New legislation on tax evasion, including an ongoing consultation from the MAS will require firms to review their AML procedures, say experts.

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.