Trustees (Amendment) Bill

Order for Second Reading read.

1.47 pm

The Senior Minister of State for Law (Ms Indranee Rajah): Mdm Speaker, I beg to move, "That the Bill be now read a Second time."

Singapore is one of the leading financial centres of the world. We have earned a reputation for being a clean and trusted international financial centre. We have anchored our financial sector on three pillars.

First, building a strong legal and regulatory framework.

Second, implementing a robust regime of supervision to monitor compliance by all regulated sectors.

Third, staying committed to cross-border cooperation in the global combat against transnational financial crime.

We will continue to ensure that our legal and regulatory framework is responsive to the evolving threat of cross-border financial crime, such as money laundering, terrorism financing and tax evasion. Financial crime has become increasingly sophisticated. Company and trust structures are sometimes used to facilitate movement of funds for money-laundering, terrorism financing and tax evasion purposes.

There have been increased efforts globally to enhance the transparency of trusts and company structures. This will facilitate the more efficient tracing of assets which, in turn, will assist the investigation and prosecution of financial crime. As a responsible member of the international community, Singapore has done and will continue to do its part to combat financial crime.

In this regard, Singapore is a member of the Financial Action Task Force (FATF), an intergovernmental body which sets standards and promotes implementation of anti-money laundering and terrorism financing measures. Singapore is also a member of the Global Forum on Transparency and Exchange of Information for Tax Purposes (GF), a multilateral body which promotes and implements international standards on tax transparency. As a member of FATF and GF, Singapore has regard to the standards promulgated by these international bodies and participates in the peer assessment exercises conducted by these bodies on its members.

In September 2016, the National Steering Committee for Combating Money Laundering and Terrorism Financing announced that Singapore will follow up on certain areas of improvement recommended by the FATF assessors. This included enhancing the transparency on beneficial ownership of companies, limited liability partnerships and trusts, and ensuring that such information is more readily accessible to law enforcement agencies.

To this end, the Bill introduces a framework for the Minister for Law to prescribe the necessary regulations, so as to give effect to the FATF recommendations and GF requirements concerning beneficial ownership and identity information and/or the keeping of accounting records in relation to trusts.

Similar amendments were introduced in respect of companies and limited liability partnerships (LLPs) by way of the Companies (Amendment) Bill and the LLPs (Amendment) Bill which were passed in this House earlier today.

Before I take the House through the main features of the Bill, let me first outline the existing legal regime concerning trusts and trustees.

Trusts are essentially relationships or vehicles in which property is vested in a person known as a trustee. The trustee is obliged to hold and manage such property for the benefit of other persons known as the beneficiaries. Trusts can be created by the act of an individual declaring his intention to create a trust. For example, an individual may create a trust and appoint a trustee to manage the assets of his estate. Such trusts are broadly termed as "express trusts". Trusts can also arise by operation of law. These include resulting trusts and constructive trusts, which are deemed at law to be constituted when certain legal conditions are fulfilled.

Trustees are obliged to discharge certain duties. These duties may be prescribed by common law, that is, law developed based on decisions by judges in individual cases. These include the duties to be familiar with the terms of the trust, to be familiar with the state of the trust property and safeguard the trust assets, and to furnish the accounts of the trust for inspection on request.

Trustees' duties may also be prescribed by statute or any other regulation. For example, section 3A of the Trustees Act imposes a statutory duty on trustees to exercise reasonable care and skill in the discharge of their powers of investment and any duty in relation to the investment of trust funds.

The Bill introduces a new Part VII to the Trustees Act, which will apply to an express trust that is governed by Singapore law, administered in Singapore, or in respect of which any of the trustees is resident in Singapore. In respect of the express trusts covered by the Bill, the Bill empowers the Minister to, amongst others, impose the following duties on the trustees.

