MONEY-CHANGING AND REMITTANCE BUSINESSES (AMENDMENT) BILL

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MONEY-CHANGING AND REMITTANCE BUSINESSES (AMENDMENT) BILL: Order for Second Reading read.

The Minister for Education (Mr Tharman Shanmugaratnam): Mr Speaker, Sir, I beg to move, "That the Bill be now read a Second time."

Sir, this Bill seeks to amend the Money-Changing and Remittance Businesses Act (Chapter 187). The amendments aim to refine and better reflect MAS' supervisory approach towards holders of remittance licences and money-changing licences. I should

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state at the outset that MAS' supervision of these activities focuses on anti-money laundering and countering the financing of terrorism. MAS does not supervise holders of these licences for their safety and soundness. This approach of focusing on anti-money laundering rather than safety and soundness of remittance houses and money-changing operations is similar to those adopted by other reputable financial centres. It places responsibility on customers to choose their remittance channels wisely.

Remittance houses perform a useful service in transmitting money from Singapore to recipients in other countries, at a relatively low cost. The industry has grown over the years but most of the remittance houses remain small players. Many are sole proprietorships or family-owned partnerships who operate through informal networks such as friends, relatives or overseas agents, operating on the basis of relationships or trust, to deliver funds to the intended recipients. These small players often may not have the resources to put in place the same degree of internal controls that larger financial institutions like banks have. The same is true of most holders of money-changing licences. Their modus operandi and, more importantly, the fact that they pose no systemic risk to our financial system make it impractical and unnecessary for MAS to supervise them for purpose of ensuring their safety and soundness. Other reputable jurisdictions such as Australia, Hong Kong, Switzerland and the United Kingdom adopt the same regulatory approach.

MAS' supervision of holders of remittance licences and money-changing licences will continue to focus on anti-money laundering and countering the financing of terrorism. Like other established financial centres, Singapore is committed to the global fight against the laundering of proceeds from criminal and terrorist activities.

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Sir, this Bill carries two messages. First, MAS intends to raise the anti-money laundering standards and countering the financing of terrorism standards in this industry. Second, consumers have to take personal responsibility and exercise discretion in choosing remittance channels for transmission of funds to people in other countries. They should not assume that the MAS or the safeguards in the Bill will insulate them from losses or ensure the safety and soundness of remittance houses.

To raise the anti-money laundering and countering the financing of terrorism standards in this industry, we will be pushing up the entry requirements. We will be requiring the holder of a remittance licence to be incorporated as a company with a minimum paid-up capital of $100,000. This higher entry requirement will help to weed out the weaker remittance licensees. We will also extend the present anti-money laundering and countering the financing of terrorism regulations to the inward remittance business, not just the outward remittance business. And we will strengthen market discipline by publishing MAS' regulatory actions against errant licensees.

To raise the level of public awareness of the scope of MAS' supervisory approach, remittance licensees will be required to post cautionary statements at their business premises to alert the public that MAS is not supervising remittance licensees for their safety and soundness. MAS will also be working with the Ministry of Manpower to educate foreign workers, who are the main users of remittance services, on what to look out for when remitting their money overseas.

But the Bill is not intended to remove all safeguards for customers. Basic safeguards are built into our regulations, and the Bill enhances certain safeguards

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which serve to mitigate against potential losses by customers. First, MAS will continue to conduct background checks on applicants to prevent undesirable persons from conducting money-changing and remittance businesses. MAS will also maintain the requirement for remittance licensees to furnish a security deposit of $100,000 for due performance of their obligations. This security deposit may allow customers to recover some of their losses in the event that a remittance licensee fails. But it is not intended to nor can it insure customers against losses. To do so will require a prohibitively high security deposit that will render many remittance businesses unviable.

In addition to these existing measures, the Bill will now provide that officers, partners or managers of businesses holding a money-changer's licence or remittance licence may be made personally liable for losses suffered, if the court finds the licensee to have carried out its business with the intention to defraud or for any fraudulent purpose. These measures are aimed at discouraging fraudulent practices and providing customers and creditors with some recourse, should losses occur.

In sum, MAS cannot for practical reasons supervise remittance houses to ensure their safety and soundness, although we will retain certain basic regulatory safeguards that serve customers' interests. This is unlike the case of banks or other financial players whose failure can pose systemic risks; for such players, MAS has to engage in close and active prudential supervision, in addition to regulatory safeguards such as minimum capital requirements.

It is therefore important for the public to understand that MAS cannot prevent failure of remittance businesses. In cases of failure arising from fraud, the Bill provides an additional avenue for

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customers to pursue the assets of the guilty partner or officer. But customers have to take responsibility to weigh the benefits and risks of using the remittance services offered by the various businesses in the market, including the services offered by banks regulated by MAS.

