MONEY LAUNDERING OFFENCES UNDER THE

• Author: Kenny FOO LLB (Hons) (National University of Singapore), LLM (Taxation) (New York University); Advocate and Solicitor (Singapore), Attorney and Counsellor-At-Law (New York); Managing Director, J.P. Morgan.
• Citation: (2017) 29 SAcLJ 163
• Date: 01 December 2017
• Published date: 01 December 2017

CORRUPTION, DRUG TRAFFICKING AND OTHER

SERIOUS CRIMES (CONFISCATION OF BENEFITS) ACT

Interpretative Difficulties and a Proposed Solution

The Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act sets out a series of money laundering offences. These provisions target the “benefits of criminal conduct”, which is a concept originally created for use in confiscation proceedings following a conviction under the Prevention of Corruption Act. That same concept, while suitable for use in confiscation proceedings, is very difficult to apply in the typical money laundering scenario, where there is no court proceeding, no convicted predicate offender, and where the predicate crimes are very different from corruption. This article argues that Parliament could not have intended this, and that Parliament actually meant to target “proceeds of criminal conduct” in the money laundering offences. Judicial interpretation to that effect would resolve many of the difficulties. But legislative reform may be timelier and more comprehensive, and can unify the confiscation, money laundering and suspicious transaction reporting provisions around a single, objective and robust definition of the targeted property.

I. Introduction

1 The crime of money laundering has burst onto the public consciousness in recent years. Whether in the mainstream media, or in national and international politics, a consensus has formed that anti-money laundering (“AML”) laws need to be strengthened and more vigorously enforced. This has, predictably, resulted in a surge of

legislative activity and an uptick in enforcement in many countries. Singapore is no exception.

2 Singapore's AML rules are contained in the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act1 (“CDSA”). These rules target, for the most part, the “benefits of criminal conduct”.2 But the definition of “benefits of criminal conduct” was developed in a different context and, read literally, is very difficult to apply in typical money laundering scenarios. This article explores the practical difficulties of identifying the “benefits of criminal conduct” in daily commerce, and argues that it is open to the courts to solve these difficulties by ruling that, for purposes of the money laundering offences, “benefits of criminal conduct” really means “proceeds of criminal conduct”. Legislative reform is also possible and this article offers a few thoughts on how that might unify the confiscation, money laundering and suspicious transaction reporting provisions.

II. Overview of the money laundering offences

3 Although the AML rules are contained in the CDSA, the main focus of the CDSA is not money laundering. The CDSA's objective is to strip criminals of economic gains derived from criminal conduct by instituting a confiscation regime; the AML rules (and the suspicious transaction reporting rules) exist to support this confiscation regime3 by “[preventing] ill-gotten gains from being laundered into other property so as to avoid detection and confiscation by the enforcement agencies”4 [emphasis added].

4 In addition to the statutory rules, the Monetary Authority of Singapore (“MAS”) has issued AML directions and regulations that have the force of law.5 Most enforcement actions – particularly against financial institutions – are grounded in these MAS directions and regulations. Industry associations have also issued practice notes, companies have detailed internal policies, and so on. For the most part, day-to-day AML compliance is governed by these extra-statutory guidelines and policies. But at times it is necessary to return to the language of the CDSA itself. The bringing or defending of criminal charges for money laundering offences are obvious examples. However, the statutory provisions also cast a long shadow across the entire arc of daily commerce; when deciding whether to proceed with a transaction, or whether to receive or acquire property, or whether to file a suspicious transaction report (“STR”), much turns on the precise wording of the statute.

5 The statutory AML rules are found mostly in Pt IV, and the confiscation provisions are found in Pt II, of the CDSA. Both Pt II and Pt IV of the CDSA contain parallel provisions that address drug dealing and criminal conduct respectively. This article focuses on the AML rules for which “criminal conduct”6 constitutes the predicate offence7 and will mention the provisions relating to drug dealing only where relevant. Obviously, any interpretation of the CDSA in relation to criminal conduct must also make sense in relation to drug dealing.

