While its status as one of the largest shipping ports in the world has the advantage of bringing in trade and revenue, Singapore faces risks from trade as well.
Ships stop at various ports during their voyages and what they contain can change during the course of their travel. So banks that underwrite the voyages have to know who operates the vessel, where it goes, and the value of the cargo before a letter of credit (LC) is issued.
The problem, according to Hugh Jones, is that the screening of trade is largely paper-based and offers scope for abuses such as money laundering. As he says: “It is very hard to find trade finance violations in a paper-based system when there are so many ships, and so many ports.” Only by leveraging technology can banks identify the risks and spot problems.
What makes the task even more challenging is when goods that shouldn’t be included are part of the consignment on ships going places they shouldn’t go; a prime example being the shipping of arms to rebels. When such shipments land on the public consciousness, they can damage how someone thinks about a company or the country. “You cannot have a ship come through the harbour that has tanks going to Syria,” says Jones. “That would be worse than laundering money.”
Yet another challenge is represented by dual goods, which can be acceptable in one scenario yet unacceptable in another, depending on the nature of the goods and where they are going. However, dual goods screening is not something that is always adopted by every shipper and every bank.
The result is that these risks combine to pose a threat to Singapore’s status as the Asia Pacific (Apac) region’s shipping capital. While the situation is better than it has been in the past and technology has also improved, Jones said screening of LCs in the paper-based systems at many organisations is still “woefully inadequate.”
The Monetary Authority of Singapore (MAS) and others regulators are responding by adopting Western norms so that they stay ahead of people with criminal intent. “As technology and awareness increase, Singapore will tighten the noose,” says Jones. “It cannot afford to be seen as a port where people are laundering money.”
The Singapore Compliance Story
On the financial services side, Jones sees Singapore as one of the more forward-thinking markets in Asia, and able to provide examples of best practice for other countries.
Singapore has a very open banking community, which makes it easy to do business. On the downside, that same openness also entices people who banks don’t want to attract, because it can too easily become a beacon for money laundering. MAS is keenly aware that Singapore is at risk because of the money flow and its rules are therefore quite stringent. “They don’t want to risk that, so they come out with particularly stringent regulations and adoptions of Westernised norms.”
A challenge for banks in a market like Singapore, then, is that regulators want to see an audit trail to show who checked what, when, and who approved a transaction – or who stopped it if it did not go through. “Not all banks have the software that can answer the question without hours of manpower,” Jones says. “If you are approached by a regulator and the best you can do is say ‘here is paper’ and ‘four eyes checked,’ that is inadequate – you will get fined. It is time to invest in a system.”
The broader implication of technology change is that humanity has become safer, because technology has become more precise. “Now, you can pick a single individual,” says Jones. “Technology is such that you can isolate a particular person, in a country, industry and bank.” Whereas no one could catch the person 20 years ago, today they can find someone far more easily.
“Here’s why that’s important – it stops missiles. Economic sanctions of a targeted nature are not different than warfare, except that no one is getting killed. Fifty years ago, our only options were militaristic. Now, you have new tools. That is a sea change in our generation.”
What he expects to happen next is the development of even more complex screening. When people go online now, notes Jones, they can buy fake watches, pharmaceuticals, pirated content or even underage labour. “I believe you’ll be able to respond with a solution for that level of criminality in the near future.”
While compliance is indeed challenging, technology is paving the way for corporates and banks to manage risk far better, so that they can protect their own interests as well as complying with national objectives. The changes underway in Singapore shows both how regulators are working to reduce risk and how corporates as well as banks can leverage technology to improve compliance.
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