27 May 2005

Integrated Resorts, Human Rights and Happy Banks

The casinos are coming to Singapore. And in the ST today, journalist M Nirmala wrote about how the CID is gearing up to make sure that the casinos stay relatively crime-free.

May 27, 2005
CID gears up to keep casinos crime-free. One new unit to regulate casinos, another will tackle loan sharks
By M. Nirmala

EVEN before the first building stone is laid for any casino here, regulators are gearing up for the challenge in a big way.

The Criminal Investigations Department (CID) will set up two new units specially targeted at busting casino-related crimes, Home Affairs Minister Wong Kan Seng told The Straits Times in an interview.

I was particularly interested in the part about the loan sharks. Here's more of what Nirmala wrote:

Mr Wong served notice that the police will be tough on all those involved in the loan shark business, from the 'runner' to the boss.

'Now we are going to target every level of the chain, from the runner all the way to the top man,' he said.

'So a person may claim that he is an innocent person because he was forced into becoming a loan shark runner. Well, he will be considered to be involved in illegal moneylending activities because he is now abetting an offence. And if he harasses people and he is arrested, he will be dealt with according to the law.'

The more senior the person is in the syndicate, the more culpable he is, and the heavier will be the penalty, he added. In fact, the government won't hesitate to use the toughest laws at loan sharks.

So the government will be getting very tough on loan sharks. But wait, there's more:

Said Mr Wong: 'If necessary, we will even use the criminal law temporary provision, as we've done for drug syndicates and gangsters.'

This law has helped nail masterminds and syndicate leaders. When victims or accomplices refuse to testify in court, the law allows for their statements, oral or written, to be used against such offenders. It is used in hearings held by advisory committees which make recommendations to the President on all detention orders.

In case you didn't know it, our friend Wong Kan Seng was referring to the Criminal Law (Temporary Provisions) Act, Chapter 67 of Singapore. This is one of those laws that throw up a rash of human rights issues.

Traditionally, the CLTPA has been used on secret society members. Essentially, if a bunch of government officials (such as the Minister, his advisory committee and the President) think:

(a) that you're associated with "activities of a criminal nature"; and
(b) that it's a good idea to detain you in the "interests of public safety, peace and good order",

then they can make an order to get the police to detain you.

They don't need to prove that you were really associated with criminal activities. They don't need to charge you with any offence. They don't need to go to court and show any evidence of any actual offence.

Yep, this is another version of "detention without trial" (the other version being the one under the Internal Security Act). And I think that smart loan sharks should stay far, far away from Sentosa.

Which led me to my next interesting thought. In the absence of loan sharks, where will gambling Singaporeans turn to next, for money?

In the past three or four years, banks in Singapore have been aggressively promoting a new type of product. It's called the personal line of credit. Essentially you get to borrow up to two times your monthly salary. No questions asked. (You pay interest, of course). You get some nifty features like a chequebook and access to the funds via ATM.

I've often suspected that the banks are not making much money from these personal lines of credit. I've had the feeling that most of the credit-line customers are like me. I sign up to collect the attractive free gift, but I never actually use the line. Annual fees are waived for the first year. Immediately after a year, I terminate the line, then sign up again to collect another free gift.

Right now, many Singaporeans just don't have a real use for personal lines of credit. See for example what Mr Brown has to say on the topic.

However, when the casinos arrive and the loan sharks get locked away, it may well be the banks which celebrate most exuberantly. Addicted Singaporeans will surely borrow. They can even borrow to pay the $100 casino entry fee. Remember - no questions asked. That's a basic characteristic of personal credit lines.

And with the serious competition - loan sharks - locked away in jail, it's the banks which will enjoy this exciting spin-off from our wonderful integrated resorts.

Some examples of personal lines of credit available in the Singapore market:

DBS Cashline
OCBC Prestige Credit
Maybank CreditAble
Standard Chartered Personal Credit
UOB CashPlus
HSBC Personal Line of Credit


Anonymous said...

Mr. Wang,

No offence, but you and mr.brown probably earn enough to make credit lines redundent. I suspect that these credit facilities are very popular with the lower-middle class, which is a very significant part of the population.

Gilbert Koh aka Mr Wang said...

I think that the existing laws can accommodate.