6 Section 44 of the CDSA makes it an offence to enter into an arrangement, knowing or having reasonable grounds to believe that, by the arrangement, a predicate offender's “benefits of criminal conduct”: (a) are retained or controlled by the predicate offender; or (b) are used to secure funds placed at the predicate offender's disposal; or (c) are used for the predicate offender's benefit to acquire property.

7 Section 47 of the CDSA makes it an offence to acquire, possess, use, conceal or transfer any property that is, or represents, a predicate offender's “benefits from criminal conduct”. The offence may be committed by the predicate offender himself (“primary laundering”) or by a third party who knows or has reasonable grounds to believe that the property is, or represents, the predicate offender's benefits from criminal conduct (“secondary laundering”).8

8 All of these AML provisions and the corresponding confiscation provisions target property that is, or represents, the “benefits of criminal conduct”.9 The confiscation provisions supply the definition of “benefits of criminal conduct” applicable to both sets of provisions. This is unsurprising since the AML rules exist to support the confiscation regime.

III. Identifying “benefits of criminal conduct” under the CDSA

A. The five-stage characterisation process

9 Section 8(1) of the CDSA provides that “benefits derived by any person from criminal conduct” means “any property or interest therein … held by the person at any time … being any property or interest therein disproportionate to his known sources of income, and the holding of which cannot be explained to the satisfaction of the court”.10 This suggests a five-stage characterisation process:

(a) Identification: property held by the predicate offender is identified.

(b) Valuation: the property is assigned a value.

(c) Comparison: the value of the property is compared to the predicate offender's known sources of income to determine if there is a disproportionate relationship between the two.

(d) Explanation: if the value of the property is disproportionate to the predicate offender's known sources of income, the court has to consider any explanation given for the holding of such property.

(e) Conclusion: having heard the explanation (if any) given for the predicate offender's holding of such property:

(i) if the court is satisfied with the explanation, then the property does not constitute “benefits derived from criminal conduct”; and

(ii) if the court is not satisfied with the explanation, it must conclude that the property constitutes “benefits derived from criminal conduct”.

B. The characterisation process in post-conviction court proceedings: Effective and efficient

10 The five-step characterisation process, outlined above, works well in confiscation proceedings under Pt II of the CDSA. Applications for confiscation orders are heard by a judge (or registrar11), assisted by counsel and with the benefit of full evidence given under oath and subject to cross-examination. The offender, already convicted of a predicate offence, is often present in person or by counsel; third parties asserting an interest in the offender's property may also be present. With all of these inputs, the judge applies the law to the facts to produce reasonably consistent and objective conclusions. If he requires more time for his decision, he can reserve judgment; if he gets it wrong, his decision may be appealed. The five-step characterisation process was designed to operate in this context, and it performs its function admirably.

C. The characterisation process in daily commerce: Fraught with difficulty

11 However, the characterisation rules are more often applied under radically different conditions. Although confiscation proceedings and AML prosecutions are conducted in a courtroom setting, the vast majority of AML compliance (or non-compliance) takes place in the heat and dust of daily commerce. The person applying the rules – let us call him a “banker” (although he may be a tradesman or hawker or merchant or jeweller) – must ensure that he does not commit the

offence of money laundering. To do this, he must make difficult decisions of fact and law, often with incomplete or unreliable facts and little or no knowledge of the law (domestic or foreign). He must work under commercial and time pressures, making multiple decisions each day, with the threat of harsh penalties12 in the event that he is wrong. The alleged predicate offender may be absent or, if present, cannot be compelled to provide true and complete information (or any information at all); he may not even have been charged with, much less convicted of, any predicate offence. The banker faces a deficiency of crucial decision-making inputs, but must nonetheless make a decision.

12 Unfortunately, that is not the end of his troubles. A banker who attempts to work through the five-step characterisation process to identify any “benefits derived from criminal conduct” quickly discovers a second set of problems, this time inherent in the statutory wording itself. To see this, one simply needs to replace references to “benefits of criminal conduct” (and its variants) in the AML provisions with the definition provided in s 8(1) of the CDSA. Take, for...