Acra acting early to root out unethical corporate service providers

SINGAPORE - The Accounting and Corporate Regulatory Authority (Acra) is taking action earlier to identify and root out unethical corporate service providers (CSPs), to prevent companies from being exploited for illegal activities like money laundering and scams, said the regulator’s assistant chief executive Leong Weng Tat.

It set up a specialised unit in November 2023 to harness data and technology to detect anomalous activity when companies are set up, and will enhance surveillance of those involved in incorporating companies. This will help it step up enforcement against irregularities.

In the first six months of 2024, the regulator acted against 14 registered filing agents and registered qualified individuals who provide corporate services, including the formation of companies, providing a registered office address, or arranging for a person to act as a director or nominee shareholder.

The errant CSPs had facilitated the misuse of nominee directorships, for which they had their registrations cancelled.

Between 2021 and 2023, 17 such entities had their registrations cancelled.

“One thing that we have learnt in the past few years is, at least for the CSPs, we should move faster (to root them out early), because if they continue to have the registration, they can continue to incorporate companies,” said Mr Leong, who heads Acra’s compliance and legal group.

“Most of our CSPs are law-abiding and they play an important role in the ecosystem. We should not let a few bad eggs taint the CSP sector.”

CSPs came under the spotlight recently following the laundering of $3 billion by 10 foreigners dubbed the “Fujian gang”, as many of them hailed from the southern province in China.

Those involved had set up a complicated web of companies to front their criminal activities. They have all been dealt with by the courts.

CSPs play a vital role in Singapore’s business landscape, not just in setting up companies, but also ensuring a basic level of compliance, for instance through the filing and lodgement of documents with Acra.

There are currently about 2,900 such providers registered with the regulator, and they are responsible for about 70 per cent of the corporate filings received.

There are some 575,000 corporate entities registered in Singapore.

In the Money Laundering National Risk Assessment published in June, CSPs were flagged for being “linked to the misuse of legal persons in some instances”, said the Ministry of Home Affairs, Ministry of Finance, and Monetary Authority of Singapore in a joint statement.

Mr Leong said that Acra and other enforcement agencies had noticed a significant increase in irregular nominee directorship arrangements between 2019 and 2021, though the situation has stabilised since then.

During the Covid-19 pandemic, when more activities moved online, such as the opening of bank accounts, the situation worsened, he added.

All companies set up in Singapore have to have at least one local resident director, so foreign-owned companies typically appoint a nominee director to satisfy that requirement.

“If they have ill-intent, foreigners would be inclined to appoint individuals who are willing to have their names used but are not involved in the business nor supervise the company’s activities. Such companies then go on to open corporate bank accounts and use them for money laundering,” said Mr Leong.

In 2023, Acra prosecuted nine nominee directors, including a man who ran a business helping Chinese clients set up companies here and became a nominee director of 980 companies.

More than $5 million was laundered by the companies under him, and he was sentenced to four weeks’ jail, fined $57,000, and banned from being a director for five years.

Among those who hold directorships here, including ordinary and nominee directors, only 0.04 per cent have more than 100 companies under them.

Even so, the vast majority have legitimate reasons, said Mr Leong. For instance, fund and asset management companies may set up multiple different companies to hold their investments, with the same manager being appointed as a director of each company.

But some nominee directors have shown that they are just directors “in name”.

“There have been some instances where when we investigate them for breaches, they are not even aware of the more basic obligations (of a director), like the filing of annual returns,” said Mr Leong.

Under the Corporate Service Providers Bill, due for debate in Parliament on July 2, Acra will have an even stronger arsenal to deal with such problems.

Mr Leong said Acra handled a case recently in which a vulnerable person with schizophrenia was exploited by a CSP to be a nominee director in multiple companies.

He noted that some CSPs advertise for people to be nominee directors, adding: “Before they foist on that person dozens of directorships, they should at least… make some checks to ensure the person understands the duties of a director.”

It is a lucrative business for CSPs, who charge their clients between $500 and $2,000 a year to get a nominee director, he added.

This is one regulatory gap that the Bill will help close, said Mr Leong, since it will hold CSPs to account that nominee directors they help source are “fit and proper”.

Subsidiary legislation will provide more information on what this entails.

For now, Acra is monitoring nominee directors who hold more than a certain number of directorships, as well as the CSPs behind these directors.

Since 2024, it has also issued debarment orders against six nominee directors whose companies fell short on their compliance obligations, and two more might be added to the list. Debarment prevents these directors from taking on more companies.

While Singapore does not impose a cap on the number of nominee directorships a person can hold, those with hundreds of companies under them and who have no big corporate teams to support them will raise red flags.

Currently, the highest number of directorships held by one person is about 600.

Mr Leong said the money laundering cases in the past years, including that involving the Fujian gang, helped Acra to fine-tune the Bill, which had been under consideration even before the Covid-19 pandemic.

“To mitigate the risk of nominee directorship abuse, Acra will continue to proactively act against higher-risk individuals using all existing and new levers available to us,” he added.