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CDiSS COMMENTARY National Defence University Malaysia (NDUM) Centre for Defence and International Security Studies (CDiSS) cdisscommentary.upnm.edu.my No. 84 – 25 September 2020 CDiSS NDUM Commentary is a platform to provide timely and, where appropriate, policy-relevant commentary and analysis of topical issues and contemporary developments. CDiSS commentaries and responses represent the views of the respective authors. These commentaries may be reproduced electronically or in print with prior permission from CDiSS and due recognition to the author(s) and CDiSS. To contribute article and provide comment or feedback, please email the Editor at [email protected] SINGAPORE, HK BANKS TOP FOR ASIAN HOT MONEY FLOWS, ICIJ SAYS By Toh Han Shih Singapore is the top Asian hub for suspicious financial transactions, followed by Hong Kong, according to a trove of data from the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) released by the International Consortium of Investigative Journalists (ICIJ) on September 20. The ICIJ’s year-long investigation was based on more than 2,100 secretive reports filed by banks to the US Treasury Department, according to the investigative organization, “and revealed trillions in tainted dollars freely flowing through the financial system. ICIJ’s year-long investigation shows 1 that five global banks — JPMorgan Chase, HSBC, Standard Chartered Bank, Deutsche Bank and Bank of New York Mellon – kept profiting from powerful and dangerous players even after US authorities fined these institutions for earlier failures to stem flows of dirty money.” Globally, Singapore ranks fifth in suspicious transactions totaling US$4.42 billion, followed closely by Hong Kong in sixth place with US$4.08 billion. The four jurisdictions with the world’s most suspicious financial transactions are in Europe, namely Russia, Switzerland, Netherlands and the UK in descending order. Russia ranks first with US$10.78 billion of suspicious transactions, Switzerland second with US$7.93 billion, Netherlands third with US$6.78 billion and the UK fourth with US$5.92 billion. “MAS is aware that Singapore banks were mentioned in media reports on suspicious transaction reports filed with FinCEN,” a Monetary Authority of Singapore (MAS) spokesperson said. “Although suspicious transaction reports in and of themselves do not imply that the transactions are illicit, MAS takes such reports very seriously. MAS is closely studying the information in these media reports, and will take appropriate action based on the outcome of our review. Singapore’s regulatory framework to combat money laundering meets international standards set by the Financial Action Task Force.” The ICIJ data covers financial transactions from 2000 to 2017 that were flagged by financial institutions as suspicious to US authorities. Obtained and shared by BuzzFeed News, the documents include suspicious activity reports (SARs) filed by international banks to FinCEN, the US Treasury Department’s intelligence unit. SARs reflect the concerns of compliance officers in banks and are not necessarily indicative of wrongdoing. “Though a vast amount, the US$2 trillion in suspicious transactions identified within this set of documents is just a drop in a far larger flood of dirty money gushing through banks around the world. The FinCEN Files represent less than 0.02 percent of the more than 12 million suspicious activity reports that financial institutions filed with FinCEN between 2011 and 2017,” said ICIJ. Through 1,781 transactions, Singapore received US$2.947 billion of suspicious money while sending out US$1.471 billion from 2000 to 2017. The banks that reported the 1,781 suspicious transactions to the US authorities include DBS (the largest Singaporean government-linked bank), UOB (a Singapore bank controlled by the Wee family), HSBC, Standard Chartered, Deutsche Bank, UBS and Citibank. A DBS spokeswoman told Asia Sentinel, “We have zero tolerance for bad actors abusing the financial system, and stand united with the financial industry in collaborating with authorities to seize funds and disrupt criminal networks. We note that outside of sanctions on names or specific account freezes, it is generally very difficult to delay or intercept money in transit given the impact on legitimate business, so the normal process involves subsequent investigations to establish suspicion, based on which the necessary action is taken.” 