Crackdown on tax cheats to benefit global financial centres

A US-led crackdown by wealthy countries on cross-border tax cheats will promote greater transparency and benefit Singapore and other global financial centres, bankers and analysts said.

A landmark settlement last month under which Swiss banking giant UBS agreed to reveal the names of some 4,450 American clients suspected of hiding assets sends a message that foreign confidentiality laws can no longer shield anyone from the taxman, they said.

Members of the Organisation for Economic Co-operation and Development (OECD), the industrialised nations' club, have also launched their own efforts against citizens who avoid paying taxes by stashing their wealth overseas.

"It is becoming clear that there is no place in any part of the world that can be used for illegal tax avoidance activities," a Singapore-based wealth manager catering to multi-millionaire clients said.

The Swiss-US settlement "sends a clear message around the world's financial centres, including Singapore, that it is now the era of greater transparency in the banking sector," said the wealth manager, who asked not to named.

Singapore, a regional centre for banking, foreign exchange and insurance, has nurtured its wealth management industry as a way of tapping into Asia's growing affluence.

The Monetary Authority of Singapore (MAS) said in 2007, assets under management in the island-state totalled $814 billion (Dh3 trillion), up 32 per cent from 2006. Figures for 2008 were not yet available.

About 86 per cent of the total was sourced overseas, including from Europe, the United States, Middle East and the Asia-Pacific region.

Didier von Daeniken, Chief Executive of Barclays Wealth Asia Pacific, said "what defines Singapore as a competitive financial and business hub are its long-standing strengths".

These include a well-educated and skilled workforce, highly-developed infrastructure, a well-regulated financial system, political stability, reputation for the rule of law and a pro-business environment.

"Unlike tax havens, Singapore has a substantive and well-diversified economy, with manufacturing, services and financial sectors reinforcing one another and penetrating a wide geography of markets," he said.

Earlier this year, the OECD listed Singapore as one of the countries that have not yet fully implemented global standards on the exchange of tax information needed to pursue suspected evaders.

The MAS said Singapore endorsed the OECD Standard for Exchange of Information in March and local laws are being amended to comply with them. Singapore is also negotiating new tax accords while existing treaties, including with the OECD, are being amended to incorporate changes allowing for better access to tax information.

"Singapore's recent endorsement of OECD standards… will undoubtedly create greater acceptance of Singapore as a wealth management centre from governments of other developed countries," Barclay's Von Daeniken said. "At the same time, it will also encourage individuals in those countries to take advantage of Singapore's high standards of security and regulation in the banking industry."

Kevin Grice, an economist with London-based consultancy Capital Economics, said the changes in Switzerland will likely boost Singapore's private banking sector.

"But the Swiss-US agreement, in the post-global financial crisis world, could be a template that is spread to other private banking jurisdictions too," Grice said.

The MAS said 43 per cent of the assets under management in Singapore in 2007 were from institutional investors like pension funds and endowment foundations as well as corporate and financial institutions, and the rest from individuals.

While it has strict privacy laws – a feature also found in financial centres like New York, London and Hong Kong – the Singapore government has said its financial system has strong safeguards to screen out dirty money.

"To protect the integrity of our financial system, our laws are rigorously enforced, and we do not tolerate criminal or illicit activities conducted through our banking and financial system," an MAS spokesman said.

Singapore requires all financial institutions to identify and know their customers, and to report all suspicious transactions.

Industry players also stressed that they have their own measures against laundering tainted funds and that they will not risk staining their reputation.

"Singapore has never promoted itself as a centre for these kinds of activities. Singapore is not a tax haven," the Singapore-based wealth manager said. By plugging loopholes against tax evasion now, governments indirectly help ensure that future generations who inherit wealth do not have to fear that they might be taking over tarnished funds, she said.

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