Singapore approves changes to regime for CSPs and nominee directors and shareholders

The Singapore parliament passed the Corporate Service Providers (CSP) Bill, which will require all business entities carrying on the business of providing corporate services in and from Singapore to register with the Accounting & Corporate Regulatory Authority (ACRA), on 2 July.

It also passed the Companies & Limited Liability Partnerships (Miscellaneous Amendments) (CLLPMA) Bill, which is designed to enhance the transparency of beneficial ownership of companies and limited liability partnerships (LLPs) in Singapore.

Currently, companies and other business entities that do not file transactions on behalf of their customers with ACRA are not required to be registered as registered filing agents (RFAs) and are not therefore subject to anti-money laundering, countering the financing of terrorism and the proliferation of weapons of mass destruction (AML/CFT/PF) obligations.

ACRA said this had created a ‘regulatory gap’ because CSPs that were not RFAs could be engaged by customers to facilitate illicit activities. The changes contained in the new CSP Bill are therefore intended to level the playing field for all CSPs carrying on business in Singapore and enable ACRA to take enforcement action against registered CSPs that breach AML/CFT/PF obligations.

Second Minister for Finance Indranee Rajah told Parliament that the two Bills were in development even before the authorities in Singapore uncovered its largest-ever money-laundering case in 2023, leading to the arrest of 10 foreigners and over SGD3 billion in confiscated assets.

“The widened coverage of ACRA’s regulatory regime will ensure that all entities providing corporate services from Singapore, regardless of whether they serve local or foreign clients, have the same obligations in our fight against financial crime,” she said.

This new registration requirement is backed up by punitive sanctions for CSPs and their senior management for non-compliance with their duties to combat financial crime.

Currently, ACRA imposes sanctions on CSPs and their registered qualified individuals for non-compliance with its regulations. These include financial penalties of up to SGD25,000 per breach, or in egregious scenarios, the suspension or cancellation of their registration.

Under the CSP Bill, a person who breaches the requirement to be registered as a registered CSP is guilty of an offence and will be liable on conviction to a fine of up to SGD50,000 or to imprisonment for a term not exceeding two years, or both. In the case of a continuing offence, a further fine of up to SGD2,500 for every day or part of a day during which the offence continues after conviction.

The law further introduces a criminal offence for registered CSPs and their senior management in respect of breaches of AML/CFT/PF obligations. A registered CSP will be liable on conviction to a fine of up to SGD100,000 for each breach, while its senior management will also be guilty of an offence and liable on conviction to a fine of up to SGD100,000 for each breach.

Finally, the provisions of the CSP Bill will prohibit persons from acting as nominee directors of companies by way of business unless the appointments are arranged by a registered CSP, and they have been assessed as ‘fit and proper persons’ by the registered CSP. A person who breaches this requirement is guilty of an offence and will be liable on conviction to a fine of up to SGD10,000.

ACRA said these new requirements were designed to target the misuse of nominee directorship arrangements by CSPs who arrange for unqualified individuals to act as nominee directors of shell companies to facilitate money laundering.

While nominee directorship arrangements are a legitimate service provided by many CSPs to help their overseas-based clients fulfil Singapore’s requirement for an ordinarily resident director to set up a company in Singapore, they can be vulnerable to abuse.

“As important gatekeepers in the ecosystem, corporate service providers cannot arrange for nominee directorships in a cavalier manner,” said Ms Indranee during the debate on the Bill. “In some cases, we have observed individuals who are clearly unfit to bear the responsibilities of being a director but were arranged by errant corporate service providers to act as nominee directors.”

To tackle the misuse of nominee directorship arrangements, ACRA will require that individuals can only act as a nominee director by way of business if the nominee directorship was arranged by a CSP, unless the individual himself is the sole proprietor of a registered CSP. Those found guilty of breaching this requirement can face a fine of up to SGD10,000.

In determining whether the person is a fit and proper person, the registered CSP must take reasonable steps to satisfy itself that the person is not disqualified from acting as a director of a company under any written law, and consider other factors prescribed in subsidiary legislation.

This could include checking their compliance records to evaluate if they have the capacity to take on additional directorships. A breach of this requirement is an offence and the registered CSP will be liable on conviction to a fine of up to SGD100,000.

The provisions in the CLLPMA Bill will introduce amendments to the Companies Act and the LLP Act to complement the CSP Bill in enhancing Singapore’s anti-money laundering regime by enhancing the accuracy of the information contained on various registers.

Currently, both companies and LLPs in Singapore are required to maintain registers of their beneficial owners of registrable controllers. These are individuals or corporate entities that have a significant interest in or significant control over the company or LLP.

Companies are also required to maintain registers of their nominee directors and nominee shareholders respectively to ensure that persons exercising control of legal persons behind the scenes are known to the authorities.

The Bill will introduce three enhancements:

• It will raise the maximum penalties for companies and LLPs that commit offences relating to their registers from SGD5,000 to SGD25,000. These offences include failing to maintain their registers, keep the information up-to-date or correct inaccurate information.
• It will make it an offence for persons to provide false or misleading information about their registers to ACRA, with a fine of up to SGD25,000. This will apply to persons who did not act with reasonable due diligence in ensuring the accuracy of the information that they provide to ACRA.
• It will require companies and LLPs to verify and update their controllers’ information on an annual basis.

Secondly, the amendments will further enhance transparency around nominee arrangements. Currently, individuals who are nominee directors or shareholders are required by law to disclose their particulars and nominee status to their companies, but there is no requirement for them or their companies to share this information with ACRA.

To promote greater transparency, the Bill will require companies to provide the full information of nominee arrangements to ACRA, such as the particulars of the nominee directors and shareholders, as well as the identities of the nominators behind these nominees.

This information will only be available to ACRA and other public agencies for the enforcement of any written law. However, ACRA will make public which of a company’s directors and shareholders are nominees. In other words, an individual’s status as a nominee director will be made public although the identity of the nominator will not be disclosed.

ACRA said enhancing the transparency of nominee arrangements would further mitigate money-laundering risks because the information it would trigger additional scrutiny and customer due diligence by AML-obligated entities.

It will also ensure Singapore’s continued compliance with the FATF’s March 2022 update of its standards on beneficial ownership that requires nominee directors and nominee shareholders to disclose the identity of their nominators to the Registrar and to publicly disclose their nominee status.

“This information will be useful to banks, corporate service providers and other gatekeepers who may, for instance, wish to conduct additional checks on companies with many nominee directors or shareholders,” said Ms Indranee.

The Ministry of Finance and ACRA opened a public consultation on the draft versions of the two Bills in March and published their responses to the feedback in May. ACRA said it would provide sufficient lead time for the implementation of the proposed amendments.