2 During the same period, Hong Kong received US$2.67 billion and sent out US$1.41 billion through 2,369 transactions. The banks that flagged the 2,369 suspicious transactions to US regulators include HSBC, Standard Chartered, Bank of China (one of the Big Four Chinese state-owned banks), Industrial and Commercial Bank of China (another Big four Chinese state-owned bank) and Bank of East Asia (a Hong Kong-listed bank). In coincidental timing one day after the ICIJ leaks, the Hong Kong Securities and Futures Commission (SFC) announced on September 21 that it has launched a three-month consultation on proposals to improve its anti-money laundering guidelines. “The proposed amendments align with the latest international standards and provide useful guidance for firms to apply these important measures in a more risk-sensitive manner,” said Ashley Alder, the SFC’s Chief Executive Officer. “This will help the securities industry combat money laundering and terrorist financing more effectively.” ICIJ alleged, “Secret US government documents reveal that JPMorgan Chase, HSBC and other big banks have defied money laundering crackdowns by moving staggering sums of illicit cash for shadowy characters and criminal networks that have spread chaos and undermined democracy around the world.” Banking on shadowy characters One of the “shadowy characters” highlighted by ICIJ is Low Taek Jho, a Malaysian businessman popularly known as Jho Low. The 38-year old is wanted by the Malaysian government for his suspected role in laundering billions of dollars from the now-defunct Malaysian sovereign wealth fund 1Malaysia Development Berhad (1MBD). The fugitive is reported to be recently spending time in mainland China, Macau and Hong Kong. According to FinCEN files obtained by ICIJ, 27 banks filed 8 SARs on US$2.53 billion transactions related to Jho Low from 2009 to 2016. Since 2013, the Bank of New York Mellon, JPMorgan Chase and other banks have reported more than 100 suspicious transfers to and from companies linked to the elusive businessman and 1MDB, said ICIJ. “They reported more transactions after the US government sued Low in July 2016, seeking to seize his assets.” In January 2017, JPMorgan, the biggest US bank, flagged more than a dozen wire transfers from Jho Low’s companies for the acquisition for a stake in Park Lane Hotel and a penthouse in New York City, ICIJ disclosed. JPMorgan alone moved more than US$1 billion for Jho Low, according to ICIJ. Jho Low has denied any wrongdoing. “Tainted transactions continued to surge through accounts at JP Morgan despite the bank’s promises to improve its money laundering controls as part of settlements it reached with US authorities in 2011, 2013 and 2014,” ICIJ alleged. 3 A JPMorgan spokeswoman said she could not comment on most of the ICIJ reports, as her bank is legally prohibited from discussing potential SARs. ICIJ alleged, “The records show that five global banks — JPMorgan, HSBC, Standard Chartered Bank, Deutsche Bank and Bank of New York Mellon — kept profiting from powerful and dangerous players even after US authorities fined these financial institutions for earlier failures to stem flows of dirty money. In some cases the banks kept moving illicit funds even after US officials warned them they’d face criminal prosecutions if they didn’t stop doing business with mobsters, fraudsters or corrupt regimes.” Greg Baer, president and chief executive officer of the Bank Policy Institute (BPI), commented, “It does not make sense that the basis for media allegations that banks knowingly hid illegal activity consisted solely of Suspicious Activity Reports that those banks filed alerting law enforcement to that very activity.” “Clearly, there is more to this story, but unfortunately the reporting failed to unearth it, and the banks are legally prohibited from telling their side. In some cases, if the past is any guide, that story likely includes law enforcement asking a bank to keep open an account it has identified as suspicious so that law enforcement can track where the money is going and gather further evidence to support an arrest and conviction,” Baer said. The BPI is a US-headquartered nonpartisan policy, research and advocacy group for the financial industry. Its members include JP Morgan, HSBC and other financial institutions. The Hong Kong share price of HSBC fell by 5.33 percent to HK$29.30 (US$3.78) on September 21, its lowest level in 25 years. The share price of JPMorgan on the New York Stock Exchange dropped by 3.09 percent to US$95.31 on September 21. Toh Han Shih is a Singaporean writer in Hong Kong. This article was published in Asia Sentinel dated 22 September 2020. Republished with permission from Asia Sentinel. CENTRE FOR DEFENCE AND INTERNATIONAL SECURITY STUDIES (CDiSS) National Defence University of Malaysia Sungai Besi Camp, 57000 Kuala Lumpur Phone: (+603) 9051 3400 ext. 4618 Fax: (+603) 9051 3031 E-mail: [email protected] 4 .