Singapore’s future as a financial centre: Part I

Chee Soon Juan

Singapore’s status as a financial hub seems secure as we stand head and shoulders above everyone else, at least here in Southeast Asia, in the realm of international banking. Ours has the look and feel of a successful economy steeped in wealth-management, and purring with maximum efficiency and minimum corruption.

It certainly does not convey the impression of a system under-girded by weaknesses and dangers that threaten its progress. And yet, in reality, our standing as a financial centre is being seriously questioned.

It is a situation that few Singaporeans know – much less care about. But as this three-part series of articles will show, it is a matter that calls for urgent attention because of the change in the global financial climate. It is a matter that will mean much to our economic lives in Singapore.

The present piece traces the recent history of Singapore’s build up in asset management and the preeminence we have established for ourselves in the world of finance. It also introduces ominous rumblings that have recently occurred, which look set to get louder, about our operations as a banking centre.

Part II describes the changed mood of the global community, especially with the election of Barack Obama as president of the United States, towards the financial system here and elsewhere, and how Singapore is increasingly viewed.

The third installment discusses how the impending changes will affect our viability as a banking hub and what may be in store for us if our plans to continue as financial centre do not materialise.

With the world reeling from an economic meltdown and gripped by fears of terrorism, it may be a good time for Singaporeans to start paying attention to what others are saying about the way we make our money.

Change laws, make money

At the heart of the issue is how our city-state has worked its way up the financial ladder. Circa 1998 in the wake of the Asian financial crisis, the Government decided to make Singapore the financial capital of Asia, if not the world.

At about that time Switzerland, the Mecca of secretive banking, came under pressure from the European Union to amend its laws to enable greater financial transparency and to provide information to on accounts suspected to belong to tax evaders from other European nations.

The PAP Government saw the opportunity and introduced legislation to tighten up secrecy protections in our financial institutions to attract investors and account holders fleeing Switzerland.

In 2001 Prime Minister Lee Hsien Loong, then deputy prime minister, finance minister and chairman of the Monetary Authority of Singapore all rolled into one, met with bankers from all over the world to discuss how Singapore could tailor its laws to become a premier banking centre.

Following the consultations, he introduced
amendments to the Banking Act to revise secrecy provisions so that “only very few exceptions have been allowed for the disclosure of information relating to a customer’s deposit and funds placed for investment” and that “a person who receives customer information will be required by law to keep the information confidential.” The penalty for breaking such a law is a fine of up to $125,000 or 3-years’ jail or both.

In 2004, trust laws were amended to allow foreigners, especially Europeans, to avoid laws in their home countries that regulate inheritance of an estate by family members.

Financial centre or laundromat?

Mr Lee’s efforts worked a miracle. Funds from all over the world poured into our banks and financial institutions. At end-2007, the
Monetary Authority of Singapore reported that total assets under management reached $1.173 trillion (approximately US$814 billion) up from $150 billion in 1998, an increase of 682% in 10 years. Eighty-six percent of these funds, which include private banking money, came from outside Singapore. Of these 44 percent was from the Asia-Pacific region and 36 percent from Europe.

We may have gotten a bit of help from websites such as the one below which I came across in the course of writing this piece. It is an expensive-looking but curious website called which describes itself as “the leading information portal for high-net-worth individuals and the mass affluent seeking offshore banking services in Singapore.” It adds that:

One of the most attractive aspects of Singapore as an offshore jurisdiction is that it has one of the lowest taxation rates in Asia. Non-residents who park their money in Singapore pay no taxes if that money is earned outside of Singapore, and investment gains earned in Singapore (from stocks for example) are also exempt from tax. Singapore is also one of the few offshore centers which was not included in the EU Savings Tax Directive in 2005, an EU initiative to exchange information on EU citizens parking money abroad for tax reasons. In Singapore, not paying taxes owed to foreign authorities is not a crime. In 2004, Singapore amended its trust laws to allow foreigners to sidestep state interference in many European countries which dictates how inheritance is carved up.

