Precious Stones and Precious Metals (Prevention of Money Laundering and Terrorism Financing) Bill

Sir, in the international web of ML/TF, it is important that Singapore does its part to create an environment in which crime does not pay. As the way these syndicates and perpetrators work is dynamic, it is important not to leave a gap in our preventive framework which they can exploit. Therefore, this Bill is timely to bolster our AML/CTF measures by increasing the standard of such practices in the industry, and, also, to protect the many hardworking merchants who operate within the industry.

Precious stones and precious minerals are highly valued yet relatively compact, making it easy and desirable to store or smuggle. Their worldwide demand makes it easy to convert their value into money and vice versa. Their form is versatile and easily changed, making it difficult to trace. For instance, in "Operation Meltdown" overseen by the United States (US) Homeland Security Investigations, proceeds from drug trafficking were money laundered through gold. Part of the scheme involved converting gold bullion into nuts, bolts and other items, enabling them to declare them as “gold pigment". These characteristics make precious stones and precious minerals especially susceptible to be used for ML/TF. Therefore, in order to increase AML/CTF measures in this industry, this Bill seeks to regulate PSMDs. I have a few questions on the scope of the Bill.

Firstly, the definition of "regulated dealers" says: "a business of regulated dealing; or business as an intermediary for regulated dealing." What does "business" refer to? From paragraph (e) of the definition of "regulated dealing" under clause 2, this Bill seeks to regulate the purchasing of precious stones, precious mineral or precious product for the purpose of resale. Would it include individuals who buy precious stones and precious minerals who make a one-off sale, for instance, to the pawnshop? What if there is more than one purpose for purchase? For instance, gold pieces are often bought during wedding preparation both as a gift and also as an investment. Would that be considered purchase for the purpose of resale? Also, what kinds of situations is paragraph (b) involving "intermediary" envisaged to cover?

Secondly, how will the question of whether a product is a precious product according to the definition be worked out? If the value is referring to retail value, how will it be determined whether 50% of the value is attributable to precious stone or precious material or to the branding of a product or the craftsmanship that goes into it? As luxury brands may carry a range of products – some with precious stones and precious metals which may fall under regulated dealing, it is necessary that there be sufficient clarity and guidance on what is or is not a precious product. Clarity is important for compliance and effective regulation, yet it is also vital that these new regulations do not unduly curb in businesses' creativity when designing products.

Thirdly, clause 6 says that "a person must not act or hold out to act as a regulated dealer unless the person is a registered dealer." Would this Bill apply to persons or businesses who are based overseas but who engage in regulated dealing with individuals or dealers in Singapore? For instance, if a manufacturer based overseas buys scrap metal from Singapore, would that overseas manufacturer require registration?

This Bill adopts a risk-based approach to regulation. This is good because of ML/TF, both dynamic, always looking for new loopholes to exploit. The common fundamental principle running through the whole variety of players in the precious stones and precious minerals industry is that of identifying and addressing risks appropriately.

How that works for each business may differ. For instance, the kinds of risk that a person in the scrap metal business faces and a jeweller faces are different. As such, it is important that the objective is clear and expectations communicated so that each of the different sectors can comply meaningfully. There needs to be input from each sector of the industry so that the guidelines will make sense for the kinds of situations they may face. This Bill will help ease the transition of working current informal checking processes into a regulatory framework that is sensible and robust.

Further, there needs to be training and education so that regulated dealers and their employees will be able to effectively implement the appropriate guidelines. If the regulated dealers understand the process but are unable to articulate it to the employees, the regulatory framework will not be as effectively implemented. As risk profiles may change due to the dynamic nature of ML/TF, there needs to be a two-way feedback on what works, what does not, how things need to be changed. That is why it is good that the Bill allows for adjustment of guidelines, standards and codes of practice under clause 35.

These guidelines need to be flexible enough to allow discretion to be applied to individual situations, yet they need to provide sufficient guidance for them to be effective. The idea is not to be too burdensome for legitimate transactions but, at the same time, be sufficiently robust to identify and deter illegitimate transactions.

