Record-breaking Crackdown on Money Laundering

September 5, 2019 4 minute read

Grab moves into digital banking but MAS isn’t making it easy, HMRC sets a record-breaking fine for money laundering and FATF has outlined support for extradition between Hong Kong and mainland China.

We share our financial crime highlights from the week of 2 September 2019.

Grab and Go

Digital banking is facing new challenges as Grab, the Singapore-based ride-hailing firm moves to meet digital banking license requirements.

The Monetary Authority of Singapore (MAS) plans to award digital banking licenses by mid-2020. Only two digital full bank licenses and three digital wholesale bank licenses are available.

MAS is phasing the offerings that can be supplied to customers for the companies that win the digital banking licenses. Presumably to allow the banks to prove profitability and compliance capability.

The restrictions take place over the first three years of operation, starting with deposits capped at S$75,000 per individual and S$50 million in total. Digital banks will also only be able to offer basic credit and investment products to retail customers.

It’s an interesting move for Grab to make, although one long-coming to observers of the space. Will customers want their ride-share provider to be their bank? Can a company move from a comparatively low-regulated service like ride-sharing to the high-scrutiny and intensively regulated banking industry without issue?

Grab has managed it so far as a mobile wallet to pay for general goods and services. But that’s still a long way from being a full-fledged bank.

If Grab wins the license then it could be a signal across the digital banking industry for other successful tech startups to pivot into finance.

Record-Breaking Crackdown

Amidst the chaos of domestic policy, the UK is managing to combat financial crime. HM Revenue and Customs awarded a record fine of £7.8 million against a money sender for breaching regulations that left the business open to abuse by money launderers.

HMRC is using its powers to crack down hard on those who fail to meet compliance standards. But it’s worth noting that the record fine was against a small business – highlighting the criticisms against the Economic Crime Plan that came out a few weeks ago.

On the other hand, the same business had failings across risk assessments, record-keeping, policies, procedures, customer due diligence and staff training. Plenty of other small businesses don’t fail on these points. The government has been educating Money Service Businesses (MSBs) through informative leaflets delivered to each of the 9000 MSBs in London.

The fine comes in the wake of a crackdown on MSBs by the Metropolitan Police which saw £100,000 seized, an arrest with a suspended jail sentence and four civil cases. It’s a drop in the ocean compared to the estimated £100 billion laundered through the UK each year, but perhaps closing these niche avenues of money laundering will help squeeze the criminal market.

Extradition and Money Laundering

Hong Kong’s inability to extradite suspects to mainland China is a blocker to AML/CFT activity according to a report released by FATF this week.

The report has largely been welcomed as a positive assessment of the Hong Kong market’s implementation of AML/CFT obligations by HKMA Deputy Chief Executive, Arthur Yuen.

FATF’s comments follow on from extensive protesting in Hong Kong due to the unpopularity of the extradition bill. However, despite the lack of formal processes for extradition, Hong Kong and mainland China were noted to have strong informal solutions on the issue.

Hong Kong is notably high risk for money laundering, as is every other global financial hub. FATF has pointed out that the region’s AML/CFT regime is sound and delivering good results.

The report also raised the issue of a lack of supervision on smaller players in the financial industry. So a crackdown similar to the one in the UK (second story in this blog) might be on the horizon for Hong Kong.

FATF encouraged Hong Kong to continue with its AML/CFT efforts but criticized the ambivalence towards following proceeds of crime outside the jurisdiction. A suggestion that while current baseline compliance requirements are good – they need to improve in the near future.

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