What is Money Laundering and Terrorism Financing
Money laundering is the process of converting income that was obtained by criminal or illegitimate means to give the appearance of having come from a legal or legitimate source.
Terrorism financing refers to the process of hiding funds to sponsor or facilitate terrorist activity.
Singapore is a member of the Financial Action Task Force ('FATF') - a global standard setting body to combat money laundering and terrorist financing. As a member country, Singapore has introduced laws to prevent money laundering and terrorist financing.
Since 2007, Singapore law practices have been required to comply with rules that are directed to reduce the risk of law practices being used to launder money coming from proceeds of crime or to fund terrorism.
Anti-Money laundering ('AML') and Counter Terrorist Financing ('CFT') Rules for Lawyers
AML and CFT practice rules are found in Part VA of the Legal Profession Act, Legal Profession (Prevention of Money Laundering and Financing of Terrorism) Rules 2015 and the Law Society’s Council Practice Direction.
The above practice rules require law practices and lawyers to carry out 'Know Your Client' identity and 'Know Your Client Matter' checks when preparing for or carrying out any transaction concerning certain matters.
The Law Society is empowered to carry out inspections of law practices to ensure that they have in place written processes to evidence that the above required client due diligence checks have been conducted to combat money laundering and terrorist financing.
Know your client check
When you instruct a law practice to act for you, your lawyer will ask to see your original identity document such as your passport or if you are a Singapore citizen or Permanent Resident, your Singapore identity card.
If you are abroad when you instruct a law practice, it will seek from you a notarised copy of your identify document, so that the law practice knows the identity of the person instructing it from abroad.
If the client is a company or a partnership or business, a law practice will do a check on the company or business and can require evidence of incorporation or registration of the company, business, or partnership. A law practice will also seek to verify the identity of the partner or director of the company instructing the law practice.
If the law practice is instructed by an entity or legal arrangement (e.g. an express trust), the lawyer will also have to ascertain and verify the identity of the beneficial owner(s).
If you are instructing a law practice as an agent, it must determine the identity of the principal on whose behalf you are acting.
If you are acting as a trustee or attorney, you must produce the document that gives you the legal authority to act in that capacity.
A law practice is also required to determine whether a client or beneficial owner is a politically-exposed individual, or a family member or close associate of any such individual.
If you refuse to establish your identity or offer documents to verify your identity which are unsatisfactory, a lawyer will decline to act for you as he must be able to identify every client by independently verifiable identity documents.
There are 2 exceptions to the requirement to ascertain and verify client identity under the law and they apply to the following categories only:
- A ministry or department of the Government, an organ of State or a statutory board; or
- A ministry or department of the Government of a foreign country or territory.
Know your client matter check
As part of client due diligence, your lawyer may require information from you on the purpose and intended nature of the transaction.
Therefore, when your lawyer raises questions with you on your transaction, he is doing so not because he is suspicious of you but he is required by law to be vigilant against money laundering and terrorist financing.
The duty of a lawyer to be vigilant arises not only when he is first instructed by you but throughout the transaction.
Lawyers are required by law to report to the Commercial Affairs Department of the Singapore Police Force any transactions they suspect may be connected to a criminal activity.