As the effects of this Bill will be felt at all levels of the precious metal and precious stones market, including the individual buyers, AML/CTF needs to be an ongoing conversation requiring regulator-industry cooperation. For instance, there are concerns that customers will not understand why identity or proof of ownership may be important. Some customers may feel uncomfortable, threatened or put off by needing to answer so many questions. Lack of understanding of certain terms used in risk-profiling, such as "politically exposed persons" (PEP), may also be a hindrance to obtaining the requisite information. These concerns of regulated dealers overstepping and intruding into customers' details unnecessarily cannot be treated lightly. Indeed, this is part of the feedback that has come from the industry, that is, whether or not the questions to be asked of potential customers are overly intrusive.

To this end, what will be done to raise awareness among the general public about what to expect and the importance of such processes? How will regulated dealers be supported in complying with the guidelines, for instance, giving them the power to ask for certain private information or building capacity so that they will be able to search in the relevant "watchlists" should such actions become necessary? Further, what will be done to address concerns that private information will not be obtained unnecessarily and that private information obtained will remain secure and confidential if eventually not needed for any AML/CTF investigations?

Regarding the information gathered, clause 29 of the Bill provides for disclosure of information or documents to a foreign authority. This is good because international cooperation in this area is vital to effectively identify which transactions are riskier.

Sir, this Bill is timely. It seeks to limit the use of precious metals and precious stones in ML/TF. Therefore, I support the Bill.

Mr Speaker, Sir, I would like to, first, declare my interest as a lawyer who issues compliance advice on AML/CTF matters from time to time.

Singapore's position as a major financial hub brings with it greater exposure to transnational economic crime. To counteract this, Singapore has developed and implemented a robust AML/CTF framework to target, prevent and confiscate the proceeds of crime, particularly within the financial sector, and the Senior Minister of State has mentioned some aspects of it in his earlier speech.

This House had, as recently as in October last year, passed the Serious Crimes and Counter-Terrorism Bill, to strengthen our ability to detect and deter criminals. Apart from the financial sector, other designated non-financial sectors, such as pawnbrokers, are also subject to AML/CTF measures.

However, we are only as safe and strong as our weakest link. The Financial Action Task Force, in its evaluation of Singapore's AML framework in 2016, has identified the PSMD sector as a risk area for controls to be improved. The PSMD sector in Singapore is not currently subject to any specific AML/CTF controls. This is a gap that criminals may exploit and may even be presently exploiting. The PSMD sector is particularly vulnerable, as identified by Mr Christopher de Souza, because of the fact that precious stones and metals are easily transported, concealed and converted into cash. This can be used by criminals to launder monies to hide their illicit sources of funds.

The case of an errant lawyer in 2006 is a good example. He had used approximately $2 million that he held on trust for his client to purchase various pieces of jewellery and precious stones from a jeweller and absconded with all these items. The payments were first made by way of a telegraphic transfer from his firm’s client account and, subsequently, a cash cheque was issued in the name of the firm’s client account. His clients subsequently tried to recover their losses from the jeweller via a civil action before the Singapore Courts. In doing so, the clients alleged that the jeweller ought to have known from the circumstances of the transactions that he was using monies belonging to another in breach of trust.

The Singapore Court of Appeal, in its 2010 decision, considered that whilst there were some circumstances surrounding the transaction which arguably might have raised cause for concern about the probity of the transaction, the jeweller did not cross the boundaries of reasonable commercial conduct in relation to the first transaction paid through telegraphic transfer of monies. In arriving at its decision, a key consideration of the Court of Appeal was that there was no pre-existing practice of jewellers questioning customers on the source of funds, such that it would not be fair to criticise the jeweller’s staff for their failure to query the source of purchaser’s funds.