What was strange about this portal was that given its claims as the “leading” information website for banking in Singapore, there are no names listed on it. Apart from an email address [email protected], the website doesn’t reveal the organisation or individuals running it. Its front page pictures a gentleman cupping his chin as if in deep contemplation but doesn’t tell us who he is.

The reluctance of those running this operation to be openly identified is perhaps understandable given that it seems to be giving advise on how to circumvent troublesome laws in other jurisdictions, especially Europe.

Can we afford to be Asia’s Switzerland?

Such an approach not only attracts foreign funds but also foreign opprobrium. There are more than concerns that Singapore has become a tax haven in the mould of Switzerland, a place where individuals and corporations go to deposit their cash, often to avoid taxation in their own countries.

Not only have tax evaders found a haven in Singapore, money-launderers are also flocking to the city-state. Former chief economist at Morgan Stanley, Andy Xie, wrote in a private email that was inadvertently leaked to the public, said that Singapore’s financial success “came mostly from being the money laundering center for corrupt Indonesian businessmen and government officials.”

In 2006, now bankrupt Merrill Lynch and Capgemini reported that the number of “super-rich” Indonesians living in Singapore is a staggering 18,000 whose wealth amounts to approximately US$87 billion. Much of this wealth, complains the Indonesian Government, came from illegal activities in Indonesia.

Xie added that in order to sustain its economy, Singapore was resorting to “building casinos to attract corruption money from China.”

Corrupt ruling generals in Burma are also suspected to be stashing their assets in Singapore, leading many to criticise the PAP Government following the Burmese regime’s crackdown on monks and civilian protesters in 2007.

Not too long ago, a friend of mine from Cambodia intimated to me a story about four women, all single, from Phnom Penh depositing $80 million between them in Singapore banks. No questions asked.

“Four single women? $80 million? From Cambodia which is dirt poor?” she asked with a mixture if rhetoric and incredulity, “And no one here bothers to ask how they got the money?” In case anyone thinks that the remark carried sexist overtones, my friend was female and a hard champion of equal rights for women.

In a report in 2000, the United States State Department pointed out that the system in Singapore “provided opportunities for money launderers to conduct a wide range of illicit transactions.” (The subject of money laundering is discussed in greater detail in my book A Nation Cheated.)

Our rules

Of course, the Government denies these charges saying that “our banking and financial system is open and transparent, and our rules vigorously enforced.”

Perhaps. But the devil is in the fine-print, so they say. In an exchange of emails, Markus Meinzer of the Tax Justice Network (TJN), an organisation calling for greater action on tax havens, told me that “the main and biggest (but not only) problem with the Singapore tax haven legal structure consists in the requirement of an domestic tax interest being present if a request for criminal assistance in tax matters is made.”

This means that if a foreign government requests for information on accounts suspected of tax evasion in Singapore, the Government will only cooperate if and only if the case also involves an evasion of tax due to the Singapore authorities.

This effectively puts paid to foreign governments wanting information about their tax fugitives who stash their money in Singapore. Remember what that curious website, Offshore Banking Singapore, was selling? “In Singapore, not paying taxes owed to foreign authorities is not a crime.” If it is not a crime in Singapore then no can do, we will not release information about the tax offender.

Gianpiero FioraniThis problem was highlighted in a case in 2005 involving a former chief of an Italian bank, Gianpiero Fiorani, who was arrested in Milan for suspected misappropriation of funds. Fiorani had then shifted some of his assets to Singapore through a Swiss bank. The
Wall Street Journal reported that when he was questioned by the police following his arrest, Fiorani said that he had moved his funds “to better protect the money” and for “peace of mind.”

When contacted about the matter the Monetary Authority of Singapore declined to comment.

It is such unwillingness to cooperate with foreign governments and the lack of transparency that has solidified Singapore’s reputation as a tax haven. Part II of this article, which will be posted in a couple of days, looks at how tax havens affect the world’s major economies, and how these places are fighting back.

Part II

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