This article examines the implication of the recent Court of Appeal’s decision in WBL Corporation Ltd v Lew Chee Fai Kevinwith respect to the protection afforded under section 40 of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act.
Over Extensive Protection of Section 40 of the CDSA?
The recent Court of Appeal decision in WBL Corporation Ltd v Lew Chee Fai Kevin 2 SLR 978 (the “WBL Corporation Case”) raises interesting questions on the efficacy of the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (the “CDSA”) in preventing money laundering in Singapore.
Although the Court of Appeal considered wide ranging issues related to the CDSA, this article shall focus on the Court’s broad interpretation of s 40 of the CDSA which offers certain protection from prosecution for money laundering offences to a person who makes a Suspicious Transactions Report1 (“STR”) under s 39 of the CDSA.
The contention by this article is that the Court of Appeal could have taken a more restrictive approach in the interpretation of the protection afforded under s 40 of the CDSA and the current interpretation given to it may have opened a loophole which may be exploited.
The WBL Corporation Case
The salient facts of this case are as follows: Lew Chee Fai Kevin (“Lew”) was a senior executive of WBL Corporation Ltd (“WBL”) who was granted share options to purchase WBL shares under a scheme set up by WBL for its employees. On 2 July 2007, Lew acquired confidential, price sensitive information about WBL and on 4 July 2007, he sold 90,000 WBL shares (the “Insider Trade Transaction”). Using proceeds from the Insider Trade Transactions, Lew purported to exercise his share options on 9 July 2007.
Pursuant to s 39 of the CDSA, WBL lodged a STR with the Commercial Affairs Department (“CAD”) with regard to the Insider Trade Transaction on 17 July 2007 as WBL had reasonable grounds to suspect that the proceeds raised by Lew from the Insider Trade Transactions represented the proceeds of criminal conduct. Thereafter, WBL refused to take any action with respect to Lew’s purported exercise of his share options on the grounds that Lew was using proceeds from the Insider Trade Transaction. WBL contended that it was illegal to issue the shares to Lew as it would contravene s 44 of the CDSA.
Section 44 of the CDSA sets out the offence of money laundering. Section 44(1) of the CDSA states:
Assisting another to retain benefits from criminal conduct
44.—(1) Subject to subsection (3), a person who enters into or is otherwise concerned in an arrangement, knowing or having reasonable grounds to believe that, by the arrangement—
(a) the retention or control by or on behalf of another (referred to in this section as that other person) of that other person’s benefits of criminal conduct is facilitated (whether by concealment, removal from jurisdiction, transfer to nominees or otherwise); or
(b) that other person’s benefits from criminal conduct—
(i) are used to secure funds that are placed at that other person’s disposal, directly or indirectly; or
(ii) are used for that other person’s benefit to acquire property by way of investment or otherwise,
and knowing or having reasonable grounds to believe that that other person is a person who engages in or has engaged in criminal conduct or has benefited from criminal conduct shall be guilty of an offence.
WBL argued that it would be contravening s 44 to allot and issue shares to Lew as:
1. it would be entering into or concerned in an “arrangement” with Lew;
2. with knowledge or reasonable grounds to believe that, by that arrangement, Lew’s benefits of criminal conduct were being used for his benefit to acquire the shares; and
3. with knowledge or reasonable grounds to believe that Lew had engaged in “criminal conduct” or had “benefited from criminal conduct”.
However, the Court of Appeal rejected the applicability of s 44 given that WBL had already lodged a STR with CAD. The Court of Appeal held that once WBL filed the STR, it was exonerated against the application of s 44 by virtue of s 40 of the CDSA2 which reads as follows:
Protection where information given under section 39
40. Where a person or his officer, employee or agent, gives information under subsection (1) of section 39 as soon as practicable after having the knowledge referred to in that subsection, the person or his officer, employee or agent shall be taken, for the purposes of sections 43, 44, 46 and 47, not to have been in possession of that information at any time.
In essence, the mental element of a potential money laundering charge under s 44 is deemed not to be possessed by WBL since it had made the STR. Without such a mental element, no Court could find that WBL has contravened s 44 (ie if WBL decided to issue and allot the shares to Lew notwithstanding it reasonably suspected that Lew was using the proceeds from an illegal insider trade) after the filing of the STR.
Far Reaching Interpretation of Section 40 of the CDSA
The effect of the Court of Appeal’s ruling on the protection afforded by s 40 of the CDSA is far reaching as such an extensive protection may be exploited by money launderers to avoid prosecution for money laundering.
