A recent Singapore High Court decision has clarified the situations in which nominee directors can be convicted of money laundering offences in banking and wire fraud, and the appropriate penalties to be imposed.
The Singapore High Court decision of Abdul Ghani bin Tahir v. Public Prosecutor is the first reported prosecution of a company director for his negligent acts in relation to the use of the company’s bank accounts in money laundering offences under the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (CDSA). It is also the first reported case in which a director has been sentenced to imprisonment for failing to exercise due diligence under the Companies Act (CA).
The accused is a chartered accountant who provides corporate secretarial services to companies in Singapore. His services include acting as the nominee resident director for Singapore companies incorporated by foreign shareholders. In the present case, the accused acted as the sole resident director for three companies and assisted in opening bank accounts with a foreign director as the sole signatory of the bank accounts. After these bank accounts were opened, the accused left the foreign director to handle all matters relating to the bank accounts.
Over the course of several months, the foreign director used the bank accounts for a series of fraudulent bank transfers. The accused only became aware of these transactions when he received several recall instructions from the banks; however, the accused was unable to procure the return of the monies because they had already been transferred to offshore accounts. The accused was eventually charged and convicted under the CDSA and the CA for neglecting his duties as a director of a company involved in money laundering activities. He was sentenced to 12 months’ imprisonment and fined S$50,000.
This case is important because it has clarified (1) in what situations a nominee director would be liable for the acts of a company involved in money laundering offences under the CDSA; (2) the appropriate sentence to be imposed for such offences under the CDSA; and (3) the appropriate sentence to be imposed on directors for failure to exercise due diligence under the CA.
A Nominee Director Can Be Convicted for a Company’s Acts Even if the Company Itself Is Not Convicted of a Money Laundering Offence
The judge held that a nominee director could be convicted under the CDSA for a company’s acts as long as the prosecution is able to “prove” that the company is guilty of money laundering. The prosecution need only satisfy the court that an offence has been committed by the company and that there are no available defences to exculpate the company; prior conviction of the company is unnecessary.
Further, the nominee director would be liable for the company’s acts as long as the prosecution could establish that the director (1) was negligent, (2) was reckless, or (3) consented to (or connived) the company’s acts. Thus, as long as the director could and should have taken steps to prevent the company’s acts, the director could be liable.
In coming to his decision, the judge was cognisant that the accused was hired as a mere nominee director and did not participate in the running of the company. However, he maintained that a person could not be a “dummy director” who approves, ignores, or is nonchalant to the company’s engagement in any illegal activities.
The Appropriate Sentence to Be Imposed Under the CDSA
The judge also laid out the following benchmarks according to the varying levels of culpability:
For negligence cases, the starting position would be a fine. However, an imprisonment could be appropriate if the prosecution were able to show aggravating factors such as (1) the commission of offences for financial gain, (2) a series of negligent conduct, (3) serious harm caused to victims, or (4) the greater involvement of the director in the company’s affairs.
The Appropriate Sentence to Be Imposed Under the CA
A similar framework was used to analyse the director’s criminal liability for failure to exercise due diligence under the CA, and the judge imposed the following benchmarks:
The starting position for negligence cases would be a fine, whereas it would be a custodial sentence for intentional, knowing, or reckless cases.
This decision comes at an appropriate time as there has been a sharp increase in banking and wire fraud cases. In such cases, the fraudsters often use shell companies registered in Singapore as conduits to receive and transfer on monies to offshore accounts. This decision demonstrates the wide reach of Singapore’s money laundering laws and serves as a stark reminder to individuals that they would still attract criminal liability if they were even tangentially involved in a company’s banking and wire fraud. It also gives good guidance as to the expected sentences for such offences.
We recommend that companies and individuals involved in the provision of corporate secretarial services take heed of this decision. Corporate secretarial companies and individuals providing nominee director services should conduct sufficient onboarding steps to ensure they do not inadvertently become co-conspirators of money laundering activities.