Regulatory checks in place to prevent abuse of offshore vehicles

The report on April 12 raised a pertinent question: Whether Singapore has enough checks in place to ensure transparency and regulatory compliance in the set-up and operation of offshore vehicles ("Offshore vehicles not to be used for illicit acts: MAS").

Singapore is a member of the Financial Action Task Force (FATF), a global body that polices against money laundering and terrorist-financing activities, with strict compliance standards.

The Monetary Authority of Singapore (MAS) imposes these strict international standards on all financial institutions in Singapore.

There are three key issues posed by the use of offshore vehicles.

First, are they used for tax evasion? Second, are they used for money laundering or terrorism financing? Third, are they used to evade sanctions?

No bank in Singapore would want to have a customer who uses offshore vehicles for these purposes.

One reason a money launderer uses an offshore vehicle is to hide his identity as the owner of the company's assets. How does he do that? Buy a shell company incorporated in the British Virgin Islands (BVI), for example.

The attraction of a BVI company is that its directors need not be individuals; they can be companies. So the real individual owner (called beneficial owner) may not be identified.

Therein lies a great challenge for banks because MAS requires all banks to comply with the Know-Your-Customer processes, which include identifying the beneficial owner.

So, how do banks identify the beneficial owners of these offshore vehicles? They adopt MAS' "cascading measures" approach as recommended by the FATF.

First, identify the individual who is the ultimate owner.

Second, if the ultimate owner cannot be identified, identify the individual who ultimately controls the company.

Third, if the beneficial owner cannot be identified under the first and second steps, identify the people with executive authority. If the beneficial owner cannot be identified, or there is doubt on the identity of the beneficial owner, the bank should not take on the customer or should terminate the account.

Singapore, through MAS, has the necessary regulatory checks in place to prevent the abuse of offshore vehicles here.

Tan Sin Liang