This post is at least a year old. Some of the links in this post may no longer work correctly.
Tax Justice Network
A fascinating series of three articles has just appeared on a political party web site in Singapore, looking at its emergence into what it is today: a big, dirty Asian tax haven. The series was written by a leading Singapore dissident, Chee Soon Juan, secretary-general of the Singapore Democratic Party, who has been imprisoned several times for his anti-establishment views.
These well researched and well-written articles are all well, well worth reading – and though we’ve said that of a fair few reports, we’d highlight these ones in particular. Part I looks at the emergence of Singapore as a tax haven; Part II looks at how tax havens affect the world’s economies, and Part III examines whether foreign funds parked there have benefited locals.
So how did Singapore come to be a secrecy jurisdiction (or a tax haven, if you will)?
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 (Singapore) Government saw the opportunity and introduced legislation to tighten up secrecy protections in our financial institutions to attract investors and account holders fleeing Switzerland.
This is it, in a nutshell. As regards Europe, the article is referring to the EU Savings Tax Directive, which is currently in the process of being tightened. Lee Kuan Yew, Singapore’s Prime Minister from 1959 to 1990, made some telling remarks in a memoir (which this blogger happens to have on his bookshelf.)
In the early years from 1968 to 1985, we had the field all to ourselves in the region. We attracted international financial institutions by abolishing withholding tax on interest income earned by non-resident depositors. All Asian dollar deposits were exempted from statutory liquidity and reserve requirements. By the 1990s, Singapore had become one of the larger financial centres of the world…
Singapore’s financial centre was considered over-regulated compared to Hong Kong’s. Critics wrote: “in Hong Kong, what is not expressly forbidden is permitted; in Singapore, what is not expressly permitted is forbidden…Only after the MAS (Monetary Authority of Singapore) had demonstrated the strength of its system to weather the financial crisis of 1987 and 1997-98 did I feel confident enough to move closer to a position where what is not expressly forbidden is permitted.
Note two things about this statement. First, his description of a move towards deregulation is expressive of the tax haven mentality. Second, that the reforms happened after the crisis: it was Singapore’s “over-regulated” banking system that weathered the crisis.
Back to Chee Soon Juan’s article, which continues:
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.
The article then describes the huge asset growth in Singapore’s banking system, rising from $150bn in 1998 to $1.173 trillion by the end of last year, and then looks into a curious website offering offshore services through Singapore, but doesn’t reveal anywhere who is running it.
Its front page pictures a gentleman cupping his chin as if in deep contemplation – but doesn’t tell us who he is.
So how dirty is Singapore? Well, we only have anecdote (which tends to be the way with tax havens,) but try these:
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.’
And you might find the description of the activities of a former chief of an Italian bank curious too. And, as is also usual with the secrecy jurisdictions, the government claims that “our banking and financial system is open and transparent, and our rules vigorously enforced.”
And of course, no protestation from a tax haven would be complete without the “we are not a tax haven” assertion, in Part II:
‘Singapore is not a tax haven,’ Foreign Minister George Yeo insists, ‘We are a low-tax country but not a tax haven. We’re an international financial centre so banking secrecy is very important. It is protected by law.’
Of course, of course. And the article note just how very wrong he is.
Singapore has been adamant in its non-cooperation. Even the chairman of the Swiss Bankers’ Association, Mr Urs Roth, is pointing (hypocritical) fingers at Singapore. Comparing his country and ours, Mr Roth noted that Singapore’s banking secrecy provisions are even stronger than the ones in Switzerland…the Singapore Government has played the role of Switzerland’s heir apparent to perfection.”
As if all that weren’t enough – try Part III. It starts with this question – one of the quintessential tax haven questions:
Why should Singaporeans care? Isn’t it good that we have become fabulously rich from all the money pouring in to our banks? Clean money, dirty money, it’s still money. We get to use it and that’s all that matters.
And they have an answer. One part of it starts like this:
For all the hoopla about our economic prowess, we have an income disparity that is akin to those of Third World countries: Our Gini coefficient among employed households, a measure of income inequality, has been rising through the years. Its figure of 48.5 is between developing countries like Argentina (49) and Ecuador (46), and almost double that of European countries like Sweden, Denmark and Germany. It is even higher that those of Japan, South Korea and Taiwan (non tax haven Asian economies) which have Ginis around the mid-30 mark.
