Singapore: Tightening of Financial Rules to Combat Money Laundering

Evelyn Kusnawirianto - Evelyn.kusnawirianto@bm.com Joy Albert - joy.albert@bm.com

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March 2012 Edition 11

On February 16, Singapore’s Monetary Authority and the ministries of Finance and Home Affairsannounced that the island-state would implementnew recommendations put forward by the globalFinancial Action Task Force (FATF) to combat moneylaundering and terrorist financing. By committing tothese tighter rules, the authorities hope to maintainthe Singapore’s attractiveness as an internationalfinancial and wealth management centre. The revised standards set forth by the FATF address newpriority areas such as tax crimes, corruption and politically-connected individuals.

The FATF Recommendations, which apply to morethan 180 countries, set out measures that countriesshould follow to prevent money laundering and terrorist financing. The Task Force has expanded the scope of money laundering to include serious tax crimes. While tax evasion is a money launderingoffense in many other countries, it is not inSingapore. If the tax evasion law in Singapore isamended according to the FATF recommendations,banks will have to alert authorities to any overseascustomer bringing in funds that are suspected to be the proceeds of tax evasion in their home country.The FATF has also recommended extending backgroundchecks for politically-connected individuals to includeall foreign and domestic personnel, current and former senior officials in all branches of government,individuals from international organizations, andfamily and close associates of anyone considered to be a politically-exposed person.

To help build a strong foundation for Singapore’s private banking industry, the country’s bankingindustry association, the Private Banking Industry

Group (PBIG), has indicated that it will adopt industry-wide practices complying with the FATF recommen-dations within the next 12 months. Pressure to beefup the regulatory regime is also high because anincreasing number of European banks have set upoperations in Singapore over the past five years.Analysts also speculate that more foreign depositswill come into Singapore as clients of collapsedbanks in Europe look at Singapore as a safe haven.Greater transparency and an improved regulatoryregime will be essential if Singapore is to discouragemoney launderers and ensure that the European banks’Singapore operations can comply with regulations inthe EU. Several banks, like UBS and HSBC, have welcomed the Government’s commitment toimplement the FATF guidelines. However, theMonetary Authority of Singapore has also warnedthat changes in other legislation, like the Corruption,Drug Trafficking and other Serious Crimes Act, maybe required to ensure effective implementation ofany changes to the financial regulations.

The government will still have to review internationalcooperation agreements and the existing regulatoryregime to work out details and definitions for theintroduction of any new laws or amendments. A specific timeline for the introduction of new legislationtightening the regulatory regime and criminalizingtax evasion as a predicate offence has not yet beenproposed, but the industry believes the moves willlikely be introduced this year.

WelcomeThis is the latest edition of “Hot Issues” from Burson-Marsteller’s Global Public Affairs Practice. Every month,“Hot Issues” focuses on new forthcoming legislative or policy issues that will impact business from aroundour global network of 150 offices in Latin America, Asia-Pacific, Europe, Middle East, Africa and North America.

The public policy dynamics in each country, let alone a particular region can be very different, demonstratedby the different experts we utilize in the countries where we operate. Conversely, there are similarities andyou can see this in some of the issues we have picked out.

Hot Issues are designed to give you a flavour of our global perspective and should any of the items raise particular interest with you, please contact the designated person listed with that issue.

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ContactEvelyn Kusnawirianto - Evelyn.kusnawirianto@bm.com Joy Albert - joy.albert@bm.com

Hong Kong’s proposed Competition Bill has promptedheated discussion as many business organizationsand industry associations believe the draft needs tobe further amended and refined. On February 14th, the government’s Commerce and EconomicDevelopment Bureau proposed 570 statutory bodiesto be exempted from the Competition Bill, attractingstrong criticism from legislators and industry associa-tions. The Hong Kong Trade Development Council(HKTDC), the Housing Authority, the Housing Society,

and the Hospital Authority are on the proposed listfor exemption.

The Competition Bill contains three general prohibitions. Under the first conduct rule, agreements, decisions and concerted practices such as price-fixing, agreements limiting technicaldevelopment or investments, and market collusionthat may prevent, restrict, or distort competition inHong Kong are prohibited. The second conduct rule

Hong Kong: More Changes to Competition Bill

China: New Tax on Foreign Qualified Institutional Investors on Capital GainsChinese regulators increased the investment quotafor qualified foreign institutional investors (QFIIs) inJanuary, and now a plan for new tax rules on QFIIsis currently being reviewed in China with regulatorsand institutional investors including custodian banksand brokerages. The new tax rule may put an end tothe nine years of tax exemptions on stock investmentearnings that QFIIs have enjoyed in China. The tax,projected to be 10%, will fall under income taxes, andlosses from stock investments will not be deductibleunder the new rules proposed by the Securities andFutures Commission.