The introduction of higher entry requirements for remittance licensees will weed out the weaker players in the industry. However, I would like to assure the House that the new Bill will not deprive the public of remittance and money-changing services. Over the last two years, MAS has allowed six banks to set up additional outlets aimed exclusively at providing remittance and money-changing services. Large international remittance houses such as Western Union also continue to operate in Singapore. There are also established companies, such as Singapore Post Limited, with an extensive distribution network that also offer remittance services.

Sir, I shall now highlight the key amendments that are proposed in the Bill.

Key Amendments

Incorporation requirement for holder of a remittance licence

Currently, a remittance licence can be granted to a sole proprietor, a partnership or a company. The Bill requires the remittance licensee to be incorporated as a company with a minimum capital of $100,000. This aims to raise the professional and anti-money laundering standards in the industry by ensuring that remittance licensees have a minimum level of financial resources needed to put in place anti-money laundering procedures for their operations.

Scope of MAS' powers

The Bill expands the scope of MAS' powers to revoke or suspend a money-

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changer's or remittance licence to include cases where the licensee has failed to comply with any written direction issued by the MAS. These powers will enable MAS to deal with recalcitrant licensees more effectively. In addition, the Bill spells out the circumstances under which a money-changer's or remittance licence will lapse, expire, or is voluntarily surrendered.

As I have mentioned earlier, the Bill empowers MAS to issue directions to require a remittance licensee to display cautionary statements at its place of business. The cautionary statements aim to alert the public on what MAS does and does not supervise with respect to the business of the remittance house.

Currently, the inward remittance business is not a regulated activity. The Bill will empower MAS to issue directions in respect of a money-changing or remittance licensee's inward remittance business, to strengthen our anti-money laundering arsenal.

Personal liability for losses

Presently, many remittance and money-changing licensees operate as sole proprietors or partnerships, where the sole proprietors and partners are personally liable for any loss suffered by the business. This is not the case for officers of a company or partners and managers of a limited liability partnership. Therefore, the Bill will provide that officers, partners or managers of holders of money-changing licences or remittance licences may be made personally liable for losses suffered, if the court finds that the licensee has carried out any of its business with the intention to defraud or for any fraudulent purpose.

Approval of substantial shareholders, partners and directors

MAS will be empowered under the Bill to approve the appointment of directors,

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partners and substantial shareholders of a money-changing or remittance licensee, as such persons may be in a position to influence the management of the business.

Closure certificate

The Bill requires the holder of a remittance licence to submit a closure certificate to MAS upon the cessation of remittance business. This certifies that all customers' funds have been received by the intended recipients and that adequate provision has been made to meet unforeseen liabilities in respect of the remittance business.

Publication of information

The Bill will give MAS the power to disclose regulatory actions taken against the remittance or money-changing licensee, where it is in the public interest to do so. This is aimed at enhancing market discipline in the industry.

Quantum of penalties

For more effective deterrence, the Bill will increase the quantum of penalties for certain offences. For instance, the penalties for persons carrying on an unlicensed money-changing business or remittance business will be increased from $50,000 to $100,000.

Other clauses of the Bill that I have not elaborated on are minor technical amendments to clarify or expand the existing provisions, or to remove obsolete provisions.

Sir, in conclusion, the Bill introduces changes which enhance MAS' oversight of holders of remittance and money-changer's licences, for purposes of anti-money laundering and countering the financing of terrorism. It aims to raise the

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level of professionalism in the industry over time without depriving the public of affordable remittance and money-changing services. The Bill reflects MAS' supervisory approach, which does not extend to the prudential supervision of remittance licensees and money-changing licensees. While the Bill retains existing safeguards and introduces new measures to discourage fraudulent practices, these cannot insulate the public from all losses. Customers have to take personal responsibility and exercise discretion in choosing the channels through which they want their funds transmitted.

Sir, I beg to move.

Question proposed.

Dr Ahmad Mohd Magad (Pasir Ris-Punggol): Mr Speaker, Sir, thank you for allowing me to speak on this Bill.

Sir, I believe the proposed amendments in this Bill are timely, as it contains several elements aimed at tightening the legislation and the supervision of money transaction activities that may potentially lead or be linked to money laundering by financial institutions.

Sir, I also see such amendments as critical in maintaining the equanimity of our financial system and in protecting the interest of bona fide financial institutions and their respective customers in the light of money laundering activities increasingly posing a threat to the international financial system.

