Don’t Be a Corporate Money Mule

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Abdul Ghani Tahir, a director of a company, was recently convicted to 2 years 3 months and barred from being a company director for 5 years, for his role in laundering $1.2 million of illicit funds.

The full report of the news can be found here.

Interestingly, Abdul Ghani is a Chartered Accountant and also provides corporate secretarial services to his clients.  His services include acting as a resident director for his foreign clients who incorporate companies in Singapore.

In 2012, as a resident director of a company here, he acted for his Romanian client (whom he had never met before) to transfer what was later found to be stolen money into and out of the Singapore company.  The funds were transferred out to accounts in China, Morocco, USA, Geneva and Hong Kong.

In passing sentence, District Judge Shaiffudin Saruwan said he found the breach of director’s duties to be egregious in nature. Abdul Ghani failed to exercise “reasonable diligence” when incorporating the company, and had also “breached practically all of his obligations as a director subsequent to incorporation”.

Lessons Learnt

There are important lessons to be learnt in this case.

In money laundering, criminals have to go through a three-stage placement, layering and integration process to “convert” their ill-gotten gains to legal proceeds so that they can use the money openly for their worldly luxuries.

Abdul Ghani, unfortunately, was used by his client in the placement and layering stages of money laundering.

The placement stage of the money laundering process is probably the most difficult for the criminals. During this stage, the objective of the criminal is to find ways and means to “channel” the ill-gotten gains into the financial system.  This is done by placing the gains, without raising alarms, into financial institutions so that the money can be moved efficiently through the financial institutions and eventually emerges at later stages of laundering as “clean” money.

In this case, Abdul Ghani’s Romanian client had exploited the reputation of Singapore’s financial hub and business friendly environment to conduct his placement activities. By setting up a company with Abdul Ghani, the Romanian can use Singapore entity and Abdul Ghani’s chartered accountant qualification to gain acceptance and trust by financial institutions worldwide. This is important as once the business entity is off the anti-money laundering surveillance screen set up by financial institutions, he can set up any financial facilities and move his ill-gotten gains in the next money laundering stage – layering.

In the layering stage, the criminal’s aim is to move money around as many paths as possible to further hide the traces that can link the criminal to the money.  Most likely the stolen money is broken into amounts that are just below the detection thresholds set up by financial institutions and moved across jurisdictions to avoid detection. Reportedly, Abdul Ghani’s client had moved the stolen money in multiple amounts in a short period between Apr and May 2012 through Singapore to China, Morocco, USA, Geneva and Hong Kong.  At these countries, the next stage of money laundering will naturally be the integration of the money, where the criminal will cash out his gains legally.

Let us look specifically at the case of the Romanian client. Assuming that Abdul Ghani, the corporate service provider (CSP) is not purposefully colluding with the client to launder money, what the CSP should have done?

  1. Non face-to-face transaction should be classified as a medium- or high-risk and extra care should be taken to handle such a client. Proper customer due diligence should be done, such as giving the client an overseas call to verify his identity, getting original notarized copies his identification documents and proof of residential address, asking him of his source of wealth, source of funds and purpose of him setting up a company in Singapore, etc
  2. The CSP should ask the Romanian client if there is any beneficial owner to the company. If yes, the CSP should also identify and verify the beneficial owner.
  3. The CSP need to perform an independent screening of the Romanian and beneficial owner/s, if any, against sanctioned lists and politically exposed person.
  4. It was noted that within a short period of time (between April 11 and May 28, 2012), large amounts of funds were transferred in and out of the company bank account.  As a resident director of the company who signed the accounts, Abdul Ghani must have knowledge of the accounts although he may not personally transfer the money[1]. Firstly, there should be official receipts and invoices, stating clearly the details and identification of the transferor and transferee, for the payment and receipt of funds. Secondly, the transactions seemed large and may be due to the company’s business in “wholesale of parts and accessories for vehicles”. The CSP should ask for documentary proofs, e.g. shipping documents, for such transactions.
  5. If there are reasonable grounds for suspicion, e.g. the client cannot identify the transferor or transferee of the funds, the amounts of transfer do not commensurate with the nature of the transactions, or even if the customer is not willing to produce documentary proofs as requested, then the CSP should lodge a suspicious transaction report to the Commercial Affairs Department.

Singapore’s survival hinges on her reputation as a financial and transportation hub.  Money laundering is as much a threat to our survival as terrorism.  If you are a professional or corporate service provider in Singapore, you are the frontline of our defence against money laundering. Don’t let yourself be used as a corporate money mule.

[1] Under sections 201(1A), 201(3) and 201(3A) of the Companies Act, directors are responsible to present and lay before the company, at its annual general meeting, financial statements that comply with Accounting Standards issued by the Accounting Standards Council; Compliance with accounting standards includes preparing the basic elements of a management report such as the balance sheet, statement of comprehensive income, statement of cash flows and the notes to accounts.

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