And then look at the remarkable graph (click on it to enlarge it): it shows inequality rising sharply, just as the assets under management in Singapore rise sharply. (As an aside, to any academics out there – why not start studying this, on a worldwide basis? More research needed on different countries, and fast.)
Now this stuff about Gini coefficients may sound like dull economist-speak, but for real people with real lives, it can be shattering. But here’s another way of talking about it:
We see the ultra-luxurious property at Sentosa Cove, the Bentleys and Maseratis zooming around on our streets, and immediately think that Singaporeans are more than a fortunate lot. Not quite. Such trappings are built for and owned by overseas financial magnates…while these super-rich foreigners live it up here Singaporeans, especially those in the lower income bracket, see their fortunes go in the other direction.
…Between 1998 and 2003, the average household monthly income of the poorest 20 percent of the population decreased by nearly 15 percent while the richest 20 percent increased by 11.7 percent. In that same period, while the average wage dropped for the poorest 40 percent of households, their expenditure continued to outstrip their income…
Expatriates call Singapore ‘one of the least stressful places in the region’ while ‘Locals, on the other hand, find the city one of the most stressful places to live in.’ As a result, among the various Asian societies, Singaporeans are most likely to have suffered depression, stress, and fatigue. Another study showed that job-related stresses continue to be the biggest problems for working Singaporeans. Because of the system, an increasing number of adult Singaporeans are driven to seek the help of mental professionals due to financial woes. Marriages are also being torn apart because of economic pressures at home.
Reading through this, while chatting on Skype with today’s blogger, TJN’s director John Christensen exclaimed, after reading this paragraph, that “This sounds just like Jersey.”
This whole article is full of more good stuff. We won’t reproduce too much more of it here: read it yourself. Look at the section entitled “Ethics-shmethics. Money is money,” for example.
But we will highlight one part of this, which is absolutely crucial, and fits exactly with the atmosphere of intimidation that we have encountered in so many parts of the world.
The Government made the decision to turn Singapore into a tax haven because it was the easy thing to do. All it needed was some skilfull rewriting of the law and a handsome advertising campaign to lure big, and often dirty, money to our banks.
Of course the alternative economic strategy, as discussed below, is not politically viable, at least not for the PAP (Singapore’s ruling party, which won 82 of 84 seats in the last parliamentary elections). Fostering dynamism and creativity means having to open up the political space which the PAP is loathe to do. The combination of making money on Easy Street while remaining solidly authoritarian was an opportunity too delicious to pass up.
And therein lies the problem. It is true in Britain – until the economic crisis hit, it has been politically very difficult to criticise Britain’s tax haven model and be taken seriously.
What should Singapore do to change? The article’s authors make many suggestions, but here is a crucial one, we feel:
We also need to democratise our political economy. This means that Singaporeans must be allowed to become the drivers of economic growth rather than the Government. Private enterprise, and not the GLCs, must lead our economy. If Singapore develops politically and its citizens find their rightful place in society, we will have the foundations of a system that is free and enterprising, one that will stimulate the entrepreneurial mind.
To end this blog, a few general comments: Part II quotes the chairman of the Swiss Bankers’ Association, who pointed out that while Singapore is not getting as much attention at the moment compared to Switzerland “I would guess that it is a question of time.” Jeffrey Owens of the OECD (whom we blogged very recently) summed up the matter for Singapore cogently:
‘The political climate is changing and I do not think that Singapore is correctly reading the political signs that a change is about to come.’
Take a look, too, at the comments underneath these stories. Here are just a few of many.
‘Let’s wait and see whether LKY and sissy Loong will start suing Andy Xei and Dr. Chee.’
‘fast wealth is a shaky foundation to build on and the social cost is very costly.’
‘We Singaporeans are fed up with the main stream media propaganda of reporting and sugarcoating the news.’
‘For the US it is that simple, if any countries that refuse to co-perate with them in combating tax evation, then they would not renew licences for those banks with their head office in those countires to operate in the USA.’
The international community must slap PAP with some financial sanctions’
And several more in this vein, many of them stronger than these.
The kinds of comments above are the voices of ordinary Singaporeans. We agree with them. And we call on the EU and the United States, and a few others who are at last starting to show some activism in this area, to listen to them. And to put Singapore squarely in their sights.