First, the Minister may require the trustee to obtain, maintain and keep up-to-date information relating to and records of the trust. These include (a) the identity and particulars of the parties relevant to the trust, which include the settlors, trustees, beneficiaries and those who effectively control these parties; (b) the identity and particulars of an agent of, or a service provider to, the trust; and (c) accounting records relating to the trusts and information on the assets of the trust.

Second, in prescribed transactions, the Minister may require the trustee to disclose to the other party in the transaction that the trustee is acting for the trust. This ensures that accurate information of a trust is readily available to the relevant law enforcement agencies when they require it through the exercise of their investigative powers.

Some of these duties already exist under the common law. For example, in discharging the obligation to understand the terms of the trust, a trustee must necessarily obtain information on the identities of the beneficiaries or class of beneficiaries of a trust. In addition, a trustee is also obliged to keep and furnish accounts of the trust on request and to be familiar with and preserve trust property.

The proposed amendments will reinforce the pre-existing duties of trustees under common law. They will also give more clarity to trustees on the expected standards that they should meet.

From a law enforcement perspective, the proposed amendments ensure that information relevant to a trust is ready and available. This enables authorities to more quickly obtain information of a trust that is under investigation. Such greater transparency minimises the abuse of trust structures to conceal assets for money laundering, terrorism financing and tax evasion purposes.

To discourage the breach of regulations, the proposed amendments empower the Minister to prescribe breaches of the regulations as offences punishable by way of a fine. Having regard to the comparative severity of the existing sanctions under the Trustees Act in respect of other offences, the maximum fine for such breaches is $1,000, which is a proportionate sanction for the purposes of Part VII.

Finally, the Bill empowers the Minister to exempt certain express trusts or classes of express trusts from the proposed Part VII of the Trustees Act. An exemption may be granted having regard to various factors, such as whether the trustee is already subject to pre-existing laws which prescribe similar or analogous standards as those found under Part VII; or whether the activities of a trust are already subject to regulatory oversight or supervision. For example, trust companies are presently already subject to the regulatory oversight by the Monetary Authority of Singapore (MAS).

Additionally, under the regulatory notices issued by MAS, regulated trust companies are already required, when acting as trustees, to discharge duties which are similar to those envisaged under Part VII. Breach of such regulatory notices may render trust companies liable for an offence punishable by way of a fine not exceeding $1 million.

To sum up, the amendments contemplated are part of a concerted effort to ensure that legal entities, such as companies and LLPs, as well as legal arrangements, such as trusts, do not readily lend themselves to financial crime.

We will continue to monitor domestic and international developments in combating transnational financial crime to ensure that any vulnerabilities to our legal and regulatory framework are accurately identified and swiftly addressed. Mdm Speaker, I beg to move.

Question proposed.

Mdm Speaker: Ms Thanaletchimi.

1.56 pm

Ms K Thanaletchimi (Nominated Member): Mdm Speaker, I support the Bill as it will enhance Singapore's reputation as a trusted international financial centre and reinforce our commitment as a responsible member of the international community to global efforts in countering money laundering, terrorism financing and tax evasion.

The changes will further help to make the ownership and control structures of trusts more transparent and improve financial record-keeping by trustees.

Madam, I would like to seek clarifications on the following.

The Mutual Evaluation Report (2016) provides a comprehensive report of the anti-money laundering and combating the financing of terrorism measures in place in Singapore. It analyses the level of compliance with the FATF 40 recommendations and provides recommendations on how the system could be strengthened. Some of the amendments in this Bill are the result of the recommendations.

The report specifically highlighted the lack of enforceable obligations on trustees to collect beneficial ownership information relating to a trust beyond the immediate beneficiary. Similarly, the GF requirements may also change, subject to the findings of FATF on the study of the Singapore financial actions landscape and requirements set by GF and the Organisation for Economic Co-operation and Development (OECD).

The amendment Bill in section 84A(1)(a) and (b) provides for the Minister to make such regulations that are necessary to give effect to the FATF recommendations and GF requirements. As such recommendations and requirements may change from time to time, how will the details of the changes be made known and what is the lead time given to the affected parties to comply?

