Indeed, we do not want this to be a paper exercise or a tick-in-the-box exercise as some of the Members have mentioned just now. We will be adopting a two-pronged approach to address this.
First, we want to help developers level up. URA will engage the developers, and it will do industry outreach and provide all the necessary guidance to developers in the initial implementation stage. Subsequently, URA will provide ongoing support to improve the industry’s understanding of what constitutes risky transactions, as well as their risk mitigation capabilities that are needed, in order to foster a good understanding of the new requirements.
When the industry’s capabilities have been levelled up and everything is in motion, the Controller of Housing under URA will carry out regular audit checks to ensure that developers are implementing the measures properly. If developers are found to not have adhered to requirements, there will be penalties – not only potential fines, but, in more serious cases, they could also be disqualified from obtaining licences in the future.
Let me now move on to transboundary issues, which Members have raised.
Mr Gan asked whether other countries have implemented similar regulations so far, how many, and if there was a level playing field.
The whole point of developing international standards under FATF is to ensure there is a comprehensive global system to fight against money laundering and terrorism financing. To date, about 190 jurisdictions have committed to the FATF Recommendations. The specific provisions may differ from country to country because even the regulation of the sale of property vary from country to country. Some countries even prohibit sale of properties off-plan.
Mr Gan also asked if we can deny or revoke a housing developers licence to persons or entities that have been convicted of money laundering or terrorism financing offenses in other jurisdictions.
We will mainly rely on local convictions as a basis to refuse, suspend or revoke a Housing Developer’s Licence. But the Controller may refuse to grant a Licence to a person or entity with an overseas conviction, or revoke the licence if it has been earlier granted, if where the overseas conviction, together with other circumstances, indicates that it is carrying on its business in Singapore in a manner that is detrimental to the interests of its purchasers or to the public. So, we have the ability to do so – to revoke or suspend or refuse a licence if the conviction is happening elsewhere.
Finally, Mr Louis Ng suggested for the Government to consider adopting unexplained wealth legislation to bolster our AML/CTF regime. This is indeed a point raised by MP Murali Pillai yesterday during the debate on the Serious Crimes and Counter Terrorism (Miscellaneous Amendments) Bill 2018.
It is in fact not so relevant to this Bill, because as mentioned by Minister Josephine Teo yesterday, the Government will certainly monitor overseas developments in the area of anti-corruption measures to see if these can be adapted here on another occasion. Unexplained wealth order legislation has been introduced overseas as an investigation tool to enable enforcement agencies to investigate the source of money. But it is a tool which can and should be capable of being directed at anyone, and not just developers. So it is really a separate matter outside the scope of this Bill.
Mr Deputy Speaker Sir, I believe I have addressed the points raised by the Members. This Bill is just one of the many changes we are making to our laws to help Singapore to be a responsible member of the international community, and uphold our reputation as a conducive and reputable place to do business.
Failure to impose these anti-money laundering and terrorism financing requirements across our entire real estate value chain, comes at a reputational cost to Singapore. I believe that legislative backing will be necessary to ensure effective enforcement and compliance to these requirements.
Mr Deputy Speaker Sir, I beg to move.