Developers face new requirements as Singapore safeguards property market from AML/TF activities

SG rolls out new anti-money laundering and terrorism financing requirements for developers that take effect on 28 June.

Come 28th of June this year, the government of Singapore is introducing new anti-money laundering and anti-terrorism financing measures for property developers and for good reason.

In 2016, two real estate agents were fined for failing to report suspicious property transactions: one involving a $23.8-million bungalow in Sentosa Cove and another involving a new condominium unit. Both agents dealt with individuals who were later found guilty of conducting illegal activities.

Making sure such incidents don’t happen again and to keep up with international standards, Singapore is dead set on tightening up regulations.

“Given the vibrancy of the real estate market in Singapore, the importance of having effective laws and regulations in place to safeguard against the occurrence of any ML or TF activities is well-recognized,” Pat Lynn Leong, senior partner at Dentons Rodyk, told the Singapore Business Review.

The requirements
 
Under the new measure, developers will be required to perform risk analysis, carry out customer due diligence (CDD) measures, report suspicious transactions, and keep records for five years.

In performing risk analysis, Leong said developers must consider looking into “the profile of their purchasers and the countries which they are from or in.”

Gazalle Mok, partner at Rajah & Tann, said developers should also implement internal programmes and measures that include internal audits to test and monitor the policies, procedures and controls, with a corresponding duty to enhance them if necessary.

When carrying out CDD, Leong said developers will have to fill checklists and forms which can be found in the “Guidelines for Developers on Anti-Money Laundering and Counter Terrorism Financing,” which was released last March.

CDD is carried out in three levels: standard, simplified, and enhanced. Mok said the level of CDD will depend on the profile of the purchasers.

“The forms require the filling in of certain information such as the purchaser’s particulars or the particulars of the individual who is acting on behalf of the purchaser,” Leong said. “As for the checklist, developers may opt to use their own to conduct the CDD but must ensure that the prescribed requirements are complied with.”

Developers must complete both documents before granting an Option to Purchase (OTP) or before accepting any sum of money, including any booking fee from the purchaser.

“Developers should note that CDD must be performed even for existing purchasers with whom the transaction was entered into before the implementation of the new Anti-Money Laundering and Terrorism Financing (AMLTF) requirements,” Leong underscored.

“Developers should also be aware that where CDD measures fail to be satisfactorily performed or completed, they must not grant an OTP, accept any money (including booking fee), or enter into a Sale and Purchase Agreement (SPA) with the purchaser,” she added.

When there is a reason for developers to suspect their purchaser of being a terrorist under the Terrorism (Suppression of Financing) Act (TSFA) or UN Act, developers must not proceed with the issue of “options,” collect of monies, nor enter into SPAs.

“Developers must not open or maintain any account for, or hold and receive monies from an anonymous source or a purchaser with an obviously fictitious name,” Leong said.

If and when an OTP has been granted to the purchaser already, the developer must terminate the transaction, she said.

Lastly, Leong said developers will need to keep a record of documents such as the OTP and SPA, for five years and make it available to the Controller of Housing.

Other documents that need to be kept include Form 3, which is the “particulars, documents and information to be provided to intending purchaser before issue of OTP, found in the First Schedule of the Housing Developers Rules,” and the “Records of Simplified Customer Due Diligence or Enhanced Customer Due Diligence Conducted” if applicable.

Heftier fines

Singapore’s more stringent measures also come with heftier fines. According to Mok, developers who fail to comply with any of the new requirements will be “guilty of an offence and be liable on conviction to a fine not exceeding $100,000.”

Navin Naidu, partner at Dentons Rodyk and former Deputy Public Prosecutor said developers may also face suspension or revocation of any licence that has been granted to them if found guilty of any ML or TF offence.

“However, most individual liability for money-laundering related transactions continues to be governed by the Corruption Drug Trafficking and Other Serious Offences (Confiscation of Benefits) Act (CDSA),” Naidu said.

“Individuals who knowingly, or with reason to believe, facilitate such transactions may be liable to prosecution for offences which would likely carry an imprisonment term.  Persons convicted of ML or TF offences can also be disqualified from holding key appointments in developers,” Naidu added.

According to Leong, the suspension of licence may last up to 12 months.

“Prior to such revocation or suspension, the Controller will notify his intention to take such action against the developer and the developer will be given an opportunity to submit reasons or an explanation why its licence should not be revoked or suspended. Further, the developer may, within 30 days of being notified of the revocation or suspension, make an appeal to the Minister whose decision will be final,” she said.

Without a licence, developers cannot carry out housing developments in Singapore. “Any developer who does so without the licence will be liable on conviction to a fine not exceeding $100,000 and imprisonment for a term not exceeding 5 years,” said Leong.

“In addition, any person, such as the director,  who has been convicted whether before, on or after the date of commencement of the Act of any ML or TF offence must also not hold or continue to hold a responsible position in a licensed housing developer. Should this be contravened, the developer will be liable on conviction to a fine not exceeding $100,000,” the expert added.

Mok said new licences will also not be granted to housing developers found  to have previously been convicted of such offences.

“These penalties are only applicable to contraventions of these new implementations. Breaches of existing AML/CTF regulations found in the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act and the Terrorism (Suppression of Financing) Act may incur more severe penalties, such as fines not exceeding $1 million for developers directly engaged in money laundering arrangements or activities,” Mok underscored.

Higher compliance costs

Since developers will have to abide by the new requirements, Mok said they will likely face higher compliance costs.

“This will hit smaller developers especially hard as they lack the economies of scale and dedicated compliance personnel and programmes,” said Mok.

Leong had a similar sentiment, saying that “compliance cost may be incurred for the filling up of the relevant forms, training of employees on AMLTF policies, implementation of an audit function to test the policies, procedures and controls, and the storing of relevant documents for five years.

“Further, given the involvement of the many stakeholders - lenders, developers, property consultants and other professionals working with the developers, some time will be required for the adjustment to these new requirements,” she said.

To better fulfill the requirements laid out by the new bill, Naidu said developers must train  their employees and agents to ensure they are well-versed with the ML and TF risks presented by their purchasers.

He said developers must see to it that their people are “equipped to ask the correct questions of property purchasers, and are aware of circumstances when they may need to enquire further when ‘red-flags’ are presented.”

The Dentons Rodyk partner advised developers to use URA’s Guidelines For Developers on AML and CTF as a starting point. “Developers should obtain legal advice early, to prevent or reduce exposure to criminal liability,” he said.

Whilst the measure comes with challenges, Mok underscored that the new AMLTF requirements will “play an important signaling function in reinforcing the role of property developers as a bulwark against risks of misuse of the real estate market in Singapore for the purposes of money laundering and terrorism financing.”

“Property developers play an integral front-line function because they deal directly with prospective purchasers and are best placed to monitor for suspicious transactions and illegitimate sources of funding. As such, regulators rely heavily on developers to keep the property market in Singapore free from funds derived from illicit activities,” Mok said.

“By committing itself to the high standards set by FATF and clamping down on money launderers and terrorism financiers alike, Singapore’s financial system as a whole can boast stability and freedom from illicit fund flows,” she added.

As a parting shot, Leong said the implementation of the new requirements “will help enhance the transparency of the real estate market in Singapore, serving to benefit both purchasers and developers.”