Veteran lawyer suspended for breaching Law Profession Act AML/CFT Rules – How to conduct customer due diligence?

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A veteran lawyer of 18 years’ standing was suspended in late-Sep 2017, from practice for two years and fined $100,000 for professional misconduct in a case relating to anti-money laundering (AML).

In what had started out “innocuously” as an incident of breaching professional conduct rules, the case was eventually escalated into that of aiding money laundering activities, and finally deemed serious enough to be referred to the Court to mete out punishment.

In sentencing, Chief Justice Sundaresh Menon who led the Court of Three Judges, the highest disciplinary body for the legal profession, said that the breach was not merely a technical one but “a substantial breach by a solicitor who allowed his client to… take advantage of the cloak of respectability that was afforded by having the solicitor effect those transfers”.

The fact that an 18-year law veteran had committed such lapses, begs the questions: how can it actually happened?  And could it have been avoidable in the first place?  Sadly, the answers to both are “yes”.

Read on to find out why and more.

What The Law Says – Part VA and LPA Rules 2015

As early as 2015 May 23, the Legal Profession (Prevention of Money Laundering and Financing of Terrorism) Rules 2015 came into effect under the New Part VA of the Legal Profession Act (LPA) on Prevention of Money Laundering and Financing of Terrorism.  The key sections in the Rules involve Customer Due Diligence (Part 2) and Record Keeping (Part 3) when preparing or carrying out any transactions concerning relevant matters.

The regulatory framework will apply to both Singapore lawyers and law practices, as well as foreign lawyers and foreign law practices

Part VA of the LPA can be viewed here.
Legal Profession (Prevention of Money Laundering and Financing of Terrorism) Rules 2015 can be viewed here.

The Case Against

In 2008 and in 2011, Mr Allan Chan Chun Hwee – the sole proprietor of C H Chan & Co and a veteran lawyer of 18 years’ standing – had assisted fund transfer requests of more than US$ 200,000 and USD $1.8 million respectively from two foreign entities: one from an entity called the Institute of Business Management and Financial Services, and the another called Investment Suisse.

The charges which were subsequently brought against Chan were for failing to verify the identities of the people behind the entities and failing to obtain satisfactory evidence as to the nature and purpose of his clients’ business relationships with the recipients.

In other words, the Court had taken issue with Chan, not for being “complicit” in actual money laundering activities; but rather, for NOT conducting proper screenings and checks prior to the transfers, and keeping proper records subsequently.

Fast Forward to 2017 – What Could Have Done Differently?

Assuming you are in Chan’s shoes today and you are asked to remit money by Investment Suisse, what could you have done differently (notwithstanding that Chan’s case happened in 2011)?

Note that the handling and management of client’s moneys, securities, assets, bank or securities accounts are “relevant matters” as defined in Part VA of LPA.

So to comply with the LPA Rules 2015, key actions to take include:

  • conducting proper Customer Due Diligence (CDD),
  • proper Keeping of the Records, and
  • lodge a Suspicious Transactions Reports (STR) if necessary.

Client Due Diligence entails actions to ascertain and verify the identity of the client, as well as identifying the beneficial owner(s).  This can be achieved by getting the clients to “declare” through CDD forms, and then verifying the “declaration” through independent sources – e.g. identification documents.  As for a legal entity, to ascertain and verify the entity’s identity through documentary evidences, as well as individuals who are the senior management, directors, beneficiary owners, and those who are authorised to act on behalf of the client / entity. Open source information on companies and individuals are also available (e.g. Open Corporates www.opencorporates.com).

Once the beneficial owners have been identified and verified, screening of the entities and individuals is required to check that the person is not sanctioned, or is a politically-exposed person (PEP), or a relatives / close associate (RCA) of one.  If a person is sanctioned, then the professional firm has to terminate the relationship and file a Suspicious Transaction Reports (STR).  If a person is PEP or RCA, and depending on the risks, there may be a need to ask for the source of fund, and the source of wealth.

Panama papers (https://offshoreleaks.icij.org/) is another source to see if a person or entity has other information (e.g. shell companies) that may be of interest in the overall risk assessment of the customer. The revelations in Panamas papers have led regulators worldwide to take a special interest in shell companies, as it revealed that these could be used for illegal purposes including fraud, tax evasion, money laundering, and evading international sanctions.

These search processes are likely to be tedious and circuitous, as one would need to carefully comb through the multitudes of search results from various sanctions lists; and if there are name-matches, to read each of them to assess if they are relevant adverse media; and subsequently to determine if that would constitute a red-flag for further actions and/or enhanced due diligence.

More efficient and productive commercial search tools are available.  Commercial database such as SentroWeb-DJ can help alleviate the tedious process (SentroWeb-DJ is backed by the database from Dow Jones. See more information on SentroWeb-DJ here).

Post-search, proper Keeping of the Records would entail sorting, (or printing), filing and upkeep of the search documents as proof evidence of the search and CDD process.

If required, confidential STR could also be logged online on STROLLS with a SingPass account. (https://strolls.police.gov.sg/istrolls/index/login.do). 

Final Words

Mr Chan’s case is unlikely to be the last relating to AML.  In fact, with the world’s leaders continued focus on combating money laundering and terrorism financing, we are likely to see more enforcements and higher regulations ahead.

To read the full story as reported in the Straits Times, click on this link here.

Investment Suisse is actually listed by the Swiss Financial Market Supervisory Authority (FINMA) as an “Unauthorised Institution” as far back as Nov 2008.  (https://www.finma.ch/FinmaArchiv/ebk/e/publik/unbewilligt/index.html).