The plan is seen as the Chinese government’s effort to strengthen capital controls. The current QFII guidelines lack clarity on whether capital gainsshould be taxed and this has been a major problemfor foreign institutional investors’ remittance of profits and investment funds. Analysts said thatdespite the attractiveness of the Chinese financialmarket, many institutional investors hesitate toinclude large positions in Chinese stocks when theyallocate investments because of unclear policies in anumber of areas, most notably the tax issue. Whileclarification on the tax issue may be welcomed bymost foreign institutional investors, many have voicedconcerns about the effect of a tax on their profits.According to the Chinese State Administration ofForeign Exchange, overseas financial institutionshave invested about US$22.24 billion in stocks andexchange-traded bonds in China as of January, 2012.If the new tax is levied, the tax hit on foreign financialadvisory firms may be significant. Some new QFIIs,like Cathay Financial Holdings and Fubon FinancialHolding from Taiwan, have said they are particularly

worried about how the new tax will affect their earnings. Some foreign banks have also argued thata tax only on foreign institutional investors is not fairas retail investors or individual mutual funds are notsubject to taxation. A further concern involves thepossibility of QFIIs paying double tax if the countrythey are registered in, such as the Cayman Islands,has no tax agreement with China. Analysts havewarned that a high capital gains tax may force some foreign investors to exit China.

This will not be a desirable scenario for the Chinesegovernment. Capital outflow has already acceleratedover the past six months, easing previous concernsabout an abundance of hot money. In response,China dramatically increased the QFII quota inJanuary to $600 million, which is already one-third ofthe total amount granted in 2011. Analysts estimatethat QFII quota will total more than $40 billion bythe end of the year. Chinese regulators have alsosimplified the administrative procedures for thereview of QFIIs to encourage foreign participation in the Chinese financial markets.

Details as to how and when the tax will be collectedwill need to be clearly laid out if there is to be smoothimplementation and compliance of this proposednew law. The Securities and Futures Commission isworking with other government agencies to examinethe potential impact of the new tax rule plan. A draft of the new rules will be published soon.

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prohibits abuse of an organization’s substantial degree of market power to limit production, marketsor technical development. A “Merger Rule” is alsoincluded to regulate mergers involving relevantlicensees in the telecommunications industry, withthe possibility to extend on a cross-sector basis inthe future. Enterprises with annual turnover of lessthan HKD$11 million and certain statutory bodies are exempted as they are not considered to havesubstantial impact on competition and the economic efficiency of a specific industry.

If the law is enacted, some sectors may be opened upfor increased competition. The electric utility marketin Hong Kong, for example, has long been dominatedby Hong Kong Electric Co. and China Light & PowerCo. Local commentators said that the city’s electricgrid has been locked up by the two companies foryears, thus effectively barring foreign electric utilityfirms from supplying electricity to Hong Kong. TheCompetition Law could require them to open up the electric grid for foreign companies to enter themarket so that electricity costs for consumers couldpotentially be lowered. While some foreign chambersof commerce have commended the bill’s potential foropening up competition, the exemption of statutorybodies, in particular, the HKTDC, is generating a

great deal of criticism. Many industry associations,legislators, The British Chamber of Commerce, andThe American Chamber of Commerce have arguedthat the HKTDC should not be exempted as it clearlyengages in economic activities by competing withprivate organizations in hosting exhibitions andtrade shows. It also has a substantial degree of powerin the exhibition market with a 30-40% marketshare. Analysts said exempting certain public bodiesfrom the law may distort competition and turn thelaw into a tool justifying unfair competition.

The Competition Bill will go through several roundsof review in the coming months and if it wins approvalin the Legislative Council this Summer, it may beimplemented as early as next year. As the debatecontinues in Hong Kong, industry groups, legislators,foreign and local businesses are expected to intensifytheir push for further changes to the details of theCompetition Bill.