Singapore, in its endeavour to position itself as a leading global financial centre, must keep in tandem with changes in the international financial system, which has been active in reviewing and imposing new anti-money laundering regulations. A recent report in the Straits Times dated 29th July this year indicated that a startling $85 million in dirty money was

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seized by the Singapore authorities since the year 2000 against a backdrop of increasing suspicious transactions which may be connected with money laundering and terrorism financing. This is in spite of intensive efforts by our authorities to clamp down on such menaces. The stated seized amount is a trickle compared with US$800 billion to US$2 trillion estimated by the International Monetary Fund in potential global funds that money launderers and terrorists have in their chests.

Today's Business Times reported that while the cost of prevention of money laundering can be costly for banks and financial institutions, the potential cost of failure could lead not only to devastation of a bank but also the entire country.

Sir, the demand for money-changing and remittance services in Singpaore has increased quite significantly in the last 25 years since the Act was first introduced in 1979. Singapore's growth as a leading regional and international business centre, the increasing number of tourists visiting Singapore, more Singaporeans travelling overseas on business or leisure, the large number of foreign workers among other factors have helped the industry to grow and remain healthy. Traditional money-changing and remittance services under this Bill predate modern or western banking regimes. Prior to the development of a comprehensive banking system here, the operations of money changers and remitters were a fundamental component of the commercial and financial infrastructures. The Chinese system is referred to as chop shop and terms used in the Indian sub-continent include chitty, hundi and hawala. For the purpose of brevity, I will refer to all these regional remittance practices as hawala. Not all hawala operations fall on the wrong side of the law. "White hawala " is used to refer to legitimate transactions and remittances, while the term "black hawala " concerns illegitimate transactions

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such as money laundering and narcotics trafficking. As this Bill is aimed at fortifying the existing legislation to prevent the abuse of services offered by "white hawala " business owners, it is fair to expect that the MAS does this by alerting the relevant community of changes in its scope of surveillance and supervisory functions while also providing ample time for current operators to embrace the proposed changes.

In broad terms, deterrence could be achieved by increasing the penalties for illegal remittances, whether conducted by licensed money changers or remittance agencies, controlling and streamlining the methods employed to ensure legality of remittances and by enforcing greater degree of compliance among the hawala businesses which also include a large segment of the SME community. I believe this is what this amendment Bill seeks to also implement.

In this regard, Sir, I would like to ask the Minister whether the amendments to sections 13 and 16, as provided by clauses 10 and 13 of this Bill respectively to increase the penalties from $10,000 to $50,000, represent sufficient deterrence, considering the large sums of floating "black" money that I cited earlier. Considering that hundreds of thousands or even millions of dollars may be involved, particularly in financing terrorism activities, should a corresponding jail term also be considered in such cases?

Second, in the interest of the livelihood of existing money changing and remittance business owners, I would like to ask the Minister to clarify how the MAS, under the newly re-enacted section 7(3) and section 7A(3) respectively would render an existing money changer or remittance business owner ineligible to have his licence renewed. The new sections provide MAS with the full authority to "consider the application and may grant a money-changer's licence vis

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-a-vis a remittance licence with or without conditions or refuse to grant a licence" without assigning any reasons.

Third, Sir, the minimum sum of $100,000 for a remittance licence holder remains unchanged since the last amendment in 1996, except for the requirement that the holder must now be incorporated as a company with a corresponding amount in paid-up capital. Considering the much higher quantum of transactions in today's context, should the Minister not consider increasing the minimum paid-up capital to reflect the current context?

Fourth, Sir, some reforms that countries like the United Kingdom have implemented are to require most transactions by financial institutions, including money remitters, to be fully computerised. In doing so, the disclosure of full details of originator information, such as name, address, telephone contacts and account number on money transfers, are required to enhance traceability in situations where fraudulent activities are suspected. I would like to suggest that MAS consider the implementation of such a system if it has not already done so.

Finally, I would like to ask the Minister the extent of how the amendments proposed in this Bill are connected with the customs regime, considering that money could also be represented by items of monetary value which may not be transmitted via the financial system but through land borders, ports and airports.

In conclusion, Sir, I know for a fact that our country has done much in regularly reviewing and revising our financial legislation to keep abreast of global changes and the dynamics of the international financial system. But legislative changes in the prevention of

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money laundering, particularly in areas which are prone to terrorism financing, are certainly an area that we cannot afford to neglect. I applaud the initiatives aimed at addressing existing shortcomings and therefore wholeheartedly support this Bill.

Mr Tharman Shanmugaratnam: Mr Speaker, Sir, I would like to thank the Member for Pasir Ris-Punggol, Dr Ahmad Magad, for his support for the Bill and for his very useful comments.

First, his observations on the importance of countering money laundering and terrorism financing. It is a growing concern for all countries and particularly for international financial centres like ourselves. The Money-changing and Remittance Businesses (Amendment) Bill that we are now discussing is part and parcel of our overall effort to strengthen our anti-money laundering and countering of financing of terrorism measures. It is part and parcel of the overall arsenal that we are putting in place for the purpose in the financial industry.