As a further clarification to section 84A(2), will trustees be allowed to authorise a relevant agent, that is, the support staff managing the trust, to upkeep the obligations required under 84A(2)?

Mdm Speaker: Mr Louis Ng.

1.58 pm

Mr Louis Ng Kok Kwang (Nee Soon): As an international financial and trade hub, our doors are wide open, putting Singapore at risk of becoming part of the global transfer of illicit funds.

This was all the more evident when the 1Malaysia Development Berhad (1MDB) saga unfolded in 2016, implicating our private banks. Last year also saw the Indonesian amnesty on overseas funds which revealed that $72.4 billion was sitting in private bank accounts on our shores.

As such, I welcome these amendments to the Trustees Act, bringing Singapore closer to international standards on measures to combat money laundering, terrorist financing and tax evasion. I wholeheartedly support our nation taking up a more a constructive role to tackle key problems faced by the international community.

Section 84A(2)(g) provides that we may impose a fine of up to $1,000 for non-compliance with regulations. However, for individuals engaged in these illicit activities, such as money laundering and tax evasion, this would have little deterrent effect, in view of the broader financial gains they stand to reap. Will the Minister consider reviewing this?

To ensure that investigators will have ready access to the necessary information, has the Ministry considered the viability of setting up a central registry of all trusts that have connections to Singapore? Currently, ACRA maintains basic ownership information of companies and LLPs. An equivalent body could be set up to record legal and beneficial ownership information for trusts. This has been done in France and South Africa.

This will speed up investigations by our local agencies and our responses to requests for information from foreign authorities. The authorities will also be able to avoid alerting suspected individuals when carrying out their investigations. Speed and secrecy are of the essence where monies can be easily moved with the push of a few buttons. The legitimate concerns of confidentiality for those who use trusts to arrange their personal financial affairs may be addressed by limiting access to the registry to competent authorities.

Next, another area I would like to highlight is the lack of criminal sanctions for trustees who fail to discharge their duty of care under the Trustees Act. In contrast, it is an offence for directors or officers of a company to breach their duties to use reasonable diligence under the Companies Act. Has the Minister considered whether equivalent criminal sanctions may be appropriate under the Trustees Act?

Next, while FATF has largely commended steps taken by Singapore to address anti-money laundering and terrorism financing, it also noted other areas of weaknesses. For example, there are no strong sanctions when accountants fail to comply with money laundering and terrorism financing obligations. Precious stone and metal dealers are still not yet subject to the full range of money laundering and terrorism financing requirements. Are there plans to bring our legislative framework in line with the FTAF's recommendations in other aspects? Will the Anti-Money Laundering and Countering of Financing of Terrorism (AML/CFT) Steering Committee of the Ministry consider setting out a national strategy to ensure a coherent and coordinated approach across the board?

The 1MDB saga shook our private banking system last year. We sent a strong message against using our financial system for illegal purposes by closing down BSI Bank and Falcon Bank, prosecuting senior officers and levying heavy fines on other banks.

This is a success story showing what we can achieve when the Public Service functions as one. I would like to commend the AML/CFT Steering Committee that has the difficult task of coordinating the work of over 20 Government agencies. The effectiveness of the whole-of-Government approach we have taken when it comes to money laundering and terrorism financing is a model for interagency cooperation in all other aspects of the Public Service. Madam, I stand in support of the Bill.

Mdm Speaker: Senior Minister of State Indranee Rajah.

2.02 pm

Ms Indranee Rajah: Mdm Speaker, I thank the Members who have spoken for their support of the Bill.

Ms Thanaletchimi asked how changes in the FATF Recommendations and GF requirements would be made known and about the lead time that will be given to affected parties to comply with the revised requirements. In the event that the FATF Recommendations and GF requirements are revised, we will first study such revisions closely to see if we need to make corresponding amendments to our laws.

