NEWS FROM SINGAPORE CONFIRMS THEIR SUSPICIONS ABOUT FAMILY OFFICES ENGAGING IN MONEY LAUNDERING

Regulatory authorities in Singapore are proposing to enact strict rules regarding the operation of family offices, which they will be required to adhere to, to become exempt from anti-money laundering laws. the fact that the Monetary Authority of Singapore (MAS) has taken these steps is the first indication we have seen, by any regulator, that there are well-founded suspicions of money laundering by family offices. 

Family offices, which are private entities that exist to invest and grow the assets of high net worth (HNW) individual and their extended families, have traditionally been regarded as low-risk, due to the fact that they have extremely limited clientele, and their clients, who earned their wealth in legitimate businesses or through inheritance, have high visibility in the financial world, and are often well known. But family offices often cross international borders in their investment operations, which elevates risk.

However, not all family offices cater to one specific family group, or a limited number of HNW clients; some service a large number of customers, and there have been a couple of high profile cases where family offices have either intentionally ignored a client's red flags of illicit activity, or unwittingly onboarded a customer who later turned out to be investig the laundered proceeds of crime. Thus, money laundering through a family office is not unthinkable.   

Additionally, the lure of lucrative profits presented by wealthy potential clients, whose Source of Funds or Source of Wealth is dodgy cannot be underestimated, in an industry which is essentially unregulated in many jurisdictions. It is not without significance that a number of hedge funds have converted their operation to become family offices, due to this loophole.

Remembering that money launderers are constantly seeking new financial sectors or industries to exploit for their clients, especially in jurisdictions where there are ineffective or corrupt regulatory agencies, and you have a perfect storm in the making. Laundrymen love to break ground in an area where they are not known to operate, because such new movement often goes unrecognized by law enforcement for a period of time, during which they move and clean a substantial amount of criminal proceeds. 

Therefore, compliance officers at international banks whose clientele includes a number of family office accounts should consider conducting enhanced due diligence investigations of the customer, and take a fresh look at the accounts, meaning instituting transaction monitoring, to rule out possible money laundering. Do not assume that all is as it should be with your family office clients.