Explaining the Concept of Designated Transactions Under the PSPM Act 2019

Explaining the Concept of Designated Transactions Under the PSPM Act 2019

Individuals and entities engaged in money laundering (ML), terror financing (TF), and proliferation financing (PF) activities frequently use precious stones and precious metals to move their illicit money and disguise it as generated from legitimate sources. To curb ML/FT and PF risk, the Precious Stones and Precious Metals (Prevention of Money Laundering and Financing of Terrorism) Act, 2019 (PSPM Act 2019) created a category of Precious Stones and Precious Metals (PSPM) transactions known as “Designated Transactions” to which the Precious Stones and Precious Metals Dealers (PSMD) must be cautious about identifying and reporting the ML/FT/PF suspicion.

The PSPM Act 2019 provides in-depth clarity around the designated transactions, considering the following aspects, with respect to which the PSPMD must undertake necessary AML compliance:

  • Purpose of the transaction
  • Payment mode and threshold
  • Parties to the transaction
  • Location of transaction
  • Count of the transactions executed

What is a Designated Transaction under the PSPM Act 2019?

A “designated transaction”  under the PSPM Act 2019 is a transaction when conducted wholly or partly in Singapore and

  • The purpose of the transaction is the sale of precious stones, precious metals, precious products, or asset-backed tokens by a regulated dealer to the customer against payment in cash or cash equivalent or digital payment tokens exceeding SGD 20,000.
  • Two or more PSPM sales transactions by a regulated dealer in a single day to the same customer or a person acting on behalf of the same customer against cash or cash equivalent or digital payment tokens exceeding SGD 20,000.
  • Transaction relating to the purchase of PSPM by the secondhand goods dealer from a customer (other than the regulated dealer) against cash or cash equivalent exceeding SGD 20,000.

Here, it is essential to understand who would be treated as a “regulated dealer”. A regulated dealer is a person engaged in the following regulated dealings or acting as an intermediary in such dealings:

  • manufacturing or selling PSPM
  • importing or possessing PSPM for sale
  • selling or redeeming asset-backed tokens (backed by PSPM)
  • purchasing any PSPM for resale

Why is it Important to Identify Designated Transactions?

Designated transactions involve cash and possess a higher degree of ML/FT/PF risk. Hence, it is essential to understand the nature of the transactions and apply appropriate risk mitigation measures.

The primary importance of identifying designated transactions is to detect and prevent the exploitation of the PSPM sector by financial criminals. Further, it is also essential to fulfil AML compliance obligations concerning designated transactions by a PSMD, including applying customer due diligence measures, reporting designated transactions to the STRO, etc.

Legal Obligations of a PSMD Engaged in Designated Transactions

To ensure compliance with Singapore’s AML regulatory regime and check the ML/FT/PF threats, a regulated dealer must adhere to the following obligations:

Risk Assessment and Internal Policies, Procedures, and Controls (IPPC)

A regulated dealer must assess the internal business risk assessment to identify the exposure to ML/FT/PF arising from the nature of customers, the geographies it is associated with, the type of PSPM offered, the complexities of the transactions, etc.

Based on the outcome of such Enterprise-Wide Risk Assessment and adopting the risk-based approach, a regulated dealer must design, implement and maintain its Internal policies, procedures and controls (IPPC) to mitigate ML, FT and PF risks.

The IPPC must provide detailed guidelines around performing the Customer Due Diligence measures, AML governance structure, identification and reporting of suspicious transactions, requirement for AML training, complying with Targeted Financial Sanctions, AML record-keeping requirements, etc.

Customer Due Diligence (CDD)

The regulated dealer must perform Customer Due Diligence (CDD) before entering any designated transaction. It must include measures to identify the customer and the beneficial owners, verify the identity, determine whether the customer is the owner of the cash, and screen the customer or beneficial owners to identify any connection with Sanctions Lists or Politically Exposed Persons (PEP), etc.

Depending upon the nature of the designated transaction and the risk associated with a particular business relationship, the PSMD must apply different CDD measures. For example, for a customer identified as high-risk, enhanced customer due diligence measures must be applied, covering the inquiries around the customer’s income level, source of funds and wealth.

Further, the regulated dealer must terminate the transaction or reject a customer if the CDD measures cannot be applied adequately or the PSMD suspects that the designated transaction may be connected to any ML, FT or PF activity.

The PSMD must carry out CDD measures to identify the third party acting on behalf of the customer to execute a designated transaction. Here, the PSMD must also obtain and verify the third party’s authority or specific rights to act on behalf of the customer.

Suspicious Transaction Report (STR)

When a regulated dealer cannot satisfactorily conclude the appropriate customer due diligence process or any red flags are observed concerning the designated transaction, the regulated dealer must file a Suspicious Transaction Report (STR) on SONAR.

The PSMD must submit the STR to the Suspicious Transaction Reporting Office (STRO) as soon as the customer is identified as suspicious involving proceeds of crime or activities related to ML/FT or PF.

While filing STR, the regulated dealer must provide complete details of the suspected transaction, red flags observed, and details of the parties to such suspicious transaction.

Cash Transaction Report (CTR)

A regulated dealer carrying out business related to PSPM must file a Cash Transaction Report (CTR) when he enters a designated transaction with the STRO.

CTR must be filed using Form NP 784 on the SONAR within 15 business days from the date of executing a designated transaction.

The CTR must capture accurate and complete information on the designated transactions and the identification details of the customer, the beneficial owners, or the person acting on behalf of the customer.

Record-keeping

A regulated dealer is under the obligation to maintain records about every designated transaction (irrespective of the completion status) for a minimum period of five (5) years, capturing the following details or documents:

  • All customers’ and beneficial owners’ identification details collected as part of the CDD process, including supporting documents relied upon
  • ID information of the person acting on behalf of the customer and proof of such authority given
  • Date, addresses, and amount of transaction entered into
  • Reasons recorded for inability to complete CDD or any other risk indicators observed
  • Copy of all STRs filed with the STRO
  • Copy of all CTRs and supporting documents relied upon for filing CTR

Independent Audit Function

The PSMD carrying out designated transactions are mandated to have their IPPC tested by an independent audit function to have an unbiased opinion regarding the health of AML/CFT controls and measures implemented, including:

  • Assessing and analysing the relevance and adequacy of IPPC
  • Assessing the effectiveness of IPPC by analysing AML compliance and engagement by the employee
  • Checking the quality and timeliness of the regulatory reporting

Other key regulatory obligations

In addition to the above, a regulated dealer is also required to comply with the following requirements:

  • appoint a competent Compliance Officer to manage and oversee the entity’s AML compliance, including performing a periodic review of the IPPC and its effectiveness
  • monitoring the transactions and business relationships to identify any suspicious activity or transaction
  • furnish a semi-annual return (SAR) with the Ministry of Law, capturing information about the dealer’s business profile, copy of IPPC, details of designated transactions executed, etc.
  • develop a robust AML training program for the staff, including senior management

Conclusion

Through the article, we have discussed the meaning, importance and obligations surrounding “designated transactions” for the PSPM sector in Singapore.

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About the Author

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Pathik Shah

FCA, CAMS, CISA, CS, DISA (ICAI), FAFP (ICAI)

Pathik is a Chartered Accountant with more than 26 years of experience in governance, risk, and compliance. He helps companies with end-to-end AML compliance services, from conducting Enterprise- Wide Risk Assessments to implementing the robust AML Compliance framework. He has played a pivotal role as a functional expert in developing and implementing RegTech solutions for streamlined compliance.