Asia was the birthplace of “one of the greatest financial heists in history”: the 1MDB Scandal. 1Malaysia Development Berhad (1MDB) was a government-owned and controlled investment fund set up in 2009 by former Malaysian Prime Minister Najib Razak. Purportedly created to benefit all of Malaysia through foreign investment and development, it turned out to be a vehicle for large-scale looting. It was also the source of funding of the rigged elections that kept Najib in power for five more years.
The billions of dollars siphoned off 1MDB became the focus of money-laundering investigations in several countries, including Switzerland and the United States. It became the most complex, sophisticated, and most significant money laundering case ever carried out in Singapore, resulting in a former wealth manager of the now-defunct BSI Bank Singapore being jailed for four and a half years. The banker, Yeo Jiawei, played a central role in the illicit movement of 1MDB-linked funds from which he siphoned over US$3.5 million for personal gain.
Four years after this sentencing, the Monetary Authority of Singapore (MAS) is showing its commitment to improved governance in Singapore’s financial sector. It has announced it is introducing a digital platform and enabling regulatory framework for financial institutions to exchange pertinent information on individuals and transactions to prevent money laundering, the financing of terrorism, and proliferation financing (the funding of weapons of mass destruction and nuclear, biological, and chemical weapons or related materials and activities.)
The Money Laundering Cycle
Almost all money from crime will end up being deposited in a bank, either where the crime occurred and later transferred offshore or smuggled out and deposited offshore. But for the most part, financial institutions are prevented from sharing suspicious customer profiles and transactions. Unfortunately, this allows criminals to set up elaborate and illicit “spider webs” between multiple institutions so that no one has a complete picture of their activities.
The money laundering cycle consists of three stages: placement, layering, and integration. At each of these stages, financial institutions face two categories of risk, which will vary from bank to bank and country to country. They are the criminal environment (crime groups—local and international) and product and service risks.
Financial centers like Singapore have the most risk at the layering stage, when illicit monies are brought in and invested. This is the opposite of Australia, which is acknowledged to have an active drug economy—both production and consumption. There the risks lie mainly in the placement stage, when large amounts of cash (the proceeds of criminal activities) are deposited into bank accounts.
Additionally, Singapore faces risk from the many local and offshore service providers who provide nominee services that help obscure the identities behind the financial transactions being carried out. A country with a lucrative real estate market like Australia is a target in the integration stage, when criminals seek to grow and legitimize their funds through property investments.
The COSMIC Platform
Singapore’s new digital platform will be called COSMIC, an acronym for Collaborative Sharing of ML/TF Information and Cases. It will allow financial institutions to share information where material risk thresholds are exceeded. In this way, it’s hoped that criminal networks can be identified and thwarted, safeguarding Singapore’s financial center.
Six of the island-state’s largest commercial banks, namely DBS, OCBC, UOB, SCB, Citibank, and HSBC, are working with MAS on the platform. They will be the first users permitted to share information on the system, but it will be operated by MAS and firmly secured to prevent unlawful access to, use of, or distribution of any information it will contain. Moreover, its regulatory framework will specify what information can be shared and how to use it.
While it's true that other countries have initiated information-sharing programs between financial institutions, COSMIC will be the first platform to integrate with data analytics tools seamlessly. These tools will intelligently and productively enable collaboration at the scale necessary, allowing MAS to detect and deter illegal networks in Singapore’s financial system.
The launch of the COSMIC platform is planned for early 2023. Its initial focus will be on three key risks facing commercial banks:
1. Abuse of shell companies
2. Misuse of trade credit
3. Proliferation finance
After this initial period, MAS will extend coverage to other financial institutions and focus areas, likely making the sharing of certain information mandatory.
The International Money Fund has identified Singapore as one of 29 jurisdictions regarded as systemically important financial centers due to their large and globally connected financial sectors. It finds Singapore’s financial sector oversight to be “among the best globally” and that MAS has “struck a good balance between promoting financial innovation while safeguarding financial stability.” The COSMIC platform is a prime example of fintech improving governance, and it will strengthen Singapore’s trusted position in global finance.