Essentially the legal position is that if you are in the business of lending money (ie you regularly do it and you seek to make money from lending money), then you either have to be:

- a financial institution with the appropriate license from MAS (eg you are a bank or finance company); or

- you have to have a moneylenders' licence from the Registrar of Moneylenders; or

- you have to have a special exemption from the Registrar of Moneylenders.

Loan sharks will be none of the above. If they lend money and the borrower cannot repay, they cannot use legal means to recover the money (ie they cannot sue for the repayment of the money). So now you know why instead they resort to painting your front door red and sticking rude posters about you in the lift.

As for banks and personal lines of credit -

the reason why I made the remark about "no questions asked" in my post is that most of the time, in other situuations, when you borrow money from the bank, the bank wants to know what you're borrowing it for and how you will be spending it.

For example, if you claim that you want to borrow for the sake of renovating your home, you have to show them the contractor's quotation and description of proposed works for renovating your home.

If you seek to borrow money to pay your university fees, you would have to show documentary evidence that you are indeed a student at that university. I think you would also have to furnish some evidence of the amount of the university fees that you need to pay.

Personal lines of credit, however, come with no questions asked. You take your money and you can use it on whatever you want.

The bank caps its risk by limiting the amount it lends, to two months your monthly income.

However, right now, I believe that nothing stops the gambler from simultaneously applying for personal lines of credit from, say, HSBC, UOB, DBS and OCBC, and thereby getting himself a line worth 4 x 2 = 8 times his monthly income.

We have a newly established inter-bank credit bureau but I suspect at this stage that it's been tracking defaulters on credit cards (a big problem), not defaulters on personal lines of credit (a much lesser problem).

If the gambler has never defaulted on his credit cards, he's still going to succeed in getting his 4 simultaneous lines of credit from HSBC, UOB, DBS and OCBC.

Gilbert Koh aka Mr Wang said...

Hi Guofeng

Actually I think that people of diverse income levels use PLOCs (as long as they satisfy the minimum income requirement).

But their sheer numbers are low. They may be relevant for businessmen who run sole proprietorship or small businesses -

the kind of businessmen who usually need to receive payment from their customers before they can pay off their suppliers.

The personal line of credit, for them, becomes the liquidity tool in the event that the customer is late in making payment and the supplier gets unhappy.

The interest they pay on the PLOC utilisation doesn't matter so much because we can expect that it can be paid out of the difference between the sum they receive from the customer, and the sum they pay their supplier.

However, for people who are employees receiving a fixed monthly salary, dependence on a personal line of credit shows that the finances are not being managed properly.

Perhaps I'll write more about managing personal finances sometime. It's one of my areas of interest.

Gilbert Koh aka Mr Wang said...

I actually don't know the common law position on the matter. On the other hand, I suspect that in Singapore, the common law position would not really matter, because there is specific legislation to address these issues.

From Section 5 of the Civil Law Act, we know that gaming contracts are unenforceable. In other words, if we play a game of blackjack and I win, I can't actually sue you to make you pay me.

Section 5(3) of the same Act however, creates an exception. If a game is "lawful", then I can sue for payment of the winnings. And we know that the government has decided to make the casinos and their activities "lawful" in Singapore. So our game of blackjack was played in the casino, then I can sue you.

But even before all that -

I think we must draw the distinction between:

(1) a gaming contract; and

(2) a loan, the proceeds of which the borrower intends to use for gaming.

The gaming contract in (1) is prima facie null and void and unenforceable, by virtue of Section 5 of the Civil Law Act.

The loan in (2), however, is not. It is in itself not a "gaming contract" under the Civil Law Act.

The reason why loan sharks' lending activities are illegal is not because they lend to gamblers (they don't, at least not exclusively).

The reason is that loan sharks run foul of the Moneylending Act. To carry on a business of lending money, you need to have the requisite licence (which loan sharks do not have) or to have an exemption from such licensing requirements (loan sharks don't get the exemption either).

In contrast, banks can lend money freely to gamblers because banks are licensed (by MAS) to carry on banking business, which includes lending money.

Now, if casinos are going to extend credit directly to gamblers, all they need to do is to apply for the licence or exemption from the Registrar of Moneylenders.

And since the casinos are government-approved, I'm sure that the Registrar won't deny them the licence/exemption just because of the casino element.