December 29, 2016
From the moment Malaysian Prime Minister Najib Razak took over 1Malaysia Development Bhd. in 2009 the fund has remained controversial. Plagued by heavy debt and questions about its management, 1MDB grew into a scandal that moved closer and closer to the heart of the Malaysian government and has resulted in numerous foreign probes.
Najib Razak drags Singapore’s reputation as a Regional Centre into the Selut (MUD)
From the 1Malaysia Development Bhd.-linked scandal to a 333-count front-running case and the largest market-manipulation prosecution in Singapore’s history, this year’s allegations of moneymen behaving badly have put the city-state’s image as a squeaky-clean financial hub to the test.
Regulators have responded with their busiest year of enforcement actions, shutting the local units of two Swiss banks, fining some of the world’s biggest lenders and seizing S$240 million ($166 million) of assets. Ravi Menon, the head of Singapore’s central bank, summed up the city’s mood as the 1MDB-related cases escalated in July: “We can do better.”
2016 was the year of significant crackdown in Singapore,” said Hamidul Haq, a lawyer at Rajah & Tann LLP and author of ‘Financial Crimes in Singapore.’ “Companies, financial traders and bankers are being kept on their toes.”
The stakes could hardly be higher for a city that relies on finance for 13 percent of its economy and has 200,000 jobs tied to the industry. With exports sliding and the local oil services industries in a slump, Singapore needs to protect the reputation of its financial sector as it grapples with the weakest economic growth since 2009.
Strengthening enforcement functions under a new department is a strong signal of its commitment to uphold Singapore’s reputation, the Monetary Authority of Singapore said in an e-mailed response to questions. The regulator said it will continue to boost its enforcement and surveillance capabilities to deter criminal behavior and poor controls.
“This will ensure that any wrongdoing is swiftly detected, thoroughly investigated and firmly dealt with,” the MAS said.
Singapore, which prides itself on having a clean and trusted system, is rated by Transparency International as the least corrupt nation in Asia and consistently ranksamong the top 10 globally. That reputation was forged 51 years ago when Lee Kuan Yew, the founder of modern Singapore, and politicians from his People’s Action Party dressed in white to show they couldn’t be corrupted. That image helped to lure foreign investment to the city, where more than 200 banks have since set up shop.
The island republic emerged unscathed from the Bank of Credit and Commerce International global money laundering scandal in 1991 after MAS refused to grant it a license, though it isn’t immune to financial wrongdoing. In 1995, Nick Leeson’s $1.5 billion loss from unauthorized trades brought down Barings Plc, the U.K.’s oldest merchant bank. In 2004, China Aviation Oil (Singapore) Corp. revealed a $550 million derivatives fraud.
While Singapore has undergone significant change in tackling money laundering since 2008, “moderate gaps” remain in the city, Paris-based Financial Action Task Force said in September.
The city is the only jurisdiction to charge and convict bankers in connection with 1MDB. Yak Yew Chee, an ex-banker at Swiss firm BSI SA, pleaded guilty in November to charges including forging documents and failing to disclose suspicious transactions, while Yvonne Seah Yew Foong, who reported to Yak, was sentenced to two weeks in jail for aiding in forging documents. A former wealth planner at BSI, Yeo Jiawei, was found guilty of perverting the course of justice and faces further charges of money laundering and forgery, among others. Yak and Seah didn’t appeal their convictions and sentences. Yeo is considering an appeal, according to his lawyer.
“There’s no doubt about the tone that we take,” Singapore Law Minister K Shanmugam said at a media lunch earlier this month, adding that the rule of law is the city’s life blood. “It’s got to be understood that the MAS will be very tough if you don’t follow the rules.”
The MAS was given a bigger stick to wield in 2015 after a penny-stock crash in 2013 mysteriously wiped out S$8 billion over three trading days, an event seen contributing to lower subsequent trading volumes. Lawmakers granted the regulator enhanced powers including being able to search premises, seize items and order financial firms to monitor customer accounts.
The alleged “masterminds” in the penny-stock case were charged in November after MAS investigators and white-collar crime police sifted through two million e-mails, thousands of phone records and financial statements and 180 trading accounts to solve the largest securities fraud in the city’s history. Previously, the regulator had to refer criminal probes to the Commercial Affairs Department and could only fine culprits.
“Hopefully, the MAS will continue to focus on catching the bigger fish like they have done in 2016,” said Lan Luh Luh, a professor at the National University of Singapore Business School. “It’s always a dilemma between tightening the reins too much, going after the very little guys and staying open for business.”
Crowdfunding and financial technology may come under scrutiny in 2017, according to Lan. The two areas aren’t heavily regulated and may be open to abuse, she said.
Singapore’s enforcement actions this year have made it one of the most active financial regulators in Asia. In rival Hong Kong, the Securities and Futures Commission has been settling probes and creating specialized teams under new enforcement chief Thomas Atkinson.
Other countries have also seen heightened supervisory focus. Indonesia started a tax amnesty plan aimed at repatriating cash stashed overseas while giving evaders a way to come clean. China has placed regulatory curbs to rein in shadow banking and contain debt risk.
“That’s the global trend — it’s going to become harder to hide illicit money,” said Andre Jumabhoy, a Singapore-based lawyer who advises on government enforcement at K&L Gates LLP. “There’s a real emphasis in making sure that if you want to be a serious global financial center like Singapore wants to be, you’ve got to abide by the rules.”
Here’s what the Monetary Authority of Singapore was busy with in 2016:
Banks and bankers
* Fined Standard Chartered Plc, Coutts & Co., UBS Group AG and DBS Group Holdings Ltd. over breaches related to 1MDB. The banks have said they cooperated with authorities.
* Said it plans to bar former Goldman Sachs Group Inc. star banker Tim Leissner from the securities industry for 10 years. Leissner’s lawyer had said he intends to respond to allegations raised by MAS.
* BSI SA was fined and directed to close after “serious” money laundering breaches; six senior executives referred to prosecutors. BSI said it cooperated fully with investigations.
Alleged errant traders
* Three people were charged for orchestrating largest market manipulation case in Singapore’s history.
* Three former traders were charged with 333 counts in Singapore’s first front-running case.
* Man charged in the city’s first spoofing case, which was also the first case that the regulator and Commercial Affairs Department jointly brought to court.
* Fined a former chief financial officer of Sinomem Technology Ltd. and asset manager Triumpus Assets Management Pte for insider trading. Both had admitted to the contravention.
Barred a former trader for two years and fined him S$110,000 for insider trading.
Other enforcement efforts
* Joint announcement with Attorney-General’s Chambers and police that S$240 million in assets have been seized, including from Malaysian financier Low Taek Jho. Two calls to Low’s Jynwel Capital Ltd. in Hong Kong weren’t answered
* Set up units to centralize and further boost enforcement as well as target money-laundering activities