ContactEvelyn Kusnawirianto - Evelyn.kusnawirianto@bm.com Ian McCabe - ian.mccabe@bm.com

For the past three years, the South African ruling party’s youth wing, the African National CongressYouth League (ANCYL) has been advocating for thenationalisation of South African mines. This createduncertainty for the mining sector and other sectorssuch as banking. Mixed messages from the partysenior structures did nothing to diffuse the tensions.The ANC also commissioned a study in 2011 thatwould allow it to make informed decisions on the issue.

In early February 2012, a 600-page report, titled State Intervention in the Minerals Sector (Sims) waspresented to the ruling party’s National ExecutiveCommittee (NEC). Although the report does not propose nationalisation, it proposes options forincreasing the contribution of the country's mineralssector to development and poverty alleviation, andenvisages a significant shift in national policy andchanges to virtually every aspect of the sector

including mineral resource management at cabinet level. The issue will be discussed at the ANC’s national policy conference in June, itself a precursor to the party's elective conference inDecember 2012.

The implications of this report on the mining sectorparticularly are bound to be far-reaching. The Simsreport provides a framework for debate and nationa-lisation will remain a possibility although an increa-singly unlikely one. Sims is very clear on the need fora decisive state role in reorganising and managingthe minerals sector, arguing that market forces alonewill not help to align South Africa's rich and diversemineral resources with its developmental needs.

South Africa: Reforms to the Mining Sector

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ContactLyn Fourie - lyn.f@arcaybm.com

Brussels: EU to Revise Pricing and Reimbursement Rules for Pharma Products The European Commission has published its proposalfor the revision of the legislative framework which setsharmonised provisions to ensure the transparency ofpricing and reimbursement of medicinal products.TheDirective 89/105, known as the Transparency Directivetreads a fine line between the EU’s aim to ensure alevel playing field for pharmaceutical products on theone hand, and the member states’ exclusive compe-tence to organise their health systems on the other.While the Directive does not set rules for the pricing orreimbursement of medicines,it establishes that suchrules have to be transparent, based on objective andverifiable criteria, made within a specific timeframe,and open to judicial appeal at the national level.

The review of the Directive was set as a major commitment by Commissioner for Industry andEntrepreneurship at his designation in early 2010. It will build on case law and is likely to bring only asmall change in the EU competences, but enough toraise both hopes and fears among the European

pharma industry and governments. During the publicconsultation that took place in early 2011, the pharmaceutical industry has mainly pleaded for ashortening of the decision timelines but also brought into the discussion issues related to how reimbursement decisions are made (health of the scope for EU legislation, and lacks a commonlegal definition across the EU – a legal technicality that will also likely cause a heated political debate. The pharma industry would like to see wider considerations taken into account when making reimbursement decisions, such as the potential cost-saving impact of new therapies on healthcarespending in the longer term.

From the perspective of the national governments, amajor fear is that the revised legislation will make itmore difficult for countries to impose healthcare cost-containment measures, an increasingly popularobjective among member states in the context ofEurope’s economic difficulties. Industry, on the other

Sweden: Launch of Global Initiative to Reduce Emissions of “Climate Forcers”Swedish Minister for the Environment Lena Ek andUS Secretary of State Hillary Clinton launched a globalinitiative to reduce emissions of short-lived climateforcers (SLCFs) which is a collective term for black carbon particles, ozone and methane.

As the name suggests, short-lived climate forcers stay in the atmosphere for a relatively short timewhen compared with carbon dioxide which is knownto have a very long-term impact on the climate. TheSwedish Government hopes that by reducing SLCFs’emissions, it will have a correspondingly rapid impactin relation to climate change.

Together, Sweden, Bangladesh, Canada, Ghana, Mexico and the United States have formed a globalpartnership for reduced SLCF emissions. The intentionis to identify and discuss future common strategies at international, regional and national levels as well as creating regional platforms to increase private sector investments.

An ambition is that other countries, sharing the goalsand being prepared to take active measures, will jointhe partnership. NGOs and business adhering to thesame goals are likewise welcome to participate.

According to a UN study, financed by Sweden, a reduction of the emissions covered by the initiativewould reduce the number of premature deaths due topolluted outdoor air by 2.4 million and the number ofdeaths related to polluted indoor air by 1.6 millionannually. Annual losses of 52 million tons of crops ofrice, soya, maize and wheat would be avoided and global warming could be reduced by 0.5 degrees up to year 2050.

