Singapore: Hard For Volunteer-run Charities To Identify Money Laundering Donors

Empower charities with tools instead of demanding compliance with rules

Philanthropy is booming in Singapore, spurred by the influx of wealth.

In 2021, assets under management in Singapore grew 16 per cent year on year to S$5.4 trillion. The number of single family offices grew from 700 in 2021 to 1,100 at the end of 2022.

These huge fortunes in the wealth management sector have been a wellspring for charities here. In fact, charities are poised to receive more money in the years to come, with Singaporeans becoming more socially conscious and charitable.

Donations have increased to S$3.25 billion in 2019 and S$3.12 billion in 2020, from S$2.65 billion in 2017, according to the Commissioner of Charities (COC). Donations received through Giving.sg were about three times higher than pre-pandemic levels, at around S$100 million for the past three years. The World Giving Index, which ranks 140 countries on how charitable they are, has Singapore in 31st place in 2022, leaping 15 spots from 2019.

And with the Government extending or dishing out tax incentives in Budget 2023 for individuals, businesses, and single family offices to donate, the numbers will only tick upwards.

The money laundering challenge

Yet the news about charities over the past month has not been about this growing spirit of giving or how funds have benefitted the less fortunate, but about how some of the allegedly illicit funds in the S$2.8 billion money laundering case found their way into some recognisable charities.

Some had received donations, with sums rising to six figures.

This surprising discovery led the COC to wag its finger at charities to take remedial action. On Oct 16, The Straits Times reported that the COC advised charities to review their donor records from January 2019 to determine whether donations were received from the named suspects in the money laundering case. Police reports have been made, with suspicious transactions under investigation.

Now, there are folks who say receiving donations from dubious origins is not necessarily a bad thing, since the money is ultimately channelled towards a good cause. The ends justify the means. Others argue that less than strict compliance with money laundering standards will erode public confidence in Singapore's charities. Legitimate donors may also be deterred for fear of association.

Whatever your inclination, the reality is that charities have been left on their own to navigate what is likely to be a sea change in compliance standards on money laundering and other illicit activities funding donations.

These are lean organisations that rely heavily on volunteers to run the day-to-day operations and struggle with compliance. Most of their resources are channelled towards donor outreach and fundraising, motivated by a desire to stretch every dollar received to aid beneficiaries.

Given the reputational risks and the general desire to avoid running afoul of the law, charities surely want to do better, but can they?

Unlike banks and financial institutions, charities can ill-afford to staff large teams of compliance officers to conduct extensive checks to counter money laundering and financing of terrorism. In fact, as this paper reported, there are still small charities relying on pen-and-paper accounting systems to track finances, which do not have the manpower to check on donor sources.

One wonders whether they are equipped to be in step to play a larger role in Singapore's march towards philanthropy hub status.

Striking a balance

The struggles faced by the giving sector in plugging such holes have been long recognised and probably led to a comprehensive revamp of guidelines pre-dating the S$2.8 billion money laundering police clampdown.

A revised Code of Governance for Charities and Institutions of a Public Character (the Code), published by the Charity Council in April 2023, aims to raise the standards of governance and instil confidence in Singaporeans to give to and support charities and causes. The revised, risk-based code was formulated after a public consultation with 134 charities and will take effect from the financial year beginning on or after Jan 1, 2024.

The Code sets out six principles to provide charities with a better understanding of them and how they are applied. Each charity is now encouraged to be proactive in reviewing whether its operations are in line with each overarching principle.

Under the Code, charities are required to submit a governance evaluation checklist, explain if they cannot fully comply with the guidelines within and indicate their plans for future compliance. Only non-Institution of a Public Character (IPC) charities with gross annual receipts or total expenditure of less than S$50,000 need not submit this governance evaluation checklist.

Small and medium non-IPC charities (which make up Tier 1) will be subject to the guidelines under each principle. IPCs and large non-IPC charities (which make up Tier 2) will be subject to additional guidelines, which include the need for term limits for board members and a whistle-blowing policy. This is reasonable, since IPCs enjoy benefits from their IPC status, especially the ability to receive tax-deductible donations, and should be held to higher standards of accountability.

This risk-based, best-effort approach stands in stark contrast to the stringent requirements under the Charities Act, where non-compliance with keeping account records constitutes criminal offences carrying fines and imprisonment sentences.

Curiously, the only mention of money laundering in the Code appears at principle 4.4(a), which indicates that charities should set internal policies to counter money laundering and terrorism financing and regularly review them. Yet, there are no explicit guidelines for how charities should develop, implement, and importantly, enforce these policies. While there are other laws and guidelines for charities to check donor fund origins and report suspicious fund flows, the Code could do more in providing guidelines on how checks on the sources of donations could be carried out.

The way forward: tools over rules

The not-for-profit nature of the charity sector creates huge challenges as charities juggle limited resources and achieve fund-raising key performance indicators, while having to ensure compliance with such rules. Instead of employing the stick, the authorities could consider aiding charities with small bandwidth by providing them access to tools and best practices in four ways.

First, the authorities could release an anti-money laundering policy standard which complies with industry standards. Suggested guidelines on processes and follow-up actions when charities encounter funds with suspicious origins would be useful, especially for Tier 1 charities so that they do not have to start from scratch.

Second, the authorities could create an anti-money laundering toolkit, drawing inspiration from the Ministry of Culture, Community and Youth's exemplary actions in publishing a Terrorist Financing Risk Mitigation Toolkit for Charities on its charity portal. The 38-page document provides a useful risk assessment methodology and a terrorism financing assessment checklist.

Third, the authorities could create a shared database on suspicious donors, where charities can list alerts on suspicious donors, much like what the Credit Bureau Singapore does for banks. Findings could be triangulated and helpful especially if such donors attempt to approach Tier 1 charities after being turned down by Tier 2 charities and IPCs.

Fourth, support from the audit and accounting communities. Four accounting firms had reportedly offered to help small charities manage their finances for free. An online accounting-software company also offered a discounted accounting software package to help charities digitalise their operations. This is a positive step. Software companies, corporate secretarial companies and law firms should be encouraged to offer their services in kind.

As the charity sector matures and grows in prominence, public expectations will inevitably increase. While instruments such as the revised Code provide a framework and set new standards for corporate governance, more can be done to level up the giving sector so charities can avoid being a conduit for laundered funds.

This article first appeared in The Straits Times, published on 21 October 2023.

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