Shedding light on the fight against money laundering in Asia


Effective enforcement of anti-money laundering laws has long been a priority for governments. Recent developments including high-profile investigations, record-breaking fines and the enactment of the US Money Laundering Act of 2020 – the biggest overhaul of US anti-money laundering laws in a generation – confirm that effective enforcement of the anti-money laundering law remains a top priority for regulators and law enforcement agencies.

Asia is no exception. In 2020, authorities based in the Asia-Pacific region imposed fines totaling $ 5.1 billion for anti-money laundering law violations and related misconduct, which was a seven-fold increase from 2019 and increased relegated the United States to second place in imposing anti-money laundering sanctions for the first time since 2015. For example, in the first half of 2020 alone, the People’s Bank of China ( PBOC), the country’s central bank, imposed fines of more than 370 yuan ($ 52 million) for money laundering offenses, exceeding the total amount of AML fines imposed by the PBOC across the entire year 2019.

Behind the attention-grabbing headlines and massive fines, a combination of factors are contributing to a sharper focus on AML enforcement in the region. The first is the impressive growth of most Asian economies in recent years. It is not surprising that the rate of financial crime is directly correlated with the volume of financial transactions. Like those who seek legitimate profits, criminals are predictably drawn to areas of rapid economic growth.

Another factor is the growing recognition by Asian regulators that money laundering tends to be the hallmark of a broader fault, such as terrorism, drug trafficking, arms trafficking and corruption. If a government intends to combat such conduct, it must consider the means by which it is funded.

A third unprecedented factor is the emergence of blockchain technologies and decentralized finance, often referred to as “DeFi,” like Bitcoin and other crypto-assets. Digital currency is particularly popular in Asia where a relatively large portion of the population remains “unbanked” and currency controls are more restrictive than in Europe and the Americas. Meanwhile, law enforcement authorities rely heavily on banks and other traditional financial institutions that serve as centralized and tightly regulated capital channels. The prospect of these institutions being sidelined entirely by cryptocurrency has motivated AML regulators to get ahead of DeFi, or at least to give it a try.

In Asia, these factors are converging to create an environment in which the risk of money laundering itself and aggressive anti-money laundering enforcement is at an all time high. Companies operating in the region would do well to take note of these developments and step up their vigilance and compliance efforts.

Broaden the scope of anti-money laundering laws

At the end of 2020, the PBOC announced a public consultation on plans to revise its 2014 AML regulations. It is widely believed that this was a response to a 2019 report released by the Financial Action Task Force ( FATF), which highlighted “fundamental flaws” in China’s anti-money laundering regime. China’s current anti-money laundering regulations already apply to some financial institutions and designated non-financial institutions. The proposed revision would broaden the scope to include institutions such as Internet microloans and consumer finance companies. The draft revisions not only illustrate the evolving anti-money laundering risks posed by non-traditional financial institutions, but also illustrate the steps taken by regulators and policymakers to ensure appropriate oversight and regulation.

Likewise, in November 2020, Singapore introduced the Payment Services (Amendment) Bill to expand the financial supervision regime to cover providers of virtual assets that process digital payment tokens (e.g. , cryptocurrencies). Under the new law, which was passed by Parliament in January 2021, the Monetary Authority of Singapore will regulate service providers that facilitate the use of cryptocurrencies even if they do not “hold” the assets in. question. The new law also requires digital payment token service providers to undertake appropriate due diligence and transaction monitoring in recognition of the “inherent higher money laundering and terrorist financing risks” associated with these assets.

Customer due diligence

Earlier this year, the Philippine Securities Commission introduced measures to promote greater transparency in corporate ownership structures, in response to a recommendation from the FATF. The reforms were aimed at shedding light on the otherwise dark and opaque realm of beneficial owners and front companies. Notably, the reforms even provide a mechanism for imposing financial sanctions on non-compliant companies.

Other jurisdictions are filling perceived gaps and tightening existing AML laws in terms of customer due diligence. The changes proposed to anti-money laundering rules by the Joint Financial Intelligence Unit of Hong Kong would change the definition of “Politically Exposed Persons” (PEPs) to apply to individuals outside the territory, rather than those outside the territory. outside of mainland China. As it stands, Hong Kong companies only apply more in-depth screening only to PEPs outside of mainland China. In 2019, the FATF identified this as a ‘technical gap’, highlighting the increased money laundering risks posed by PEPs in general, regardless of their location.

Improved enforcement powers

The FATF has long criticized jurisdictions, including several in Asia, for failing to investigate and take action against those suspected of violating anti-money laundering laws. In response, governments in Asia have taken steps to strengthen the enforcement powers of their AML regulators and law enforcement agencies.

In the Philippines, for example, a law passed in January 2021 to strengthen the 2001 Anti-Money Laundering Act expanded the powers of the Anti-Money Laundering Council. The agency will now be able to apply to the appropriate courts for search and seizure warrants, as well as subpoenas, to investigate suspected wrongdoing. Many commentators see the Philippines move as an attempt to avoid being placed on the FATF’s list of countries in need of “increased surveillance”, otherwise known as the “gray list”.

Over the next few years, several other Asian countries are likely to upgrade their anti-money laundering laws, as well as the enforcement of these laws. There is no doubt that a favorable FATF rating can attract more foreign capital than a negative rating. Indeed, this incentive also applies to the most developed economies in the region. For example, the FATF noted in April 2020 that South Korea had made “policy and operational changes” that had a positive impact on the number of prosecutions of money laundering offenses.

What does the future hold?

From a law enforcement perspective, it remains to be seen whether the record-breaking 2020 fines were an anomaly. Either way, companies operating in the region, especially those in the financial services industry, would be wise to closely monitor the AML enforcement landscape in Asia in the coming months.

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