For example, a person A in Singapore received a call from person B and was told to take instructions from another person C overseas who would call her shortly regarding receiving money from United States and remitting it overseas. Prior to receipt of the money from the United States, person A made a STR to CAD as she had reasonable grounds to suspect that the money represented the proceeds of criminal conduct and such knowledge or suspicion came to her attention in the course of her employment. After making the STR, person A received the money from the United States and complied with the instructions of person C by remitting it overseas.
Under the authority of the WBL Corporation Case, an interesting issue would arise as to whether person A can be found to have contravened s 44 of the CDSA or if she can be effectively exonerated under s 40 of the CDSA by virtue of the STR that she had lodged.
At the same time, the WBL Corporation Casemay have placed an unduly onerous burden on the authorised persons, which include officers from CAD, the Central Narcotics Bureau and the Corrupt Practices Investigation Bureau, upon receipt of a STR. The burden may be unduly onerous as the authorities would have to react swiftly after receipt of a STR if they wish to prevent the person making the STR from acting further in a money laundering arrangement. Person A in the example set out above could conceivably lodge a STR and by the next hour or day, receive the money from the United States and remit the money overseas in furtherance of the money laundering arrangement.
The example above is analogous to the situation presented in the recent money laundering case of Ang Jeanette v PP 4 SLR 1.
In Ang Jeanette v PP, the accused person was charged with five counts of an offence under s 44(1)(a) of the CDSA for remitting a total of more than S$2m on various occasions in June and July 2008 to, inter alia, one Michael Walters. In June 2008, the accused person’s brother called her and told her to take instructions from one “Mike” who would call her shortly regarding receiving money from someone and remitting it overseas. Following instructions from Mike, she met one Mesenas Aloysious James on various occasions and remitted the moneys that she had received from him. The accused person was eventually convicted on all five charges preferred against her and sentenced to a total of nine months’ imprisonment. The conviction and sentence was upheld by the High Court on appeal.
Based on the extensive protection afforded by s 40 as interpreted by the Court of Appeal, assuming that a person is in a similar situation as the accused person in Ang Jeanette v PPand assuming that she acquires such knowledge or reasonable grounds of suspicion in the course of her trade, profession, business or employment, such a person might simply be exonerated of charges of money laundering under s 44 of the CDSA if she had lodged a STR before receiving and remitting the money.
On a plain reading of s 40 of the CDSA, the interpretation of the Court of Appeal in the WBL Corporation Caseis extremely difficult to fault. In particular, such an interpretation is probably supported by the ending phrase “at any time” in s 40 which suggests that the absence of the mental element extends to cover even further acts which are carried out after the making of the STR. However, such a broad interpretation raises concern if the protection under s 40 of the CDSA can be exploited and weakens the statutory regime under the CDSA of preventing money laundering.
Contrast with Separate Disclosure and Protection Mechanism under Section 44(3) of the CDSA
Section 39 of the CDSA can be contrasted with s 44(3) of the CDSA, which provides a separate disclosure and protection mechanism. This mechanism is provided under s 44(3) of the CDSA as follows:
44(3) Where a person discloses to an authorised officer his knowledge or belief that any property, funds or investments are derived from or used in connection with criminal conduct or any matter on which such knowledge or belief is based —
(a) if he does any act in contravention of subsection (1) and the disclosure relates to the arrangement concerned, he shall not be guilty of an offence under this section if the disclosure is made in accordance with this paragraph, that is—
(i) it is made before he does the act concerned, being an act done with the consent of the authorised officer; or
(ii) it is made after he does the act, but is made on his initiative and as soon as it is reasonable for him to make it;
(b) the disclosure shall not be treated as a breach of any restriction upon the disclosure of information imposed by law, contract or rules of professional conduct; and
(c) he shall not be liable in damages for any loss arising out of—
(i) the disclosure; or
(ii) any act done or omitted to be done in relation to the property, funds or investments in consequence of the disclosure.
Under s 44(3) of the CDSA, where a person discloses to an authorised officer a suspicion or belief that any funds or investments are being used in connection with criminal conduct in certain circumstances, he shall not be guilty of money laundering even if he carries out the arrangement.
A person is only afforded protection from guilt under two scenarios provided by the disclosure mechanism under
s 44(3) of the CDSA if:
1. the disclosure is made before he does the act concerned and it is done with the consent of the authorised officer; or
2. the disclosure is made after he does the act, but is made on his initiative and as soon as it is reasonable for him to make it.
