Heaving a sigh, Freddie raised the issue of the funds remitted and Hendra’s order to pay out a substantial part forthwith. Bearing in mind Hendra’s nefarious conduct, Freddie suspected that the case might involve money laundering.
A few years earlier, the issue would not have been a cause for concern. A bank’s function was to receive amounts payable to its customer and to execute his payment instructions if he had the requisite balance. The position changed in the wake of terrorist activities in the United States. Under American pressure, many governments in the Western World passed laws under which a bank was expected to freeze amounts suspected of coming from dubious sources and to notify the reserve bank. The funds would be unfrozen only if cleared by it.
The Republic of Singapore passed the required regulations in 2002. The money laundering provisions required a bank to advise the ‘Authority’ when the bank had ‘reasonable grounds’ to suspect that funds remitted to the credit of a customer could be traced to, or linked to, terrorist activities or laundering of illegal funds. If a bank reported the receipt of such contraband funds to the Authority, the funds had to be frozen, and the customer could not be advised or ‘tipped off’. In consequence, the customer would not even know that the money involved was no longer available to him.
“Freddie, do you suspect Hendra is involved in terrorist activities or is a money launderer?”
“Surely that’s not the question, Peter!”
“What is it then?” asked Norbert.
“Freddie is telling us that the issue is the source of the money. If it’s black money, its payment to a numbered account in Switzerland would complete the laundering cycle.”
“Precisely!” Freddie spoke firmly. “And look, I can understand why Hendra arranged for the remittance of the money to his account in Singapore. If he had asked his ‘payer’, or ‘remitter’, to credit part of the sum directly to the payee’s Swiss numbered account, the payer could work out how much money Hendra was making.”
“So what?” I asked innocently.
“In future transactions, the remitter might manage to discover the payee’s identity and deal directly with him.”
“So why is the transaction suspicious?” asked Norbert.
“The remittance is coupled with an instruction to pay a similar amount out. That is suspicious. Further, I’m sure that Hendra would not care too much about the source of money paid to him! In his eyes, money doesn’t stink,” said Freddie vehemently.
“You are right about him,” conceded Norbert. “But then, Hendra told me he purchased some mobile phones cheaply and sold them at a huge profit. He rang me this morning to ask if his purchaser had paid up.”
“What did you tell him, Norbert?” I asked anxiously.
“I said I’d let him know as soon as the money comes in. I should ring him back before 4 o’clock. Up to now we haven’t credited his account. But look here, Peter: suppose we credit his account. Where is the risk? His balance will be short of the amount he wants us to pay out?”
“But the very crediting of the money is prohibited,” interjected Freddie before I had a chance to answer.
“Should we send it back then?”
“You can’t do that. There is case law in point, Norbert.” I interceded.
“So, what should we do?”
“Credit the money to a temporary account, I mean a ‘suspense account’, which includes a reference to the transaction. It’s the only thing to do,” insisted Freddie.
“Is it that simple?” asked Norbert.
“I am not certain,” I warned. “If the suspense account is then frozen until the matter is cleared up, Hendra could get a court order diverting the money to another bank as soon as it’s unfrozen by the authority. It could then be too late to exercise a set-off.”
“So, what should we do?”
“Why not contact the Authority and ask for a direction?”
“I did so earlier today. They advised me to refer the matter to our legal advisers,” chuckled Freddie. “Norbert rang you as soon as I showed him their email!”
“So we are back at square one,” I muttered unhappily.
We continued to discuss the matter over our coffees. In point of fact, the Bank faced an impasse. To sort the matter out, I volunteered to call on a former colleague who had taken a post in the Authority’s legal department. Hopefully, he would give me a hint respecting the policy in cases of this type.