Singapore and Hong Kong authorities are keeping a keen eye on developments in Europe and the US as pressure continues to be applied on banking secrecy. Titien Ahmad looks at how each of the Asia-Pacific wealth hubs are reacting to the shifting legislative tides across the world.
As senator of Illinois, Barack Obama included Singapore, along with Hong Kong and Switzerland, in the list of possible tax havens in the 2007 Stop Tax Havens Abuse Act.
When the Act was introduced Carl Levin, then a Michigan senator and co-sponsor of the bill, said: “With a $345 billion annual tax gap and a $248 billion annual deficit, we cannot tolerate a $100 billion drain on our Treasury each year from offshore tax abuses.”
European tax officials have also been pushing to extend the EU savings directive to Asia. Singapore has refused to put the item up for discussion in an ongoing free trade negotiation with the European Union – a sore point which can potentially affect talks according to EU officials.
A different set of circumstances
An industry observer based in Hong Kong pointed out that Hong Kong is not in the same category as Singapore and Switzerland where anti-money laundering rules do not generally cover tax offences.
“While both have bank secrecy, Hong Kong, unlike Singapore, has ‘all crimes’ money laundering rules which means that if monies are undeclared in the home country, Hong Kong’s bankers and financial advisers may have reporting requirements,” he said.
Alan Ewins, a Hong Kong based-partner with law firm Allen & Overy, added: “Singapore arguably has as good, if not better secrecy laws than Switzerland. Hong Kong’s secrecy laws are based on common law banking confidentiality which allows confidential information to be disclosed to third parties in restricted circumstances.
“If you were to put these countries on a scale, the level of Singapore’s secrecy protection laws therefore seems to me pretty much on a par with Switzerland’s, and Hong Kong’s slightly below.”
An economic review committee made up of private sector and public sector executives has pushed the wealth management industry to the top of Singapore’s economic agenda to counter a weakening manufacturing sector. Generous tax incentives, revised secrecy laws, re-drawn trust regulation were icing on top of the cake for the world’s wealthy drawn to Singapore’s political stability and world-class facilities.
The incentives attracted a steady flow of wealthy foreigners not just from the region but also further afield from Europe and the US. Indian nationals are now the largest foreign buyers of real estate in Singapore after Malaysians and Indonesians. However, the combination of low taxes and high secrecy inevitably throws Singapore in the tax haven spotlight.
Changes to regulation in Singapore
Recently, the Monetary Authority of Singapore (MAS) signed a memorandum of understanding with Germany’s banking regulator that will “pave the way for mutual assistance and sharing of supervisory information between the two authorities to strengthen the supervision of cross-border operations of financial institutions under their purview”, according to the MAS.
Although there has been anecdotal evidence of money flowing from Europe into Asia, definite numbers are not easy to come by.
“I am not aware of a flow of money from Switzerland to Hong Kong. Money may flow into Singapore to take advantage of its secrecy laws if the Swiss laws are watered down,” said Ewins.
When PBI contacted the Hong Kong Monetary Authority (HKMA), its spokesperson said, “the HKMA does not comment on the capital flow as Hong Kong has no capital control.”
MAS told PBI: “Investors worldwide are attracted by Asia’s economic prospects, and better returns on Asian investments. The inflow of funds from outside Asia is a reflection of the growing sophistication of investors interested in diversifying their portfolios and capitalising on investment opportunities in Asia.”
It is also still a moot point whether the Swiss will bow down to pressure from Europe and the US.
Ewins pointed out that “the Swiss banking industry has been almost legendary in the protection of customers’ privacy. There are ways and means of it not compromising its international banking business lightly, even where it moved for whatever reason to lessen the effectiveness of its bank secrecy laws.”
One industry observer suggested “it is inevitable that the Swiss will have to bow to regulatory demands in the current environment as you can’t bite the hand that feeds you.”
“In any case, secrecy is a meaningless proposition. If a regulator or a policing body has reason to suspect a certain account holder, Singapore or Hong Kong will have to provide the information as they do not want to be seen as money laundering centres. Singapore has a free trade agreement with the US so I can’t imagine Singapore making a special provision for tax evasion. Regulation is infectious and Singapore or Hong Kong will not want to be seen as money laundering centres,” he added.
Questioning the future
Although it is clear that Singapore and Hong Kong would not benefit in fighting the regulatory tide, international reputation is increasingly important especially in the current environment where the hubris of big, established brand-name banks regularly grace the front page of daily newspapers. In this case, Singapore’s reputation for transparency and a clean government may have preceded itself and help stave off international attention.
“It would be a mistake to think that Singapore could withstand pressure from the EU and others should they assert pressure regarding undeclared money,” said Richard Weisman, a principal at Baker & McKenzie Hong Kong.
“Singapore’s economy is very much based on international commerce. It has over 50 tax treaties. It would be a mistake for Singapore to attempt to position itself as a long- or even medium-term haven for undeclared money.”
A former banker was more critical of Hong Kong: “Transparency and regulation is what Singapore has always practiced with great business and practical sensibilities. The open door policy of the local regulator encourages a business operator to approach them for clarification and the response has been timely and with great clarity.”
“This sadly cannot be said about Hong Kong, as HKMA and the relevant units are full of bureaucracy and it is confusing as to which unit you should refer to. Very often, you will not get a straight answer as no one wants to take responsibility.”