Compliance Insight – August 2023
In July, the Monetary Authority of Singapore (MAS) published the paper “Industry Perspectives on Best Practices – Management of Money Laundering, Terrorism Financing and Sanctions Risks from Customer Relationships with a Nexus to Digital Assets” by the AML/CFT Industry Partnership (“ACIP”), a group consisting of banks, the MAS, the Commercial Affairs Department (“CAD”) and Ernst & Young (“EY”). This paper discusses the money laundering (“ML”) and terrorism financing (“TF”) risks of business relations with customers exposed to digital assets, in particular, cryptocurrencies.
Individuals, including their investment entities, may have a nexus to cryptocurrencies in the following scenarios:
- Source of wealth (“SOW”) derived from mining, staking and investments in cryptocurrencies
- Usage of bank accounts for settling peer-to-peer cryptocurrency transactions (in fiat currency)
- Usage of bank accounts for payments/receipts of proceeds from regulated and unregulated digital payment token service providers (“DPTSPs”)
Financial institutions are encouraged to consider the following factors when conducting due diligence for natural persons with a nexus to digital assets:
- The type and nature of the cryptocurrency-holding and investment(s)
- The percentage of the customer’s SOW which is derived from cryptocurrency-related activity
- The value and volume of cryptocurrency-related transactions
- The ability to corroborate sales/purchase of cryptocurrency transactions, if they contribute to a significant volume of customer’s transactions
- The type of custodial solution being used by the individual (e.g., hosted or unhosted wallet)
The financial institutions should establish the customer’s SOW obtained from cryptocurrency-related activity, including but not limited to the type and nature of cryptocurrency holding and investment(s). This may include requesting corroborating documents for purported cryptocurrency assets purchased from DPTSPs. In its analysis, the financial institutions should, in particular, be alert to tokens that foster anonymity and transactions involving means that foster anonymity, such as mixers and tumblers. For enhanced due diligence financial institutions, financial institutions can leverage reputable third-party vendors to analyse on-chain activities. Moreover, they may inquire about the DPTSPs that the natural person deals with, including the latest regulatory status of the DPTSP.
Further, the MAS requested financial institutions to complete the Survey of Services 2022 and submit it by 16 August 2023.