The Court of Appeal's comments in this regard were particularly pertinent and exemplifies the gap in our present regulatory scheme. It said:

"Clearly, it is not the usual practice for jewellers and retailers, in general, to ask their clients searching questions about the source of their funds. As rightly pointed out by the Judge, indeed, there are usually cogent reasons for not asking questions. Genuine clients would feel offended, the transaction might be unreasonably delayed, and costs incurred. Admittedly, in certain types of commercial transactions, there might well be a practice of exercising due diligence…In Singapore, unlike the US and the UK, there are currently no rules that require jewellers, gem dealers and precious metal dealers to implement anti-money laundering programmes… ...This is why the Judge quite correctly remarked that most honest retailers would not bother to check on the background or standing of their customers even for very large purchases; there is simply no general practice of making inquiries and imposing such an invariable requirement on large transactions might jeopardise completion of large numbers of legitimate transactions."

If the jeweller in question had been required to conduct due diligence checks on the source of funds, perhaps this unfortunate matter might have been prevented.

I welcome the Bill, which will shore up our defences against financial crime. I also applaud the fact that the Ministry of Law had conducted public consultation and incorporated the feedback into the Bill that is being introduced in the House today for Second Reading. I take the opportunity to make a few short comments on the proposed Bill.

The first area concerns how the Ministry intends to ensure that jewellers, bullion traders, jewellery wholesalers and retailers, auctioneers and secondhand goods dealers – who would be regulated dealers under the Bill – would be adequately equipped to understand their obligations under the Bill, such as their obligations to conduct CDD and filing of suspicious transaction reports.

Such dealers may be tradesmen who may not be familiar with or have experience in carrying out such AML controls, or whose current business models would need to be adapted to allow such controls to be implemented. What are some of the steps that the Ministry has taken or plans to take to ensure that regulated dealers will have the necessary training and will be well-versed with their obligations under the Bill and understand the consequences of non-compliance, for example, via ongoing industry engagements through industry bodies, such as the Singapore Jewellers Association?

Next, it should also be noted that PSMDs are generally not as well-resourced as banks. Would the Ministry be providing support to enable PSMDs to build capacity to conduct CDD? In comparison, I recall it was announced that MAS was working with the banking sector to develop a common screening platform for CDD purposes. This has a salutary effect of ensuring common standards as well as ensuring that compliance costs are kept in check.

I wonder how the Ministry would deal with possible situations arising where purchasers could spread their purchases with PSMDs to escape detection by transacting below the threshold amount of $20,000 so as to escape CDD requirements. What expectations will be placed on PSMDs to find out whether such multiple purchases were or will be made? It may not be practical to require PSMDs to share information of purchasers’ identities with their competitors. But on the other hand, there could be scope for pooling information amongst affiliated PSMDs or outlets of the same PSMDs. I welcome the Senior Minister of State's clarification on this.

Finally, section 18 of the Bill requires a regulated dealer to keep prescribed documents and information for a prescribed period of time. The Bill does not specify what this period of time is, save to say that the different periods may be prescribed for different classes of regulated dealers, different types of designated transactions or different documents and information. Presumably, these requirements will be specified through secondary legislation.

Could the Senior Minister of State please provide some guidance as to what the prescribed period of time would likely be? Would this be, for example, five years, as in the case for pawnbrokers? What are the considerations behind the need to segregate the prescribed period based on different classes of dealers or transactions? Notwithstanding my queries, I support the Bill.

I thank the two hon Members for their overall support for the Bill. I would like to just jump straight into addressing the queries which have been raised, all of which have been very valid questions.

Mr Christopher de Souza asked what the definition of "business" is in the Bill. We would draw from the Business Names Registration Act (2014) and I would just like to define it as such: "'Business' would include every form of trade, commerce and profession and any other activity that is carried on for the purposes of gain but does not include any office, employment or occupation". So, it refers, for example, to companies, partnerships and sole proprietorships which sell precious metals, stones and products, such as jewellery.

