For business transactions, partnerships, or regulatory compliance, Due diligence is a meticulous process essential for evaluating and mitigating risks so that one can make informed decisions. It involves comprehensive a careful business investigation covering financial, legal, and operational aspects, ensuring a holistic understanding before critical decisions. In today’s business landscape, the importance of due diligence cannot be overstated. As December draws to a close, it's an opportune moment to reflect on the paramount importance of due diligence, especially given two recent cases in Singapore that unfolded during this month. These cases serve as stark reminders of the consequences of oversight and the need for robust compliance measures.
Accounting for Trouble
Xie Yong, a Singaporean man who managed a network of a whopping 980 companies. Xie operated by helping Chinese clients establishing companies in Singapore. In spite of having a master's degree in professional accountancy, Xie did not fulfill his directorship duties adequately.
Two companies under his directorship, Wei Hui and Joy Trader, became vehicles for money
laundering. Wei Hui received US$1.5 million through a business impersonation scam, and Joy Trader was implicated in a larger scheme involving the transfer of US$7.5 million.Â
Despite being blacklisted by local banks, Xie persisted in his business by recruiting others to act as directors for companies he established. His failure to address the glaring red flags and supervise his companies adequately resulted in a substantial US$5 million laundered through the bank accounts of the entities under his control.
Steering into too many Boardrooms​
In another similar case, Grab driver Leonard Koh Meng Huat became Nominee Director of 60 companies, which he was charged in relation with 46 of them. He was fined $28,000 after pleaded guilty to seven charges under the Companies Act for his failure to exercise Due Diligence.
His lapses were exposed when it was revealed that AAH & Partner, a company where he served as a director, became implicated in a business e-mail scam in June 2021. After falling victim to the spoofing scam, Manufacturing and engineering firm Meiden Singapore has lost over over $171,000 which has been funnelled overseas.
Leonard failed to conduct any diligence checks on his part before assuming Director roles.
Despite substantial payments totaling over $57,000 over the three-year period from 2019 to 2022, he only browsed through bank statements of the companies he directed a total of four times.
The lack of due diligence on the director's part allowed fraudulent transactions to unfold within the company he directed, underscoring the importance of thorough due diligence in preventing misuse and safeguarding businesses from financial risks.
High Stakes Risks
Resorts World Sentosa (RWS) received a hefty fine of S$2.25 million from the Gambling Regulatory Authority(GRA) for failing to perform Due Diligence checks on cash deposits into patrons' accounts. The lapse occurred over a three-year period from Dec 2016 to 2019, where RWS failed to perform due diligence checks for cash transactions over S$5,000 between from third parties creditors and its patrons. The operator’s staff allegedly collected the said amount to make the respective deposits on the RSW customer accounts but failed to record the identity of these third-party creditors, as required by the (Prevention of Money Laundering and Terrorism Financing) Regulations set by the Monetary Authorities of Singapore (MAS). The legal and financial consequences of overlooking Due Diligence requirements is dire, particularly in the gaming industry susceptible to financial misconduct. RWS has since taken action to ensure compliance by implementing technology enhancements, improving employee training their processes and processes.
What went wrong?
Know Your Business Xie Yong's total failure to exercise reasonable diligence in overseeing his vast network of companies opened the door to money laundering and financial misconduct. Meanwhile Leonard assumed that external checks performed by foreign directors on the multiple companies he was a director of would suffice. They did not do the due diligence review of the business that the companies is dealing with. Checks should have been carried out to establish its identity and authenticity prior to taking on directorship
Know Your Customer RWS failed to establish the identity of third-party depositors. They did not record the requisite identifying information, nor did it verify these identities using reliable and independent sources.
In the above cases, individuals entrusted with oversight responsibilities have neglected their due diligence duties.
Consequences of Neglect
Xie Yong faced heavy legal consequences, including a four-week jail sentence, a S$57,000 fine. He was also banned from acting as a director for 5 years.
Leonard faced individual consequences, having been fined S$28,000 and charged with seven offences under the Companies Act. Each charge carried the potential for up to 12 months of imprisonment or a fine of up to S$5,000.
Meanwhile for RWS, failure to comply with regulations not only resulted in a substantial S$2.25million fine but also led to the cancellation of a special employee licence for one of their employees.
Avoiding The Pitfall
Due diligence is not a one-time responsibility but requires continuous monitoring. Regular reviews, strong company culture, and governance are imperative to keep businesses safe. Building solid internal controls and fostering a culture of responsibility throughout the organisation are key preventive measures.
With the upcoming Corporate Service Providers(CSP) Bill in 2024, the Accounting and Corporate Regulatory Authority (ACRA) will intensify its efforts to ensure the standard of compliance in the industry is improved.
Through our end-to-end compliance solutions, performing due diligence checks can be made more manageable.
Artemis 3.0 offers swift & accurate screening of PEP, Sanction, & Adverse Media profiles in under 60 seconds, vital for an organisation’s Risk Assessment and Know-Your-Customer/Business needs. With Artemis’s Ongoing Due Diligence support, automated trigger allows for timely updates and reassessment. This allows for continuous monitoring of users and clients for compliance tracking. Stay ahead by integrating Artemis into your operations to help fortify your due diligence processes, and achieve a better regulatory outcome.
Source:
https://www.channelnewsasia.com/singapore/director-980-companies-china-business-5-million-launder-money-4003701 https://www.straitstimes.com/singapore/courts-crime/grab-driver-who-was-director-of-46-companies-fined-28k-after-failing-to-supervise-them https://www.todayonline.com/singapore/grab-driver-fine-neglect-46-company-director-fine-2321631 https://www.straitstimes.com/singapore/resorts-world-sentosa-fined-225m-for-failing-to-check-on-deposits-to-patrons-accounts
Frequently Asked Questions
Q: What specific steps can businesses take to ensure they are conducting thorough Due Diligence?
A: To ensure comprehensive due diligence, businesses should adopt a multifaceted approach. This includes thorough scrutiny of potential partners or clients, verifying credentials, and conducting in-depth background checks. Moreover, it's essential to establish robust internal controls and foster a culture of responsibility throughout the organisation to mitigate risks effectively.
Q: How are regulatory authorities addressing vulnerabilities in non-financial sectors exploited by money launderers?
A:Â While the Corporate Service Providers (CSP) Bill proposed by ACRA is a significant regulatory development, it's essential to stay informed about other potential regulatory changes. Businesses will need to adapt their due diligence practices accordingly. Keeping abreast of industry standards and engaging with regulatory bodies can help ensure compliance and mitigate risks effectively.
Q: How effective are RegTech solutions in to improving due diligence processes?
A: RegTech solutions like Artemis 3.0 offer practical solutions for enhancing due diligence processes. For instance, Artemis enables swift and accurate screening of politically exposed persons (PEP), sanction lists, and adverse media profiles in under a minute.
Additionally, its ongoing due diligence support allows for continuous monitoring of users and clients, ensuring compliance tracking and timely updates. Integrating RegTech solutions like Artemis into operations can fortify one's due diligence processes and lead to better regulatory outcomes.
Cynopsis Solutions helps companies digitise and automate AML/KYC compliance processes. Our focus is on know-your-customer, anti-money laundering, and counter-terrorism financing. Cynopsis Solutions’ accolades include MAS FinTech Awards, RegTech100, and Financial Times Top 50 High Growth Companies in APAC. Our end-to-end KYC/AML solutions are designed according to the global FATF recommendations and applicable in more than 180 jurisdictions. We've helped firms across various industries, not limited to Banking and Financial Services, Property Development FinTech, Cryptocurrency, Professional Services and Gaming sectors.