Åse Lidbeck – ase.lidbeck@bm.com

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hand, is calling for an end to price referencing, apractice that it fears will lead to a race to the bottomin terms of pharma prices.

The review of the Transparency Directive will have the potential to address some of the most pressingindustry challenges in terms of access to markets andincreasing the accountability of national pricing andreimbursement processes; in return, it will put to the

test both its relationship with European healthcaresystems and its contribution to solving governments’concerns over the sustainability of healthcare financing.

Ane Sofie Böhm Nielsen – ane-sofie.nielsen@bm.com

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Italy: New Government Pushes Liberalisation

With Mario Monti now at the helm of the ItalianGovernment, there has been a renewed vigour to bringin reforms to help bolster the nation’s economy. Theoutside pressure from EU governments has added tothe sense of urgency, and the government has takenmeasured steps on pensions and taxes to help theState’s coffers. However, the main thrust of thelegislative package is dedicated to economic growth.

Several sectors are under the scope of the package,from the organization of professional associations toservices such as mail or rail transport. In the healthcaresector, the opening and closing times of pharmacieswill no longer regulated, allowing them to open during the night or on Sunday. There will also be morepharmacies, with increases in the number of availablelicenses which were limited previously by the numberof local inhabitants. Doctors will also be obliged to saywhen a generic drug is available to a “branded” one.

For other services, there are a range of measures put forward:

Increasing the number of licenses for taxis, or evento open the market completely by abolishing therequirement of having an administrative license for taxi drivers.Fees for lawyers, architects, engineers and accountants will not be limited by maximum and minimum amounts. Banks will have to offer a basic bank account withminimal expenses, enabling each citizen to open one- in Europe, almost 30% of people over 18 years olddo not have one.

In energy, there will be a major shake-up in the pipelines for the fuel market: distributors will no longer be tied to only one supplier, as it is the casenow. Sole distribution agreements will be valid onlyup to 50% of the distributed fuel. The electricity market will also be divested from the gas market,although government-controlled companies willcarry on the management in both cases. Rail will face possible liberalization with the separation of facilities ownership from the management of the transport service.

These measures are supported by statistics fromBanca d’Italia Working Papers1 which suggest thatincreased competition over five years will boost Italy’srankings in the Organisation for Economic Co-opera-tion and Development (OSCE) area, with significantmacroeconomic benefits. They also suggest that in the long-term, GDP could increase by 11%, privateconsumption and employment by 8%, investments by 18%, and salaries by 12%.

Not surprisingly, those affected by the proposedreforms have reacted strongly. Strikes have been organized and continue to cause logistical problemsfor local communities. But the government is determined to make progress and as a result negotiations are ongoing to find a way forward.

ContactVito Basile - vito.basile@bm.comIrma Cordella - Irma.cordella@bm.com

1. Banca d’Italia, Macroeconomics effects of greater competition in the servicesector: the case of Italy, by Lorenzo Forni, Andrea Gerali and MassimilianoPisani, n.706, March 2009

Columbia introduced a new law on January 1st toregulate the organization and functioning of royaltiesfrom the exploitation of non-renewable naturalresources. The law ensures a fairer distribution ofroyalties so that regions who are not producers of oil and gas or mineral resources will begin to receive them.

For this purpose, several funds have been created withdifferent functions and budget allocations, in order to rationalize the use of money.

The funds are:

Fund for Science, Technology and Innovation.US$ 439 million. Designed to increase the scientificcapacity, technological innovation and regional competitiveness through projects that contribute to the production, use, integration and appropriationof knowledge in the production system, taking intoaccount biotechnology and technology projects.Regional Development Fund. US$ 365 million.Financed from the remaining resources of theRegional Compensation Fund and all regions willhave access to the financing of investment projectswhich have a regional impact, as agreed betweenthe Government and local authorities.

Regional Compensation Fund. US$ 722 million.Aiming to generate resources to the country's poorest regions, which are not producing and thattherefore lack the resources to sustain themselves.These are mostly in the coastal and border areas.Savings and Stabilization Fund. US$ 878 million.Created to bring more stability in those times when revenues decline in the producing regions.Pension Savings and Territorial Fund. US$ 439 million.The fund will go towards the coverage of pensionliabilities, which can result from a natural disaster.

The initiative also prioritize distribution of revenuesgenerated from the mining and energy sectors to thepoor to help social equity, and in turn helping develop-ment and competitiveness throughout the country.

