Dow Jones Newswires
Singapore, which styles itself as Asia’s Switzerland for offshore investors, is coming under pressure to open its books to Western authorities worried about money laundering and tax evasion.
The city-state is in the sights of U.S. and European authorities who are broadening their attack on bank secrecy beyond such current targets as Switzerland, Luxembourg, Liechtenstein and Andorra. The tax regimes in those countries came under intense scrutiny at last month’s summit of the Group of 20 industrial and developing powers.
Singapore is willing to concede on some demands but is ready to fight moves it thinks would endanger the island’s status as a mecca for overseas wealth, according to people familiar with the early talks.
The authorities “will negotiate long and hard” with each country individually, said a person familiar with government thinking. “Singapore won’t scare away its affluent foreigners.”
The government “will be selective about whom it negotiates with and it will in no way give the impression that bank secrecy here will be compromised,” this person said. “Bank secrecy is a matter of national interest for financial centers like Singapore. Anyone who expects fast information about a foreigner with a bank account here will be disappointed.”
While no definitive action against Singapore is likely this year, pressure – mainly from the U.S, France, Germany and the U.K. – is increasing on countries that shield information about accounts held by multinational companies and rich offshore individuals.
Along with several European private-banking centers, Singapore last month found itself on an Organization for Economic Cooperation and Development “gray list” of 38 countries that have agreed to improve transparency standards but haven’t signed the necessary international accords.
To comply with the new OECD rules, Singapore will need to renegotiate many of the 60 double-taxation agreements it has with other countries.
At least US$300 billion of foreign cash is managed in Singapore, and that could double in the next five years, private bankers and wealth managers estimate. The vast majority of the money belongs to wealthy Indonesians, Malaysians, Chinese and other Asians.
Some 40 institutions offer private banking in Singapore. The industry grew rapidly along with Asian wealth in 2005 and 2006. Singapore encouraged Western banks to expand here, promoting the city-state as a financial center through corporate tax cuts and other business-friendly measures.
Now European negotiators are asking Singapore to hand over the names of Europeans who open accounts in the city-state, said a senior official in Europe. Singapore’s Finance Ministry declined to comment.
A French Finance Ministry official said Paris is focusing first on getting full compliance on the OECD directives from European financial centers. But “as soon as that’s done, there’ll be surely some work to do” with other countries on the gray list, the official said.
Beyond the pressure from Europe, Singapore – a stalwart military ally of the U.S. – is particularly sensitive to pleas from Washington.
“Frankly, Singapore believes it can withstand the pressure from the E.U.,” said the person familiar the Singapore government’s thinking. “But pressure from the U.S. is a different matter. Washington can push very hard, the way they did with UBS.”
Swiss giant UBS AG, hit by a U.S. tax-fraud investigation into services it offered to hundreds of wealthy American clients, agreed in February to pay a $780 million fine and disclose the identity of some clients.
For now, Singapore appears to be benefiting as the spotlight on European havens sends some investors fleeing.
“At least $13 billion has landed here in the past few months, much more than the average of previous months, and a surprisingly high sum came from Europe,” said a private banker in Singapore. “This money could be perfectly legal, but with the climate of fear in Europe many depositors want out. They want peace of mind.”
Such inflows to Singapore might not last, however, especially when the U.S. turns its attention to the island’s tax practices.
In 2007, then-Sen. Barack Obama cosponsored a bill to clamp down on tax havens, including Singapore on its “blacklist” of 34 “offshore secrecy jurisdictions.” The bill failed under the Bush administration, but a stronger version, backed by the Obama administration, was reintroduced to the Democratic-controlled Congress in March.
The bill provides for “special measures,” including trade sanctions, against countries that remain on the blacklist, although there is no timeframe set for passing the bill and the Treasury secretary would have the right to remove countries from the list.
“Singapore will do whatever is necessary to avoid being in a blacklist. In some way that will compromise bank secrecy,” said Edmund Leow, a senior tax lawyer and principal with Baker & McKenzie.Wong & Leow in Singapore. Negotiations will be tough, he said, but “foreigners who keep their money here must feel that they are not at the mercy of tax authorities back in their countries.”
Until now, Singapore has refused to give overseas authorities information on foreigners’ bank-deposit interest or investment gains – on the ground that the government can’t gather this information under domestic tax law. The government this year plans to end this “domestic interest” restriction on the data it can provide, a Finance Ministry spokesman said.
But even then, the city-state will be willing to investigate income that isn’t taxed locally only if there are serious, documented suspicions of tax evasion and proof that the foreign authority requesting the information can’t get it directly from the foreign investor or deposit-holder, according to people familiar with the situation.