Why Are Due Diligence Checks Necessary in Singapore?
FidCorp Services is a Registered Filing Agent (RFA) regulated by the Accounting and Corporate Regulatory Authority of Singapore (ACRA). We provide the full range of Corporate Secretary services to our clients, including business incorporation, company secretary services, accounting and book keeping services, business advisory and tax. Some of our clients have asked us why they need to submit certain documents to us, or proofs of where their sources are funds are from. We therefore decided to write this blog so company owners can have a better understanding of why and what these due diligence are needed.
Singapore has always been regarded as a business and financial hub in Asia, and holds a strong and unique position in the global economy. The country’s strong government infrastructures, open market policies, stable government, skilled workforce, relatively low tax rates and sound intellectual property protection makes it one of the most attractive places in the world for foreign investments and setting up of new businesses.
To maintain its competitiveness in the global market, Singapore adopts stringent Anti-Money Laundering (AML) and Counter-Financing of Terrorism (CFT) measures to mitigate the adverse effects of any potential criminal activities that may threaten its economic efficiency.
With effect from June 2015, Registered Filing Agents such as FidCorp Services are required to comply with AML and CFT requirements as set out by the Accounting and Corporate Regulatory Authority of Singapore (ACRA). Under these requirements, RFAs will cover the following areas as part of their Know Your Customer (KYC) processes:
1. Risk Assessment
RFAs typically adopt a risk-based approach based on evaluating the following indicators:
Customer Risk: for instance, whether the client is a Politically Exposed Person (PEP) or a close relation/associate of a known PEP, non-resident customer, complexity of business ownership structure etc;
Country Risk: whether the country of origin of the client or where the entity is based is in a country that is sanctioned by the United Nations, or countries/territories that are known to be prone to terrorism-related activities; and
Transaction-based Risk: whether or not the client requires transactions to be carried out without direct interaction or frequent unaccountable changes to shareholders, or unverifiable changes to beneficial owners.
2. Customer Due Diligence
RFAs are required to identify and verify customers’ and their agents’ identities based on documents and other sources of data and information, including commercial databases, internet sources etc. Important documents typically include photo-identification (e.g. passports, identification cards, driving licenses), company registration details (where the customer is a company), proof of registered addresses, proof of the nature and purpose of the relationship between the customer and its beneficial owners, and documents that can be used to establish the source of wealth and source of funds involved in the proposed business relationship.
Due diligence checks are carried out before the establishment of a business relationship, or within 14 days of engagement if a relationship is already formed between the customer and the RFA, and as and when suspicions of money laundering or financing of terrorism should arise.
In the event the RFA is unable to perform or complete any customer due diligence measures, the RFA may:
not carry out any transaction with or for the customer;
not establish a business relationship with the customer;
terminate any existing business relationship with the customer; and
consider whether it is required to file a suspicious transaction report with the relevant authorities.
3. Ongoing Monitoring
RFAs also conduct on-going monitoring of existing business relationships in the following ways:
keeping a close eye on transactions undertaken;
ensuring documents and data of customers are accurate and up-to-date;
continued KYC checks on customers at regular intervals depending on their risk levels, or when there is any material change to the customer’s business, e.g. changes to details of beneficial owners, changes to directors etc.
4. Record Keeping
RFAs are obliged to keep all documents and data of any customer due diligence carried out on their customers. These records will be kept for a period of 5 years starting from the end of the business relationship, and shall be maintained and organised by the RFA to ensure they are readily available for checks by ACRA.
5. Suspicious Transaction Reports
RFAs are obliged to make suspicious transaction reports at any point throughout the business relationship, as outlined in the Anti-Money Laundering/Counter Financing of Terrorism Guidelines for Registered Filing Agents. The regulations require that the RFA makes a report to the authorities within 15 days of any suspicious cases being detected.
It should be noted that KYC reviews will continue to take place throughout the duration of the customer’s relationship with, and at the discretion of, the RFA in accordance with the client’s risk level, or as and when material changes occur. In this way, we do our part to minimise the risks of money laundering and terrorism financing – processes are important and necessary in ensuring that Singapore remains an attractive destination for investments and new businesses.