Differentiation between the scope of the protection afforded between the disclosure and protection mechanism under
s 44(3) as opposed to the one under s 39 was not considered by the Court of Appeal in the WBL Corporation Case. However, the Court of Appeal’s interpretation that the protection afforded by s 40 after disclosure is made under
s 39 extends even for further acts carried out after the making of the STR may well render the more onerous disclosure and protection mechanism under s 44(3) wholly redundant for persons covered under ss 39 and 40. Unlike s 44(3), the protection for any further acts under s 40 automatically kicks in without the need for any consent from an authorised officer.
Legislative History of the Two Disclosure Mechanisms under Section 39 and 44(3) of the CDSA
An examination of the legislative history of the above two disclosure mechanisms under ss 39 and 44(3) of the CDSA unfortunately throws little light on how the two disclosure mechanisms were intended to operate in practice.
These provisions were drafted into our legislation in 1992 when ss 38 and 41(3) of the Drug Trafficking (Confiscation of Benefits) Act 1992 (“DTCA”) were enacted, as the precursor to the CDSA.
Section 38 of the DTCA3 was derived from Australia’s Proceeds of Crime Act 1987. The Australian Act did not consist of a separate disclosure mechanism similar to s 41(3) of the DTCA. On the other hand, the disclosure mechanism under s 41(3) of the DTCA was derived from Hong Kong’s Drug Trafficking (Recovery of Proceeds) Ordinance 1989 and the Hong Kong Ordinance also did not appear to consist of a separate disclosure mechanism to
s 38 of the DTCA.
Perhaps what is noteworthy is that at the time the DTCA was enacted in 1992, the disclosure mechanism under
s 38 (ie the precursor provision to s 39 of the CDSA) and the protection under s 39 (ie the precursor provision to s 40 of the CDSA) extended only to financial institutions, its officers, employees and agents in relation to an account held with the financial institution. It could be that the policy in 1992 was to afford a wide protection to financial institutions which utilised the then non-mandatory disclosure mechanism under s 38 of the DTCA to encourage financial institutions to provide information on accounts which would assist the authorities in the detection of money-laundering activities. This is contrasted with the disclosure and protection mechanism under s 41(3) of the DTCA which extended to non-financial institutions.
Sections 39 and 40 of the CDSA have since evolved from their precursor provisions under the DTCA to become:
1. mandatory in nature; and
2. applicable to all persons and not just financial institutions.
With the evolution of the CDSA, it is imperative to consider if the previously wide protection which was restricted to financial institutions under the DTCA should still now be interpreted to apply to all persons who make STRs under s 39 of the CDSA.
Plausible Distinction between Protection Afforded by Sections 40 and 44(3) of the CDSA
A plausible distinction between s 40 and s 44(3) of the CDSA is to limit the protection under s 40 to immediate past acts and not to further acts intended to be carried out by the person making the STR. This would prevent a potential money launderer from being protected by making a STR and expecting to receive protection for further acts that he intends to carry out. Under such an interpretation, if the person A in the example given above makes a STR before receiving the money from the US, she would only be protected insofar for any arrangement that she had entered prior to receipt of the money. The protection should not extend further to cover any subsequent acts. If person A intends to carry on further with the arrangement by receiving the money from the US and remitting it overseas, she should only be protected from prosecution for such further acts only if they were carried out with the consent of an authorised officer under s 44(3) of the CDSA. If person A carries out such further acts and made the disclosure after acts on her initiative under s 44(3), it is unlikely that she can be protected since it is unlikely that she has made the disclosure “as soon as it is reasonable” for her to make it. This will also mean that should there be any subsequent acts taken after the lodgment of the STR under s 39 of the CDSA, consent must be specifically obtained from the authorising agency before such acts can be deemed to be protected under the CDSA.
This alternative interpretation of s 40 of the CDSA would not allow its protection to be exploited as it does not extend to further acts intended to be carried out by the person making the STR. Such an interpretation also enables the disclosure mechanism under s 44(3) to remain relevant for persons covered under ss 39 and 40 but more importantly allows the authorities sufficient time to investigate and consider the matter fully before deciding whether to issue its consent for any further intended act. It is respectfully submitted that this would better serve the statutory aim of fighting money laundering under the CDSA.
►Tan Hee Joek
Tan See Swan & Co
E-mail: [email protected]
1 The duty to make a STR under s 39 of the CDSA will arise if, for example, in the course of his trade, profession, business or employment, a person knows or reasonably suspects the property to be the proceeds of any offence, so long as the possibility that they may be the proceeds of a drug trafficking offence, serious offence, foreign drug trafficking offence or foreign serious offence cannot be ruled out.
2  and  of the Court of Appeal’s Grounds of Decision
3 See Table of Derivation in Drug Trafficking (Confiscation of Benefits) Bill (No 17 of 1992).