Mr Christopher de Souza also asked whether the definition of "regulated dealing" covers purchases of precious stones, metals and products for multiple purposes, including for the purpose of resale. It is not the intention of the regime to cover individuals who make one-off purchases and subsequently may decide then at some stage to sell their items to a second-hand goods dealer. Whilst such activities may be carried on for the purposes of gain, these are conceivably not matters that fall within the definition of "business". But, of course, if this happens once too often and there is a pattern of such activity, then all of that would be taken into account when looked at and considered in the context of the definition as to whether there is activity that generates gain under the definition. So, from the individual's perspective, I have addressed Mr Christopher de Souza's point, but from the perspective of the regulated dealers, as well as those who purchase the second-hand items from these individuals, they would have to perform the AML/CTF measures where appropriate.

On intermediaries, Mr Christopher de Souza asked what situations specific to limb B of the definition of regulated dealings involving intermediaries do we envisage we would cover. Intermediaries, as defined in clause 2 of the Bill, such as precious stones and metals exchange or auctioneer, would be covered under the Bill, and we need to cover the intermediaries because, otherwise, the intermediaries would immediately provide a way in which you would enable anonymity in the transactions, if one uses the intermediary to deal with the transactions in these precious stones or metals. Such intermediaries may import the items from overseas suppliers and perform the sale in Singapore on behalf of their overseas suppliers. Depending on the mode of transaction through the intermediary, it may not be possible for suppliers to perform the AML/CTF measures required, for example, to verify the identity of the customer. It is, therefore, necessary to also regulate intermediaries to ensure that the appropriate AML/CTF measures are performed where necessary.

Mr Christopher de Souza asked if the Bill applies to persons or businesses based overseas but engaged in dealing with regulated dealers in Singapore. As stated in clause 14 of the Bill, the requirements of Part III, which deals with this aspect of Mr de Souza's concern, apply to all regulated dealers who carry on any part of their business of regulated dealing in Singapore. So, the touchstone is that, if the business is carried on in Singapore, it will apply to them. In the example that Mr de Souza cited, the manufacturers based overseas would not have to register with the Ministry or comply with the requirements of the regime when purchasing scrap metal from Singapore as long as he does not carry out any part of his business of regulated dealing in Singapore. Nevertheless, such dealers will be subject, of course, to the relevant AML/CTF verifications and processes in their home jurisdictions.

Mr de Souza asked how the Ministry will determine if a product is a precious product. There is a lot of subjectivity to that. But as Mr de Souza also mentioned, there needs to be a degree of flexibility in the way we look at this. Obviously, if one is too prescriptive with the definition, then the effects of the Bill will lose its flexibility and that may then allow a loophole to be introduced. Having said that, we recognise that precious products may have different parameters to determine their value beyond just the value of the stones and metals, for example, in the branding or craftsmanship of such products.

In cases where the classification of precious products is not immediately apparent, we will, of course, work with the industry to determine if they ought to be considered as precious products and then provide the necessary guidance to the rest of the industry. On that score, I recognise both Mr Murali Pillai and Mr de Souza raising the point that we need to have more communication between the regulator and the regulated and that, obviously, would be done as we embark on this journey after the Bill is passed.

On multiple transactions, Mr Murali Pillai asked how the Ministry would handle customers who spread the transactions over time, flying under the radar and keeping the transactions below the $20,000 threshold. As Mr Murali Pillai knows, under clause 15, the regulated dealers are required to perform CDD measures on a customer if there are two or more transactions in a single day which exceed the threshold of $20,000.

This is an existing requirement under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act. It is possible for customers to transact with multiple, not just one, but multiple different regulated dealers and go below the threshold each time, to avoid the CDD checks. However, the threshold itself is designed to make it difficult for criminals to misuse regulated dealers for illicit purposes, by introducing a degree of friction in the system in a way in which the transactions would be done. Should dealers come across any suspicious transactions, they also have to report it to the Suspicious Transactions Reporting Office (STRO) in accordance with already prevailing existing requirements.

We will not expect regulated dealers to share their customers' information with their competitors, obviously. As the Member Mr Murali Pillai pointed out, that may not be practical. But he has raised an interesting suggestion about how some of the information could be pooled within or amongst the affiliated dealers or outlets of the same PSMD and that might be a better way to try to link the different transactions should such an occurrence of multiple transactions occur.

