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.
Go deeper with GlobalData
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.
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By GlobalData“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.”
