One company, over a million people and businesses owed money, charges of fraud and money laundering and the biggest financial fraud in US history. It was recently alleged that Sam Bankman Fried, the CEO of FTX and crypto-currency trading firm, Almeda Research was guilty of lying to investors and for misappropriating customer funds. These funds were allegedly used to add to his personal hedge fund of Almeda Research which he used to buy real estate and make political donations. The consequences of these allegations led to the bankruptcy of the firm.
The ripple effect from the collapse of the FTX crypto exchange has sent out warning signals to many regulators and governments to create more solid foundations to protect consumers, businesses, and investors from the risks of the unregulated landscape of crypto. However, this cautionary tale does not apply just to these stakeholders but sends a signal to business owners and entrepreneurs to strengthen the anti-money laundering systems in their company structures to avoid such disasters.
What is Corporate Fraud?
In Singapore, fraudulent offences include:
- Dishonest misappropriation
- Criminal breach of trust
- Dishonest fraudulent disposition of property or payment of a debt
- Dishonest or fraudulent execution of a deed of transfer
- Forgery and falsification of accounts.
Actors who can commit these crimes can be companies as a whole or individual company officers acting in their personal capacity.
How can liability arise?
Committing corporate fraud can lead to both criminal liability and civil liability.
Criminal liability will be found under the Penal Code for dishonest misappropriation of property, criminal breach of trust, cheating and dishonest or fraudulent disposition of property. As well as the Money Authority of Singapore Act where the Money Authority of Singapore (MAS) regulates the financial sector and has the power to conduct investigations into money laundering.
Liability can also be established under the Companies Act. These can be found for specific fraud offences such as making false and misleading statements, making false reports, fraud by officers and breaching of director’s duties.
Consequences of being found liable can be substantial fines up to $500,000 and up to 10 years in prison.
Sam Bankman-Fried stated that him committing corporate fraud was unintentional. However even if involuntary, businesses can still be found liable. So, the importance of being able to pre-empt and establish foundations to prevent criminal activity cannot be understated.
How to avoid such a circumstance?
The answer to the question is good systems, compliance, and transparency to reduce risk. Some practical manners in which this system can be built is:
Internal measures to protect your business:
- Create an environment of integrity:
- A ‘Business code of ethics’ applicable to the work and operations of a business will help establish a culture of integrity between employees and company officers.
- For a ‘Business code of ethics’ to be effective, it must be adhered to not only by employees, but also amongst the most senior staff.
- Having a policy framework that is explicitly against fraud and money laundering:
- Establishing the dos and don’ts of a business is a foundational step for long term success and functionality in a written framework.
- Building an anti-money laundering scheme (AML) which provides for procedures and rules to be followed is effective.
How to build an effective AML:
- Knowledge of the legislation, keeping up to date with it and incorporating this into policies and internal regulation.
- Be alert to the indicators and risks of fraud and incorporate strategies to detect and combat these by having an effective response framework in place.
- Customers transfer/move fraudulent funds or use the bank to illegally transfer or dispose of assets, including money or other negotiable instruments.
- Assets under management are not negotiated without proper authority in law when subject to asset forfeiture or restraint issued by the court.
- Training staff.
- It is important to educate employees about the AML framework.
- Important to train at least semi-annually/annually to teach and update them about the basics of money laundering risks and developments.
- It is helpful to make the training industry and business specific, so employees have the most clarity.
- Ensure that business completes Customer Due Diligence:
- It is important to monitor transactions and the purpose behind them to protect your business.
- This is applicable especially when working with third parties.
- Technology can be utilised to check and resource information about customer transactions.
Monitoring and maintaining AML systems:
- Have an independent compliance manager to do independent risk assessments and testing for money laundering and fraud to maintain the effectiveness of the system.
- Impose record-keeping obligations.
- The MAS has a specific requirement for record-keeping and disclosure.
- Ensure that your AML system remains evolving, especially in cybercrime.
A transparent system such as this, which pre-empts and considers risk with every transaction, is beneficial towards maintaining honesty with investors and detecting problems before they spiral out of control as seen with the fate of FTX.
Please note that this article does not constitute express or implied legal advice, whether in whole or in part. If you require legal advice, please contact us at: email@example.com.