This new General System of Royalties represents anopportunity for all companies that are looking toinvest in Colombia, through technological or scientificrecruitment with the Colombian government or by semi-private pension funds.

Colombia: Reviewing the General System of Royalties

With finite global oil supplies and the threat ofClimate Change, governments around the world arelooking at ways to encourage the development of sustainable fuel technologies. For Mexico, biofuel production is a key long-term priority and also as away to boost the development of the agriculture andlivestock sectors. According to the Mexican Law ofPromotion and Development of Biofuels, these aredefined as fuels obtained from the biomass of organicmaterial from agriculture, livestock, fishing, domestic,industry and other activities and their derivatives produced by technological sustainable processes.

Today, the Mexican biofuels market has two majormarketing channels: one is the PEMEX (PetróleosMexicanos) demand for bioethanol or biodiesel; thesecond is the export to markets where demand is fargreater than production capacity, such as the UnitedStates. But public policy is now being designed toencourage large-scale biofuel production, offering

business opportunities for farmers and industry stakeholders. For example, the State of Inverbio’sInstitute of Bioenergetics and the Council of Scienceand Technology (Convecyt) signed an agreement calling for the development of new technologies toproduce and use biofuels obtained from vegetablecrops. Inverbio expects that within three years, theState will have a considerable biofuel production to supply public transportation.

Mexico presents a real opportunity for the biofuelindustry because of the financial incentives that arenow available. But companies will need a comprehen-sive knowledge of the institutional framework thatregulates and supports biofuel production as well as the right communication strategy to access this.

Mexico: Biofuels Present a Sea of Opportunities

Miguel Angel Herrera – miguel.herrera@bm.com

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Lucas Silva Wood – lucas.silva@bm.com

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Nuclear power took its first step forward in the UnitedStates in more than 30 years on Feb. 9 as the U.S.Nuclear Regulatory Commission (NRC) grantedSouthern Co. and other utilities a license to build twonew reactors at an existing two-plant site in Georgia.

The approval moved Southern closer to garnering a critically important federal loan guarantee, althoughU.S. Energy Secretary Steven Chu said additional hurdles remain before the loan deal is finalized.

The licensing decision was not without controversy,as NRC Chairman Gregory Jaczko voted against thelicense. The other four commissioners -- twoRepublicans and two Democrats – voted for the license, overriding Jackzo’s objections. Twelve anti-nuclear groups have also filed a lawsuit to overturnthe NRC’s decision and prevent issuance of the license,claiming that Southern should have been required to agree to meet any safety changes the NRC crafts in the coming months.

Additionally, Democrats have argued that the proposed loan guarantee should be reviewed in detail by Congress in the wake of the bankruptcy ofsolar manufacturer Solyndra in late 2011, which filedfor bankruptcy despite having received a $535 millionfederal loan. One of the anti-nuclear groups is suingthe U.S. Energy Department for failing to discloseinformation about the $8.3 billion loan guarantee forthe new Vogtle reactors. The Energy Department hassaid information the groups are seeking is proprietaryand not available to the public.

NRC hopes to finalize a set of safety rules stemmingfrom the crisis last year at Japan's Fukushima Daiichi

nuclear plant. NRC officials said any new provisionsthat come from the Fukushima review will apply tonew and existing reactors, and will apply to differenttypes of reactors. Southern Co. has said publicly that itwill make any safety changes the NRC requires relatedto the Fukushima disaster. The company also notedthat its seven-year licensing process has been "deliberate, thorough and thoughtful."

The consortium of utilities led by Southern Co. beganinitial construction on the $14 billion reactors at theVogtle site, about 170 miles east of Atlanta, Georgia, in2011. Unit 3 is expected to be operational by 2016 and Unit 4 by 2017.

The NRC is also expected to address a license application for the V.C. Summer project in SouthCarolina this month. Some U.S. lawmakers have urged the Commission to quickly approve 14 otherreactors that use the same model as the Vogtle plant.

If the new plants at the Vogtle site move forward in a timely manner, that could pave the way for additional license approvals and a resurgence ofnuclear plant construction in the U.S., and each ofthose new facilities will likely face a range of challenges requiring communications, grassroots and government relations expertise.

US: Is Nuclear Power Back on Track?

John Kyte – john.kyte@bm.com

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