http://online.wsj.com/article/BT-CO-20090506-72…
The Wall Street Journal, 7 May 2009, By Costas Paris of
DOW JONES NEWSWIRES
FOCUS: Singapore Pressured On Bank
Secrecy; Set To Push Back
SINGAPORE (Dow Jones)—Singapore, which
styles itself as Asia’s Switzerland for offshore investors, is
coming under pressure to open its books to Western authorities
worried about money laundering and tax evasion.
The city-state is in the sights of U.S. and European authorities
who are broadening their attack on bank secrecy beyond such current
targets as Switzerland, Luxembourg, Liechtenstein and Andorra. The
tax regimes in those countries came under intense scrutiny at last
month’s summit of the Group of 20 industrial and developing
powers.
Singapore is willing to concede on some demands but is ready to
fight moves it thinks would endanger the island’s status as a mecca
for overseas wealth, according to people familiar with the early
talks.
The authorities “will negotiate long and hard” with each country
individually, said a person familiar with government thinking.
“Singapore won’t scare away its affluent foreigners.”
The government “will be selective about whom it negotiates with
and it will in no way give the impression that bank secrecy here
will be compromised,” this person said. “Bank secrecy is a matter
of national interest for financial centers like Singapore. Anyone
who expects fast information about a foreigner with a bank account
here will be disappointed.”
While no definitive action against Singapore is likely this
year, pressure – mainly from the U.S, France, Germany and the U.K.
– is increasing on countries that shield information about accounts
held by multinational companies and rich offshore individuals.
Along with several European private-banking centers, Singapore
last month found itself on an Organization for Economic Cooperation
and Development “gray list” of 38 countries that have agreed to
improve transparency standards but haven’t signed the necessary
international accords.
To comply with the new OECD rules,
Singapore will need to renegotiate many of the 60 double-taxation
agreements it has with other countries.
At least US$300 billion of foreign cash is managed in Singapore,
and that could double in the next five years, private bankers and
wealth managers estimate. The vast majority of the money belongs to
wealthy Indonesians, Malaysians, Chinese and other Asians.
Some 40 institutions offer private banking in Singapore. The
industry grew rapidly along with Asian wealth in 2005 and 2006.
Singapore encouraged Western banks to expand here, promoting the
city-state as a financial center through corporate tax cuts and
other business-friendly measures.
Now European negotiators are asking Singapore to hand over the
names of Europeans who open accounts in the city-state, said a
senior official in Europe. Singapore’s Finance Ministry declined to
comment.
A French Finance Ministry official said Paris is focusing first
on getting full compliance on the OECD
directives from European financial centers. But “as soon as that’s
done, there’ll be surely some work to do” with other countries on
the gray list, the official said.
Beyond the pressure from Europe, Singapore – a stalwart military
ally of the U.S. – is particularly sensitive to pleas from
Washington.
“Frankly, Singapore believes it can withstand the pressure from
the E.U.,” said the person familiar the Singapore government’s
thinking. “But pressure from the U.S. is a different matter.
Washington can push very hard, the way they did with UBS.”
Swiss giant UBS AG, hit by a U.S.
tax-fraud investigation into services it offered to hundreds of
wealthy American clients, agreed in February to pay a $780 million
fine and disclose the identity of some clients.
For now, Singapore appears to be benefiting as the spotlight on
European havens sends some investors fleeing.
“At least $13 billion has landed here in the past few months,
much more than the average of previous months, and a surprisingly
high sum came from Europe,” said a private banker in Singapore.
“This money could be perfectly legal, but with the climate of fear
in Europe many depositors want out. They want peace of mind.”
Such inflows to Singapore might not last, however, especially
when the U.S. turns its attention to the island’s tax
practices.
In 2007, then-Sen. Barack Obama cosponsored a bill to clamp down
on tax havens, including Singapore on its “blacklist” of 34
“offshore secrecy jurisdictions.” The bill failed under the Bush
administration, but a stronger version, backed by the Obama
administration, was reintroduced to the Democratic-controlled
Congress in March.
The bill provides for “special measures,” including trade
sanctions, against countries that remain on the blacklist, although
there is no timeframe set for passing the bill and the Treasury
secretary would have the right to remove countries from the
list.
“Singapore will do whatever is necessary to avoid being in a
blacklist. In some way that will compromise bank secrecy,” said
Edmund Leow, a senior tax lawyer and principal with Baker &
McKenzie.Wong & Leow in Singapore. Negotiations will be tough,
he said, but “foreigners who keep their money here must feel that
they are not at the mercy of tax authorities back in their
countries.”
Until now, Singapore has refused to give overseas authorities
information on foreigners’ bank-deposit interest or investment
gains – on the ground that the government can’t gather this
information under domestic tax law. The government this year plans
to end this “domestic interest” restriction on the data it can
provide, a Finance Ministry spokesman said.
But even then, the city-state will be willing to investigate
income that isn’t taxed locally only if there are serious,
documented suspicions of tax evasion and proof that the foreign
authority requesting the information can’t get it directly from the
foreign investor or deposit-holder, according to people familiar
with the situation.
OECD rules, the ministry spokesman said,
forbid “fishing expeditions” for information and are “designed to
protect the confidentiality of the information exchanged.”
—-—-—-—-—
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