On 14 January 2019, a new bill setting out a risk-based anti-money laundering and countering-the-financing-of-terrorism (AML/CFT) regime for precious stones and precious metals dealers (the Bill) was tabled for first reading in the Singapore parliament. The Ministry of Law (MinLaw) had consulted on the Bill in September and October 2018.
The Bill will apply to a broad range of persons who deal in, or who intermediate dealings in, precious metals, precious stones, precious products (being products that contain a specific proportion of precious metals or stones) and asset-backed tokens which provide an entitlement to such metals, stones or products. The Bill will impose wide-ranging requirements, including (among others) an obligation to register with a new Registrar of Regulated Dealers (the Registrar), report certain cash transactions exceeding S$20,000 in value, conduct customer due diligence (CDD) and maintain AML/CFT controls.
We set out below some key considerations for persons who will come within the scope of the Bill (which will likely include, for example, mining and other commodity groups), as well as a more detailed overview of the Bill.
Key considerations for dealers
The AML/CFT framework set out in the Bill complements Singapore’s broader efforts to combat financial crime. Indeed, under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap. 65A) (CDSA), dealers of precious stones, metals and products are already subject to transaction reporting, CDD and record-keeping requirements in relation to certain cash transactions exceeding S$20,000 in value.
While these requirements relating to cash transactions are most likely to affect dealers such as jewellery retailers, second-hand goods dealers and auction houses, the Bill will apply equally to other types of dealers, such as mining corporations and commodity houses. Even if they do not routinely undertake cash transactions, these dealers will need to comply with all other requirements under the Bill relating to regulated dealing, including the registration and record-keeping obligations and the requirement to establish an appropriate internal AML/CFT compliance framework.
In anticipation of the new framework taking effect, all dealers should therefore conduct a gap analysis between the requirements in the Bill and their internal controls, to ensure they are able to meet the attendant compliance standards. For dealers with a broad range of diversified activities, this may require a detailed scoping exercise to ascertain which activities will fall under the new framework. This may give rise to interpretative issues in some contexts – for example, it is unclear whether asset-backed tokens would include units in collective investment schemes (such as exchange-traded funds) which invest in precious stones, metals or products.
Dealers with international operations should also consider which of their activities come within the purview of the Bill from a territorial perspective. For example, the Bill clarifies that certain provisions therein (e.g., the requirement to implement AML/CFT programmes and measures) would apply to a dealer in Singapore who carries out regulated dealing online from Singapore with a customer overseas, as well as to a dealer based overseas who comes to Singapore for a trade fair and transacts with a customer in Singapore.
The question also arises as to whether transactions in which cryptocurrency (e.g., bitcoin or ether) is used as a means of payment would trigger the requirements in the Bill relating to cash transactions – a point of particular topical relevance, given recent reports that some dealers in the Singapore retail space may be willing to accept cryptocurrency as payment. It is clear that under the Bill, the use of cryptocurrency in any transaction would require the dealer to ensure it can assess and address the attendant money-laundering and terrorism-financing risk, including through appropriate CDD measures.
Detailed overview of the Bill
Scope of the Bill
The Bill, titled the Precious Stones and Precious Metals (Prevention of Money Laundering and Terrorism Financing) Bill, imposes obligations on “regulated dealers”. These are persons (or intermediaries for persons) who manufacture, import, sell, offer, or purchase for resale:
- precious stones (e.g., diamonds, sapphires, rubies);
- precious metals (e.g., gold, silver, platinum);
- precious products (i.e., products of which at least 50 per cent of the value is attributable to precious stones and/or precious metals); and/or
- asset-backed tokens (i.e., instruments entitling their holder to all or part of a precious stone, precious metal or precious product, but excluding securities and derivatives contracts within the meaning of the Securities and Futures Act (Cap. 289), and commodity contracts within the meaning of the Commodity Trading Act (Cap. 48A)).
The Bill will not apply to pawn brokers, and allows for other prescribed persons to be excluded. Financial institutions regulated by the Monetary Authority of Singapore will be exempted from all requirements except the cash transaction reporting requirement (as described below).
Any person wishing to act as a regulated dealer (or hold themselves out as such) must be registered with the Registrar. Registration is subject to (among other conditions) the applicant paying any prescribed fee and the Registrar being satisfied that the applicant and its individual substantial shareholders, directors or other governing persons, and managers, are fit and proper (e.g., they should not have any adverse AML/CFT history). The Registrar is not limited in the fitness and propriety criteria it may apply.
Additionally, the Registrar may impose, vary or cancel conditions of registration from time to time.
Customer due diligence and reporting
Certain types of regulated dealing involving the payment of cash or a cash equivalent exceeding S$20,000 in value (in each case, a Designated Transaction) trigger additional obligations for a regulated dealer. For each Designated Transaction, the dealer must conduct CDD and file a cash transaction report to the Suspicious Transaction Reporting Office of the Commercial Affairs Department of the Singapore Police.
‘Cash’ means (in summary) currency notes and coins which are legal tender and circulate as money, and ‘cash equivalent’ means anything prescribed as such.
Additionally, a regulated dealer must perform CDD where it suspects money laundering or terrorism financing, and where it has reason to doubt the veracity or adequacy of information obtained from earlier CDD.
Regulated dealers are required to keep records of every Designated Transaction, all other transactions for which CDD must be performed, information obtained through the CDD, and copies of documents supporting the CDD.
Programmes and measures – AML/CFT and sanctions
Regulated dealers must implement adequate programmes and measures to prevent money laundering and terrorism financing, details of which may be further prescribed. The programmes and measures must be commensurate to the dealer’s money-laundering and terrorism-financing risk, and the size of the dealer’s business.
Regulated dealers must also perform any prescribed measures relating to anti-terrorism sanctions or to give effect to recommendations of the Financial Action Task Force.
The obligations under the Bill complement those under the CDSA and the Terrorism (Suppression of Financing) Act (Cap. 325). Copies of any suspicious transaction reports made under these acts must be filed with the Registrar.
Powers of the Registrar
The Registrar is empowered to take various types of action to enforce the obligations under the Bill. These include (among others) the power to:
- cancel or suspend the registration of a regulated dealer;
- impose a financial penalty on a regulated dealer;
- give directions to regulated dealers;
- make copies of and procure the production of materials;
- enter and inspect any place;
- interview individuals; and
- seize certain property.
The Registrar will be able to issue, approve and revoke codes of practice, guidelines or standards of performance from time to time. It will also be permitted to publish information about regulatory action or criminal proceedings taken against regulated dealers.
Regulated dealers will have up to six months from the effective date of the Bill to register. Registration is expected to start in Q2 2019.
In preparation, MinLaw will seek to raise AML/CFT awareness, and will work with industry associations to develop guidance materials for the sector
This article is co-authored by Carolyn Chia, a lawyer at Resource Law LLC.
Reed Smith LLP is licensed to operate as a foreign law practice in Singapore under the name and style, Reed Smith Pte Ltd (hereafter collectively, “Reed Smith”). Where advice on Singapore law is required, we will refer the matter to and work with Reed Smith’s Formal Law Alliance partner in Singapore, Resource Law LLC, where necessary.