If amendments are made to the subsidiary legislation, these will be publicised through the Government Gazette. MinLaw and the relevant agencies may also consider public education campaigns to effectively communicate the changes and ease the transition process. In determining an appropriate date for the commencement of the revised legislation, we will take into account the complexity of the revisions and the extent to which they differ from the existing regime. If the changes are significant, we will provide a longer lead time before the revised rules take effect. These steps will help affected parties to understand the changes and give them sufficient time to adapt to them.

Ms Thanaletchimi also asked whether a trustee may authorise an agent to fulfil the trustees' obligations under section 84A(2). There is nothing in the law today that prevents a trustee from doing so. This is a matter which we are presently reviewing in the preparation of the regulations to be made under section 84A(2).

I turn now to the four issues raised by Mr Louis Ng.

First, the Member asked if the maximum fine quantum of $1,000 for breaches of the regulations ought to be raised, to better deter illicit activities, such as money laundering and tax evasion. The underlying financial wrongdoing is actually already criminalised under existing legislation, such as the Corruption, Drug Trafficking and other Serious Crimes (Confiscation of Benefits) Act and the Terrorism (Suppression of Financing) Act.

The proposed amendments to the Trustees Act supplement this by making trust information available to our law enforcement authorities when required. Prescribing a criminal sanction for such breaches already underscores the seriousness of a breach, and Singapore is one of the first few common law jurisdictions in the world to criminalise such breaches.

In the circumstances, my Ministry assessed that a fine not exceeding $1,000 would be appropriate as it balances the need for deterrence with the need for a proportionate sanction. That said, given that this is an evolving regulatory space, we will continue to monitor the domestic situation as well as international best practices and respond accordingly.

Second, Mr Louis Ng asked if the Ministry has considered the viability of setting up a central registry of all trusts that have connections to Singapore. We have considered the issue but, at present, have no plans to set up such a registry. There is no clear evidence that having a central registry would strengthen Singapore's regime for countering financial crime.

Third, Mr Louis Ng asked if criminal sanctions ought to be prescribed for a trustees' failure to discharge his statutory duty of care under the Trustees Bill. It must be borne in mind that the aim of criminal liability is to protect a wider public interest. We have already proposed to criminalise breaches of a trustee's record-keeping and transparency obligations. Where a trustee acts so egregiously to commit fraud or criminal breach of trust, he or she can be prosecuted under the criminal law. We have not seen any trend or development indicating a need to criminalise breaches of a trustee's statutory duty of care.

Finally, Mr Louis Ng asked if there were any plans to enhance our legislative framework with regard to the regulation of accountants and precious stones and metal dealers. The short answer is yes, we are looking into it.

Since 2014, Singapore has implemented a cash transaction reporting regime for precious stones and metal dealers. This was to reduce the risk of money laundering and terrorism financing associated with transactions involving precious commodities. In September 2016, the National Steering Committee for Combating Money Laundering and Terrorism Financing announced that it will study how the regulatory regime for this sector can be further strengthened.

Accountants, on the other hand, have to comply with the Ethics Pronouncement 200 (EP 200) issued by the Institute of Singapore Chartered Accountants in November 2014. EP 200 sets out the applicable anti-money laundering and counter-terrorism financing requirements and guidelines for professional accountants in Singapore.

In addition, public accountants are regulated under the Accountants Act and the rules and standards prescribed under it. Following the Companies (Amendment) Bill, which has just been passed by this House, consequential and related amendments to the Accountants Act will be made to give more bite to the applicable rules and standards for public accountants, including EP 200.

As Mr Louis Ng noted, a whole-of-Government approach is essential in developing a coordinated strategy to combat financial crime. This has been and will continue to be Singapore's approach. Mdm Speaker, I beg to move.

Question put, and agreed to.

Bill accordingly read a Second time and committed to a Committee of the whole House.

The House immediately resolved itself into a Committee on the Bill. – [Ms Indranee Rajah.]

Bill considered in Committee; reported without amendment; read a Third time and passed.