Singapore is the world’s fourth largest offshore financial centre, and may potentially overtake Switzerland by 2020. This is due to a number of factors, such as political stability, high financial security, and the infrastructure of a major global financial hub (there are now over 140 banks operating in Singapore). In 2013, Singapore had $1.34 trillion in assets under management, of which it’s estimated at least 70% came from abroad.
In the past, one attraction of placing your money in Singapore was the level of confidentiality. In order to respect the privacy of banking clients, Singapore banks asked few questions regarding their client’s domestic and international tax position.
Unfortunately, some saw this as an opportunity. Along with legitimate money, Singapore saw an influx of cash from tax evasion and other questionable sources.
Corrective measures already started in 2013
In 2013, Singapore authorities announced that handling proceeds of tax crimes would be a criminal offence. Singapore’s Minister of Finance, Tharman Shanmugaratnam, declared a “zero tolerance policy” on illicit funds.
Over the past five years, Singapore has signed over 50 agreements with other countries agreeing to the exchange of tax information. Singapore also agreed to adopt the OECD’s Automatic Exchange of Information (AEOI) standard – this requires private banks to disclose the financial information of non-resident clients to their home country.
The AEOI will take full effect only in 2018, and is contingent on a few factors:
- Other financial hubs, such as Hong Kong, Dubai, Switzerland, etc. must agree to similar standards, in order to prevent regulatory arbitrage.
- Singapore will only disclose the financial information to countries with strong rule of law, and which can ensure the information is used only by the proper authorities.
- There is reciprocity from other AEOI partners, regarding the exchange of information.
But now, other Asian countries are demanding the same
There are now requests by other Asian countries, such as India and Indonesia, for the same kind of information sharing deals. To date, there has not been a specific response to the requests – but the Singapore government’s policy is clear: zero tolerance on illicit funds.
While we do not know the specifics of how the Monetary of Authority of Singapore (MAS) will respond to Asia’s tax crackdown, we can make two reasonable guesses: the first is that some kind of deal will be worked out, due to existing policy.
The second is that, as with the AEOI, it will be contingent on some requirements (disclosure only to countries with a strong rule of law, for example). This suggests that it may be some time before agreements are in place, and we won’t see an overnight change to the private banking sector.
Nonetheless, with between estimates of money from Indonesia alone put at 30% – 50% of Singapore’s wealth management assets, this latest declaration of intent will be sending shivers down the spine of Singapore based private banks and financial advisers.