On the record-keeping requirement, Mr Murali Pillai asked about the prescribed period. Mr Murali Pillai is right. We do intend to prescribe in the subsidiary legislation for dealers to keep records for a period of five years. This is similar to the record-keeping requirement imposed by all other sectors, including pawnbrokers, and is also aligned with the international standards set by the Financial Action Task Force.

Mr Murali Pillai asked for the rationale behind the power to prescribe different time periods for different classes of dealers or transactions. This is needed because the level of ML/TF risk posed by different classes of dealers or transactions may itself require different time periods for the records to be kept.

At this point in time, we do not intend to prescribe different time periods but would like to have the power to do so and make the adjustments at a later stage if we assess that there is a need to impose more stringent record-keeping requirements on certain prescribed classes of dealers or transactions.

I just want to touch on how we intend to support the industry, because that is obviously a very relevant question that both Members have raised. To start off, as I have mentioned earlier, we had engaged stakeholders early on, even before we formulated this Bill, to better understand the mechanics of the sector, how it works, what would be the issues that they face on the ground and what is needed to build the capacity to comply with the relevant requirements. These stakeholders, as I mentioned earlier, would include the Singapore Jewellers Association, and the Singapore Bullion Market Association and so on.

During the public consultation, we also held briefings and dialogues for industry associations to explain and clarify the requirements of the regime. Moving forward, we will continue to work with these industry associations to engage regulated dealers to help them comply – first of all, understand, and thereafter also comply, with the requirements of the regime.

And we intend to do it through regular AML/CTF seminars, outreach sessions and dialogues for the dealers, and the first session will likely be held when registration commences. Secondly, the production and circulation of AML/CTF guidance materials. These will include details on how to perform proper CDD, how to perform risk assessments and implement internal policies, procedures and controls. And based on feedback from associations, we will also, where appropriate, provide the materials in different languages and issue templates and checklists, so as to help the ground and the smaller players within this sector to better appreciate and also implement these measures. For instance, we will issue a brochure which will contain information on the registration process to regulated dealers before registration commences.

We agree with Mr de Souza that the ML/TF risks faced by the sub-sectors within the industry may differ. There is not necessarily parity within the different sub-sectors and we will work with these sub-sectors and industry associations to support them and also develop guidelines which may be specific to their needs.

Mr de Souza asked if regulated dealers will be given the power to ask for private information. In general, regulated dealers are not prohibited from collecting, using or disclosing personal data as long as it is strictly required for compliance with the requirements in this Bill.

However, that said, regulated dealers are required to ensure that reasonable security arrangements are in place to protect personal data in their possession or under their control. That is really no different from the current regime, anyway. Other than complying with the requirements in the Bill, regulated dealers also have to comply with the Personal Data Protection Act and ensure that personal information obtained is not used or disclosed for other purposes, such as marketing, without the consent of the customer. Where appropriate, we will also be issuing guidance on how personal information should be obtained, handled and stored.

Mr de Souza asked what will be done to raise awareness amongst the general public about the new requirements of the regime and the importance of such processes. Those are very good points, and we will work with the industry to inform the public of the importance and requirements of the regime, in particular, the need to obtain customer’s personal information as part of that due diligence exercise, so as to facilitate regulated dealers in their compliance with the regime. For example, we may also consider issuing posters and other guidance notes on the new requirements for regulated dealers to put up in their places of business.

Mr Speaker, Sir, ML/TF are serious offences. They pose significant social, security and reputational concerns. To address these concerns, Singapore has implemented a strong AML/CTF framework for the financial and non-financial sectors. In line with the broader AML/CTF framework, this Bill will strengthen AML/CTF standards in the PSMD sector through supervision and regulation. It will help to manage ML/TF risks within the sector, which, as Members have pointed out, is something that has been missing; this is one further piece amongst the various steps that we take. This would be crucial to combat crime and also improve security both domestically and globally.

Finally, it will also reaffirm our commitment to be a responsible member of the international community. Sir, with the support of the House, I beg to move.

*Question put, and agreed to.*

*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 Edwin Tong Chun Fai.]*

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