Tom Wright & Carlos Tejada
The Wall Street Journal
Hong Kong and Singapore, two of Asia’s major financial hubs, could come under greater scrutiny as developed nations signal a tougher stance on what they consider tax havens.
Both have had simmering tensions with major trading partners on the issue of personal financial disclosure, particularly in the realm of private banking. Singapore, a wealthy Southeast Asian city-state of 4.5 million people, has emerging as a major private banking center in recent years with about $300 billion under management.
Meanwhile, Hong Kong – a special administrative region of China, with a population of 7 million – has been mulling its own response to tax worries in other nations.
A spokeswoman for Hong Kong’s government declined to comment, while Singaporean authorities couldn’t be reached late Thursday.
International pressure is mounting on the two locales and other places long considered tax havens to disclose more information on possible tax evaders in the wake of the financial crisis and the Bernard Madoff affair. The Paris-based Organization for Economic Cooperation and Development includes Singapore and Hong Kong on a list of uncooperative tax havens that also includes Lichtenstein, Switzerland, Luxembourg and Austria. Lichtenstein and the tiny state of Andorra took steps Thursday to address those concerns.
European Union authorities have long worried that European citizens will park their money in places like Singapore as their own tax havens come under tighter scrutiny. European Union negotiators have already turned up the heat on Singapore to give up names of European citizens who open accounts in the country or withhold a tax payable to the EU.
In the past year, the EU has made ongoing talks for a free-trade agreement between Singapore and the EU contingent on progress toward some kind of private banking agreement, said a person familiar with the matter.
Some private bankers say the EU focus on Singapore is misplaced because little European money is parked there. Roman Scott, the founder of Singapore-based Calamander Group, a private banking consultancy, said only 8% of the $300 billion of assets under management in Singapore is owned by European individuals or funds.
“The idea that French doctors and German dentists are not paying taxes and are socking away their money in Singapore is nonsense,” Mr. Scott said.
But more EU money might flow to Singapore as barriers are raised elsewhere, said Mandeep Nalwa, who runs Singapore-based Taurus Wealth Advisers Ltd., which gives advice to rich individuals. Singapore, which already has very strict anti-money laundering rules, would likely want to negotiate over more disclosure, Mr. Nalwa said.
In Hong Kong, the issue of taxes and cooperation with wealthy Western nations has long been contentious in a city that prides itself on its laissez-faire approach to business. In a recent interview, Franz Jessen, who oversees China and Hong Kong issues for the European Commission, said talks on taxes were ongoing with Hong Kong and Macau, another special administrative region of China. “It’s an issue that will not go away,” he said.
At root for Hong Kong is its policy toward exchanging information with a number of other nations. Its tax authorities are empowered to investigate an issue only where domestic taxes are concerned. That put it out of step with OECD standards, which were overhauled in 2004 to allow greater sharing of information between nations. The issue has held up efforts by the city to hammer out tax treaties with a number of trading partners, and only a handful have been signed since the government vowed to reach them a decade ago.
City officials last year began canvassing business groups on adopting greater sharing measures, after previously consulting with business groups in the beginning of the decade and again in 2005. In a September report, accounting firm KPMG said the benefits of adopting the OECD’s greater disclosure rules outweigh the disadvantages, including drawing businesses leery of tax issues and avoiding punitive steps by other governments.
Tax havens make concessions as pressure mounts
Blacklisted tax havens Andorra and Liechtenstein relaxed their strict bank secrecy rules on Thursday in the face of a global crackdown that looks set to force top offshore centre Switzerland to open up soon.
The moves come as finance ministers from the G20 group of developed and emerging countries prepare to meet in Britain from Friday ahead of a summit in London on April 2 that is expected to seek ways to fight offshore tax evasion.
Other offshore centres, whose banking industries have thrived under privacy laws that have attracted foreign wealth, have also made concessions in recent weeks, as the financial crisis prompts cash-strapped Western governments to be more aggressive against tax evaders.
The tiny Alpine principality of Liechtenstein said on Thursday it would comply with international tax and data sharing standards set up by the Organisation for Economic Cooperation and Development (OECD), bypassing neighbouring Switzerland in the quest for greater tax transparency.
“I’m quite sure Switzerland will take similar steps in the near future,” Crown Prince Alois von und zu Liechtenstein said.
Andorra, a bank secrecy stronghold nestled between France and Spain, also said on Thursday that it was planning to relax bank secrecy in order to be removed from an OECD blacklist. It planned to pass a law to this end by November.
The OECD praised recent moves by Singapore, Hong Kong, Andorra, Isle of Man, Liechtenstein and the Cayman Islands.
“Moves by a number of financial centres over recent weeks have given a welcome boost to efforts to promote transparency and exchange of information on tax matters,” OECD Secretary General Angel Gurria said in a statement.
The OECD list includes Liechtenstein, Andorra and Monaco, but France and Germany want others, including Switzerland, to be added. German Chancellor Angela Merkel said on Thursday she was
optimistic that tax havens would co-operate if the G20 threatened to blacklist them.
Monaco declined to comment on its plans on tax.
Presser mounts on Switzerland
Switzerland, the world’s biggest offshore banking centre with estimated assets under management of $2 trillion out of a total of $7 trillion, is under pressure from a U.S. tax fraud targeting its No. 1 bank UBS.
Swiss Justice Minister Eveline Widmer-Schlumpf told Swiss television on Thursday the government was working on a review of bank secrecy rules and expected to present its ideas “shortly.”
The government has asked a committee of experts to come forward with proposals on more tax cooperation in view of the G20 meeting and will discuss the topic at a meeting on Friday.
Walter Wittmann, an economic professor at the University of Freiburg, was quoted by newspaper Blick am Abend as saying that Switzerland would be “guaranteed a place on the blacklist” if it
refused to cooperate.
Any move by Berne will be watched by many wealth management players operating out of offshore financial centres.
A 2008 report by the OECD lists Switzerland, Austria, Luxembourg, Liechtenstein, Panama, Singapore and others as states where it deems bank secrecy rules undesirable.
Liechtenstein, whose banks have seen big withdrawals since Germany obtained data on citizens suspected of dodging tax by parking money there, said its move could be an example to others.
“As the current recession requires huge stimulus packages from governments, pressure against tax-haven countries and banking secrecy is increasing,” said Nicolas Michellod, an analyst at research and consulting firm Celent.
“This is not a surprise that small countries like Liechtenstein are the first to be under siege,” he said.
Other offshore centres have already taken steps to improve tax co-operation. Singapore, a rising financial centre and Switzerland’s biggest new rival, agreed to embrace the OECD standards earlier this month.
The island of Jersey signed an agreement with Britain this week aimed at fighting tax evasion.
Belgium, one of three European Union countries that retain bank secrecy, has said it will share tax information in the future.
Austria, another bank secrecy hub, will not go as far as Belgium but is willing to seek ways to cooperate more on tax.
Luxembourg is still defending its privacy rules. “Banking secrecy is not a synonym for tax haven,” Luxembourg Prime Minister Jean-Claude Juncker said. “I couldn’t imagine that the EU would agree that Belgium, Austria or Luxembourg would be listed as countries that it would be necessary to