In Singapore, a local Switzerland for Asia’s wealthy

Wayne Arnold
25 Apr 07

This affluent city-state of 4.5 million people is aiming to become a sanctuary for the world’s wealthy and their money, Asia’s answer to Geneva and Zurich.

Singapore, with its reputation for authoritarian order and safety, has long relied on luring multinational corporations for manufacturing jobs and economic growth. But with China’s rise as an industrial powerhouse, it started chasing a succession of economic fads – from technology to pharmaceuticals to stem cell research – in search of a fresh elixir.

Now Singapore, is trying to carve out a new niche for itself in the global economy by beefing up banking secrecy laws and offering generous tax incentives.

Almost 40 private banks now have regional operations here, including Swiss stalwarts like Bank Julius Baer. Citigroup’s headquarters for all private banking outside the United States is now in Singapore, as is the global banking headquarters of Standard Chartered Bank of Britain.

“I can’t think of any other place where private banking is growing so much as in Singapore,” said Henrik Mikkelsen, a private banker at Commerzbank in Singapore. “We want to be the Switzerland of Asia.”

It may not have the stunning Alpine scenery, but officials here hope that luring the wealthy and their bankers will not only diversify the economy but also help to offset a declining birthrate and increase the island’s stagnant population with what is known here as “foreign talent.”

“It creates jobs, it builds a service industry, it generates income and, on the immigration issue, it also supplements our shortfall in fertility,” said Vivian Balakrishnan, Singapore’s minister for community development, youth and sports.

The estimated $150 billion in private wealth the banks manage here is still just a sliver of the $1.7 trillion managed by bankers in Switzerland. But by all accounts it is growing quickly, fed by new wealth pouring in from Asia’s fast-growing economies, Middle Eastern oil money, and Japanese and Europeans fleeing new efforts to tax their offshore earnings.

The bankers cater to people like Robert Chandran, who emigrated to the United States from India and made fortunes in California real estate and the fuel oil business. In 2005, contemplating retirement, he moved his company and family to Singapore, bought a luxury condominium downtown and space in a waterfront resort with berthing for yachts. He traded in his American passport for one from Singapore.

Chandran said he was lured by Singapore’s blend of Western conveniences with Asian values and by the government’s zeal for keeping Singapore competitive.

“They don’t have global taxation,” he said, which means that his capital gains and interest income from outside Singapore are not taxed here.

Singapore’s vision for the high-life can be found at Sentosa Cove, a secluded development on the edge of a small island theme park off Singapore’s coast. Chandran is building his home there, among sites that sold for as much as $9.9 million each. Sentosa Cove has a 400-berth marina with 10 spots for mega-yachts, two golf courses so far and a casino resort on the way.

“The government wants to create Sentosa as a playground for the rich and famous,” said Joseph Tan, director of residential property at CB Richard Ellis. “They’re trying to build it as our Monte Carlo.”

Roughly 60 percent of the buyers at Sentosa Cove are foreigners.

Providing services for Asia’s super-rich is undoubtedly a growth market. The booming region is churning out at least 200,000 new millionaires a year, according to a recent report from Merrill Lynch and Cap Gemini, prompting comparisons to America’s Gilded Age.

“The wealth of the wealthy in emerging markets is no different than the wealth of the wealthy in the Rockefeller days,” said Roman Scott, who left a job analyzing the industry for BCG, a management consulting firm, last year to start his own investment advisory firm, Calamander Group. “It’s the robber baron thing.”

In a region known for its poverty, corruption and political turmoil, Singapore has long served as a refuge for wealthy ethnic-Chinese from Malaysia and Indonesia, who rely on its top-notch health care and schools. For many, Singapore’s gleaming infrastructure, efficient bureaucracy and stable government more than compensate for its lack of press freedom, political debate and artistic ferment.

While the latest influx of wealthy foreigners is pushing costs up, property prices are still low compared with London and New York. Tax rates are low as well. Singapore does not tax capital gains or interest income. Its top income tax rate is 20 percent, and it does not tax income earned outside Singapore.

Much of the decision to promote private banking was the result of official soul-searching in 2002 in the midst of the global recession and China’s investment boom. Singapore convened an Economic Review Committee from the private sector and government to chart a new course.

“They were facing China with no real game plan,” said Robert Stein, a former head of Deutsche Bank’s Asian operations who headed the committee’s financial services working group.

The panel recommended that Singapore focus on luring hedge funds, private equity firms, insurers and private banks. Afterward, Singapore exempted foreign-earned income from taxation and modified its trust laws, guaranteeing the right of trust holders to determine who inherits their estate.

Bankers in Singapore say this is especially attractive to clients from Europe, where courts often overrule wills to give relatives a fair share, and from the Middle East, where Islamic courts sometimes pass over wives and children to hand over entire estates to the father and brother of the deceased.

Singapore had already beefed up its banking secrecy laws in 2001. While many banks are moving their back offices to India, bankers here say Singapore’s secrecy rules are so tight, they are moving the data centers handling their private banking transactions from India to Singapore.

Concerns have emerged, however, that Singapore may also be attracting wealthy individuals who have something to hide.

Before his arrest in 2005 on charges of corruption and fraud, Gianpiero Fiorani, the former chief executive of Italy’s Banca Popolare Italiana, stashed some of his assets in Singapore.

The Japanese fund manager and shareholder activist Yoshiaki Murakami moved his fund, MAC Asset Management, to Singapore before his arrest last year on charges of insider trading. And in December, the police in Shanghai arrested an unidentified Singaporean for running an underground bank that shuffled money between China and Singapore.

Singapore bankers say they are under pressure to know the nature of their clients’ wealth – Singapore’s secrecy rules do not extend to anyone involved in terrorism or smuggling. And the authorities say they are not trying to attract tax evaders.

“The Singaporeans have done an excellent job of balancing a pro-business stance with a regulatory environment that creates a well-disciplined environment for private banking,” said Stein, now a director in London at German bank WestLB.

Still, some foreign governments are unhappy. A “Stop Tax Haven Abuse” bill, introduced in February by three U.S. senators – Democrats Carl Levin of Michigan and Barack Obama of Illinois and Norm Coleman, Republican of Minnesota – includes Singapore in its list of “probable locations for U.S. tax evasion.” (Hong Kong and Switzerland are also included.)

Meanwhile, the European Union has been trying to persuade Singapore to follow the lead of Switzerland and other European tax havens, which have agreed to share information on accounts or collect a withholding tax.

Germano Mirabile, a policy officer at the EU Taxation and Customs Union Directorate-General, said Singapore had not yet responded to Brussel’s overtures.

Because tax rates in Asia are generally low, Singapore’s lure to Asians is less about escaping taxes and more about protecting assets from political vagaries. Many Chinese, for example, keep some of their earnings in Hong Kong. But for those who fear that Hong Kong is still within reach of Chinese authorities, Singapore has become increasingly popular.

Singapore’s proximity to South Asia is also luring ethnic Indians, both those from the subcontinent and those from the Indian diaspora, like Chandran.

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