The Singapore Democrats had warned as early as 2008 that Singapore must not rely on being a tax haven or money-laundering hub for its economic growth because, sooner or later, foreign governments are going to crack down on offenders from these countries. True enough, the US is now turning its attention to Singapore after following the crackdown on Switzerland.
Dr Chee Soon Juan highlighted this problem in a three-part series entitled Singapore’s Future as a Financial Centre and questioned the wisdom of the PAP’s economic strategy by re-writing our laws to attract the super-rich.
Now it seems that the chicken is coming home to roost as Reuters is reporting that the US Inland Revenue Service is targeting Singapore as secrecy jurisdiction where millionaires come to park their money to avoid taxes in their home countries.
“What the US is going to do now is knock on the door of banks in all countries shielding U.S. citizens assets,” a former US Justice Department official commented.
High on the list of “all” countries is Singapore. Singaporean lawyer Edmund Leow said: “Switzerland is your traditional banking secrecy jurisdiction, but Hong Kong and Singapore have also adopted similar banking secrecy rules.”
Banks in Singapore and Hong Kong are estimated to hold about $700 billion in such offshore wealth.
Asia next in line of fire for U.S. tax police
7 Jul 10
After forcing Switzerland’s top bank UBS to its knees for helping U.S. residents dodge taxes, U.S. authorities are moving on other banks and countries used to hide clients’ cash.
Washington inflicted a tough lesson last year on Switzerland by forcing the world’s biggest offshore banking center to lift its treasured bank secrecy and slapping a $780-million penalty on UBS.
The Department of Justice is now going after other offshore centers like Singapore, which have attracted undeclared money that left Switzerland, and has opened a criminal inquiry into Asian clients of Britain’s HSBC Holdings Plc, Europe’s No. 1 bank.
Banks in Singapore and Hong Kong hold estimated offshore wealth worth $700 billion against Switzerland’s $2 trillion, according to the 2010 Boston Consulting Group Wealth Report.
“There are going to be more such cases,” a U.S. Internal Revenue Service source told Reuters. “There’s a lot of talk about money being moved from Switzerland into Asia.”
Swiss lawmakers last month backed a key tax treaty enabling UBS client tax cheats’ data to be handed over to the IRS, ending months of uncertainty that had threatened the recovery of the world’s second-largest wealth manager.
The IRS source said Kevin Downing, the Justice Department litigator who led the UBS tax investigation, is the IRS agent in charge of the Asian probes, including a criminal probe into whether some HSBC clients failed to disclose offshore accounts.
The bank has declined to comment.
HSBC’s position is complicated by the fact that one of its ex-employees in Switzerland stole details of tens of thousands of the bank’s Swiss-based accounts that wound up in the hands of French authorities and could be shared with tax officials in other countries.
While UBS boss Oswald Gruebel can finally focus on attracting new money after Swiss parliament’s backing for the U.S. deal, wealth managers guilty of helping U.S. clients to hide money should be very worried about the IRS’ next step.
“What the U.S. is going to do now is knock on the door of banks in all countries shielding U.S. citizens assets,” said former U.S. Justice Department prosecutor Michael Weinstein. “The UBS case was simply the opening salvo in a long war.”
Singapore to Israel?
U.S. authorities have made it clear they are not looking at just one bank or one jurisdiction, said Edmund Leow, principal at Baker & McKenzie, Wong & Leow in Singapore, adding that Hong Kong and Singapore would be the first Asian financial hubs for the IRS to look into.
“Switzerland is your traditional banking secrecy jurisdiction but Hong Kong and Singapore have also adopted similar banking secrecy rules,” Leow said.
Tax lawyers have also told Reuters that Israel and Latin America are two of the regions the IRS may tackle next.
The IRS has opened offices in banking centers around the world, including in Asia, and is investigating whether U.S. residents have used legal entities to shield taxable assets, said Asher Rubinstein, a partner at Rubinstein & Rubinstein LLP in New York who has represented UBS clients.
“Some of the big ones seem to be the British Virgin Islands, Panama and Hong Kong corporations,” Rubinstein said. “The IRS is going to set its sights globally.”
Around 15,000 U.S. residents came forward under a U.S. voluntary tax disclosure program last year. Thousands more have followed since, preferring to come clean with their assets than continue hiding them any longer.
U.S. lawyers are using the landmark U.S-Swiss deal on UBS to convince recalcitrant taxpayers to come forward, said Kevin Thorn, a lawyer in private practice who has counseled U.S. clients of UBS and other banks and the banks themselves.
“It has good implications for future investigations at the Department of Justice. Obviously they have proved they can assert some pressure,” Thorn said.
Financial penalties are only part of the equation. What investigators want above all else from banks is client data as this allows them to go after tax cheats and recoup lost tax revenues, said Bill Rucci, founding partner of Boston-based accountancy firm Rucci, Bardaro & Barrett.”
“Many of the new tax laws in the United States are about closing foreign tax loopholes, so what’s happened with UBS and the Swiss government is just the tip of the iceberg,” Rucci said. “This will be the first in what the U.S. believes to be a windfall in the collection of tax revenues in the coming years.”