In a place that restricts everything from chewing gum to pungent durian fruit. Singaporean authorities pride themselves in having a high bar for strict laws and a low crime rate to match. So they’ve been none too pleased by reports that tax dodgers, corrupt officials, and money launderers might be closing their Swiss bank accounts and moving funds to Singapore.
In response, the government is ramping up measures to battle this reputation as a tax haven. It is now negotiating a deal with the United States that requires banks in Singapore to share details of Americans’ offshore assets with the Internal Revenue Service. The United States just signed the so-called FATCA (Foreign Account Tax Compliance Act) with six other governments this month.
“There is no basis for the allegation that wealthy individuals can hide money and avoid taxes in Singapore,” a Ministry of Finance spokesperson told VOA.
FATCA would be part of broader efforts to improve transparency in banking. Singapore already has similar information-sharing pacts with Germany and the Organization for Economic Cooperation and Development club of mostly-rich countries. As of this year, it also will be easier to prosecute money launderers in Singapore and “obtain bank and trust information from financial institutions without having to seek a court order,” the finance ministry said.
But critics don’t believe that’s enough. John Christensen, director of the British research firm Tax Justice Network, said Singapore’s bilateral agreements require foreign governments to make individual requests for banking information. He said the information-sharing should be automatic, meaning that as soon as a UK citizen opens an account in Singapore, for example, authorities here will disclose it to the UK government.
“All the infrastructure is in place to encourage and facilitate tax evasion,” said Christensen, also a former economic adviser to the British Channel Island of Jersey, another hub of offshore banking.
Singapore boasts one of the world’s most stable governments and economies, friendly business regulations, competitive tax rates, and banking privacy. All of this attracts the super-rich from abroad.
“It’d be stupid for them not to take advantage of this -- but you have to do it legally,” said Joseph Cherian, director of National University of Singapore Business School’s Center for Asset Management Research and Investments.
People certainly are taking advantage. Compared with $50 billion in 2000, Singapore managed $550 billion worth of assets in 2011, according to WealthInsight, a London-based research firm. Of that figure, $450 billion were in offshore accounts. In other words, more than 80 percent of private accounts in Singapore belonged to foreigners.
WealthInsight expects the number will continue to balloon by 2020, when it said Singapore will take Switzerland’s top spot in wealth management.
The question is whether that wealth is legally gained and legally taxed. Christensen doesn’t think it is. His group releases a Financial Secrecy Index every two years. Singapore ranked number five on the list published in November, compared with sixth place in 2011. Christensen said banking is so opaque that officials can’t prove financial assets are clean.
“It’s pure assertion on their part,” he said. “We know that the vast majority who use offshore accounts are using them for tax evasion.”
Alan Lau disagrees. He said that in his experience as head of financial services tax at KPMG Singapore, an accounting firm, most money flows into Singapore through legitimate channels.
“Whilst there may always be a risk or temptation for a small minority to attempt parking their ill-gotten wealth in a banking secrecy jurisdiction such as Singapore, the recent tightening noose on money laundering here has made it increasingly difficult for this to happen,” Lau said.
He added that the crackdown on illicit wealth “has caused a certain level of stress and anxiety for the private banking sector,” to ensure it complies with new regulations.
Similarly, Cherian said the push for compliance is evident in the mountains of new paperwork for account holders in the past six months. He said the government’s actions reflect Singapore’s obsession with keeping a squeaky clean image.
“It’s the most law-abiding city in the world,” Cherian said. “They don’t want to be seen as a cowboy, wild-wild-west kind of place.”
Some argue there is nothing wrong with individuals and multinational corporations flocking to tax-friendly jurisdictions, as long as it’s done above board. Eduardo Saverin, a Facebook co-founder, famously renounced his US citizenship in 2011 after relocating to Singapore, a move widely seen as driven by the low taxes here. But others argue that when governments push down tax rates to attract business, they force other countries into a race to the bottom.
Even if tax avoidance is legal, it could be harmful. Christensen said that when the rich use their wealth to find ways to pay fewer taxes, they transfer the burden to lower income brackets to fill the tax gap.
“We don’t make this distinction between evasion and avoidance, because it’s abuse,” he said.
In recent years, global wealth has shifted to Asia, especially to Singapore and Hong Kong, partly because of the new, far tougher scrutiny on traditional tax havens like Switzerland and Bermuda. But if Singaporean authorities are seriously clamping down, too, then private wealth could be on the move again.