Banks in Singapore agonize over rich clients in tax evasion clampdown

The authorities are keen to ensure the city-state is not seen as
a tax haven for the wealthy from Europe, China, Indonesia, Malaysia and
elsewhere without dulling its allure as an oasis for the rich, replete
with casinos, luxury properties and high-end boutiques and restaurants.
More than 70 percent of Singapore's S$1.34 trillion ($1.08 trillion) in
assets under management at the end of 2011 came from overseas, an MAS
survey showed.
SINGAPORE: Banks in Singapore are urgently
scrutinizing their account holders as an imminent deadline on stricter
tax evasion measures forces them to decide whether to send some of
their wealthiest clients packing.
The Southeast Asian city-state
has grown into the world's fourth-biggest offshore financial center
but, with U.S. and European regulators on the hunt for tax cheats, the
government is clamping down to forestall the kind of onslaught from
foreign authorities that is now hitting Switzerland's banks.
Before
July 1, all financial institutions in Singapore must identify accounts
they strongly suspect hold proceeds of fraudulent or wilful tax evasion
and, where necessary, close them. After that, handling the proceeds of
tax crimes will be a criminal offence under changes to the city-state's
anti-money laundering law.
"Because of banking secrecy,
Singapore used to be an attractive place to put money if you didn't
want the authorities back home to know about it," said Erik Wilgenhof Plante, head of compliance at Germany's DZ Privatbank in Singapore.
"That has left legacy problems for some banks."
Singapore
officials have said the city-state's secrecy rules were aimed at
safeguarding investors' legitimate interest in privacy and did not mean
it was a haven for illicit funds. The tighter rules are intended to
fall in line with new global standards announced last year that treat
tax crimes as a money-laundering offence.
Bankers may now feel
compelled to give up some of the lucrative accounts that have fuelled a
boom in Singapore's assets under management to more than $1 trillion,
with 50 percent growth in the five years to 2011, according to the
latest government data.
But as the center for managing wealth in
fast-growing Asia, and with more millionaires per capita than any other
country, Singapore's pain from the purge is likely to be short-lived
and the gains long-lasting.
"Having a more robust framework against illicit money flows is a fillip for Singapore," said Deepak Sharma, chairman of Citi Private Bank Singapore and co-chair of the Private Banking Industry Group. "I think Singapore's size and reputation as a clean and efficient global financial hub will grow."
While
banks do not have to check that their clients are fully compliant with
all their tax obligations, they must check if there are reasons to
suspect the accounts contain the proceeds of serious tax offences such
as fraudulent or wilful tax evasion.
Identifying high-risk
accounts will be a challenge, although most banks have a red-flag
system to help guide them. Examples of red flags include clients who
use complex corporate structures to hold their wealth and those who
bank almost all of their assets in Singapore when they have no other
business or personal interests in the city-state.
'REPUTATIONAL RISK'
Singapore
has already faced accusations from politicians in Europe that, as the
veil of secrecy over Switzerland is lifted, wealthy tax evaders are
shifting their money to Southeast Asia.
It has gone some way to
countering that perception by signing close to 40 agreements with other
countries about the exchange of tax information in the past three
years. In 2009, it moved off the anti-tax avoidance "grey list" of
countries kept by the Organisation for Economic Cooperation and
Development.
But Singapore's image as an alternative to Switzerland for hiding money was not helped by the case this year of France's former budget minister Jerome Cahuzac, who admitted to having an undeclared foreign bank account last month.
French
media reports said Cahuzac transferred a million euros ($1.3 million)
from a UBS account to another Swiss bank, Reyl & Cie. That account
was then closed in 2010 and its contents sent to a Reyl & Cie
account in Singapore where half a million euros still sat.
Clients like Cahuzac will soon become less welcome.
"Many
of these accounts have been giving us loads of money over the years,"
said one European banker, who asked not to be named due to the
sensitivity of the topic. "Now we have to decide if we need to
terminate that relationship."
Banks in Singapore already have
strict controls to guard against handling money from crimes such as
drug trafficking and corruption but have never had a legal obligation
to report on tax evaders - unlike rival financial centre Hong Kong.
From
July 1, banks suspected of abetting tax evasion or having insufficient
controls to prevent it can face hefty fines, criminal charges and even
the loss of their licences.
The Monetary Authority of Singapore
(MAS) has issued guidelines saying banks must identify and review all
existing "high-risk" accounts before the deadline and "discontinue the
relationship" where appropriate. Banks will have until June 30, 2014,
to review their remaining accounts.
Even if banks cannot
determine for sure that a client is wilfully trying to flout tax rules,
they may opt to close accounts they feel "may potentially bring about
reputational risk," said Kwok Wui San, a partner at
PriceWaterhouseCoopers.
Many of the major private banks, including UBS AG , have already set up special task forces to train their staff and prepare for a change in mindset to accompany the new rules.
OASIS FOR THE RICH
The
new measures are part of a delicate balancing act by Singapore, which
by 2020 could overtake world leader Switzerland in the volume of
offshore assets it manages, research firm WealthInsight forecast last
month.
The authorities are keen to ensure the city-state is not
seen as a tax haven for the wealthy from Europe, China, Indonesia,
Malaysia and elsewhere without dulling its allure as an oasis for the
rich, replete with casinos, luxury properties and high-end boutiques
and restaurants.
More than 70 percent of Singapore's S$1.34
trillion ($1.08 trillion) in assets under management at the end of 2011
came from overseas, an MAS survey showed.
Singapore sees a
cautionary tale in Switzerland, where an image as catering to tax
evaders and a zealous drive by cash-strapped Western governments to
track down unpaid taxes set the stage for a witch hunt against its
banks.
"Because of the exponential growth of the number of
private banks in Singapore, the MAS is stepping up and making sure it
is ahead of the curve and does not become a haven for illicit money,"
said Andrew Chow, a partner at local law firm Wong Partnership.
Industry
professionals expect the banks to take the effort at ferreting out tax
dodgers seriously and to start flagging them to the authorities from
July 1.
"As banks trawl through their existing client base, I
suspect there will initially be a spike in the number of suspicious
transaction reports being filed," said Eric Chan, a partner at law firm
Drew and Napier.
New foreign clients may find that banks become far more picky and inquisitive as the change in mindset takes hold.
"The good old times in Singapore are over," said the European banker. "We don't need that dirty money anymore."
($1 = 1.2364 Singapore dollars, 0.7624 euros) - Reuters