I should mention that we are not held in bad odour. Two years ago, Singapore completed the IMF-World Bank financial sector assessment programme. This assessment by the IMF and World Bank, which pooled together a team of international experts for the purpose, found that Singapore has a comprehensive legal, institutional, policy and supervisory framework to combat money laundering and terrorism financing. They also noted that our financial institutions have a strong compliance culture with regard to requirements to combat money laundering and terrorism financing.

Nevertheless, we remain vigilant. An inter-agency working committee is looking comprehensively into the new recommendations of the Financial Action Task Force (FATF) which is the

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international standard setting body for anti-money laundering and countering of terrorism financing matters. The areas covered will include not just the financial businesses, but non-financial businesses and professions such as casinos, for instance.

As far as the financial sector is concerned, MAS will continually review our framework for anti-money laundering and countering of terrorism financing, including the remittance houses and money-changing operations. I quite agree with Dr Magad that we should give sufficient time for businesses affected by these legislative changes to adapt. The Bill provides for a one-year transition period from the date of commencement of the Act to allow existing operators to meet the new requirement to be incorporated as a company with minimum paid-up capital of $100,000.

Dr Magad also referred to section 13 of the Bill. Under the current Act, the section imposes a fine not exceeding $10,000 or one year's jail or both on any person found guilty of wilfully providing a false or misleading statement when applying for a licence or for renewal of a licence. Let me clarify that we are not doing away with the jail term. The amendment Bill will increase the fine to $50,000 but the jail term will remain. The quantum of $50,000 is comparable to those provided under the Financial Advisers Act and the Securities and Futures Act for similar offences.

However, as for offences relating to terrorism financing, which I think Dr Magad was particularly concerned with, these are punishable under the Terrorism Suppression of Financing Act. As an example, the offence of directly or indirectly fostering the financing of a terrorist act is punishable on conviction with a fine of $100,000 or 10 years' jail or both.

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As far as MAS' authority relating to the non-renewal of licences is concerned, this is an existing provision which requires licensees to apply to the MAS for renewal of their licences. The provision states that in considering an application for renewal, MAS has to be satisfied as to the good character of the applicant, the financial condition of the applicant and whether the public interest will be served by granting the licence. Licences are usually renewed, unless the licence holder is unable to meet the fit and proper test or if there are serious breaches of the Money-changing and Remittance Businesses Act. Based on applications received in the past three years, only one application for remittance licence was not renewed.

On the minimum sum of $100,000, first, I would like to clarify that the new requirement for remittance licensee to be incorporated as a company with a minimum paid-up capital of $100,000 is over and above the existing requirement for them to furnish a security deposit of $100,000 for due performance of their obligations. So we are adding on to the existing security deposit requirement.

Dr Magad has a useful suggestion on whether we should in fact raise the minimum paid-up capital requirement in view of the higher quantum of today's transactions. We will have to consider this carefully. If we pitch it too high, we will not just drive some remittance houses out of business, we will drive others underground. So we will have to monitor the appropriate quantum of security deposit as well as the minimum capital requirement in future as we go along. But let us keep the business above ground.

On computerisation of operations, Dr Magad has a useful suggestion that remittance licensees be required to computerise their transactions. He mentioned the UK. In fact, the UK issued a consultation paper three years ago but it

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has not yet implemented the recommendations of the consultation paper. It will certainly improve the efficiency of retrieving customers' records, which is particularly important when we are investigating suspected offences. But there are practical issues to consider if we mandate it across the whole system for every single player. There are costs in implementing such a system. MAS has not yet made it mandatory for the industry to computerise their operations but we do not rule out the option in future.

Dr Magad also mentioned having full details of originator information on money transfers. I think he was referring to the recommendations of the Financial Action Task Force that there be complete originator information; in other words, not just where the last source of the funds came from but where it previously came from and the entire chain of transactions, starting from the original sender. This information will certainly aid authorities in their investigation of suspicious activities. Singapore, being an FATF member, has already issued a consultation paper on anti-money laundering which incorporates this requirement. MAS is currently reviewing the comments received from the industry and will be implementing this recommendation in due course.

On Dr Magad's last question

regarding the customs regime, the amendments proposed in this Bill are not directly related to the customs regime. But I think his concerns on money laundering risks arising from items of monetary value are valid. The FATF has also recognised the issue and recommended ways for countries to deal with it. This is one of the implementation issues that the inter-agency working group that I mentioned earlier is looking at.

Question put, and agreed to.

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Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. - [Mr Tharman Shanmugaratnam].

Bill considered in Committee; reported without amendment; read a Third time and passed.