Private banking: Singapore, Indonesia in private banking tug-of-war

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Indonesians hold $300 billion in Singapore; controversial tax amnesty on the cards.

by Sara Webb

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Indonesia’s finance minister Bambang Brodjonegoro told Euromoney earlier this year that tax collection falls way short of targets and must improve to provide funding for infrastructure and other projects


It doesn’t take much for Indonesia’s government officials to rattle Singapore’s private bankers. 

Talk of tax amnesties and the need for greater disclosure of the funds Indonesians keep offshore in Singapore, as well as closer scrutiny of how Singapore-based private bankers operate on Indonesian soil, is sending shivers through the city-state’s financial community.

At stake are hundreds of billions of dollars parked in Singapore, which Indonesia wants repatriated to bolster tax revenue and pay for crucial infrastructure but which Singapore considers important for its flourishing financial services sector.

It’s an open secret that Singapore is a second home for many Indonesians, especially among its wealthy, ethnic Chinese community. Singapore is where Indonesia’s elite can keep secret bank accounts, jewels and safe deposit boxes, not to mention second homes, maybe a mistress or two, and where they come for medical treatment, to shop for designer clothes, gamble at the casinos, or put their heirs through school.

Wealthy Indonesians are legally obliged to declare their worldwide income and assets for domestic tax purposes, but in reality they often don’t, especially if the money comes from corrupt practices.

For resources-starved Singapore, private banking is an important industry, creating jobs and revenue. Last year, Singaporean bank DBS bought the Asian private banking business of Société Générale in Singapore and Hong Kong for about $220 million to boost this side of the business, having already poached one of Singapore’s leading private bankers, Su Shan Tan, from Morgan Stanley.

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The city-state has attracted an estimated $470 billion in private banking assets and ranks sixth in the global league tables, after Switzerland, the UK, the US, Panama & Caribbean, and Hong Kong, according to a recent report by The Deloitte Wealth Management Centre Ranking 2015.

Of that total, Indonesian officials put the amount of money Indonesians have stashed away in Singapore at around $300 billion – split roughly half and half between individuals and companies.

Indonesia’s finance minister Bambang Brodjonegoro told Euromoney earlier this year that tax collection in his country falls way short of targets and must improve to provide funding for infrastructure and other projects – and he pointed to Singapore’s private banks as part of the problem, while proposing a solution. 

His government plans to introduce a tax amnesty to encourage Indonesians to repatriate their funds. But the proposal is highly controversial because in return for bringing back the money, these Indonesians would be pardoned for any financial crimes committed, such as corruption, money laundering and tax evasion.

We have a bigger agenda, an agenda to bring back the funds from overseas. In order to do that, people need assurances
Bambang Brodjonegoro,  Indonesia’s finance minister

"The point is that this bill is not merely about tax," Brodjonegoro told The Jakarta Post newspaper in a recent interview. "We have a bigger agenda, an agenda to bring back the funds from overseas. In order to do that, people need assurances. In exchange for having to pay taxes, they want their past crimes — which led to them owing so much — to be forgiven as well."

He continued: "They got their money somehow, and how they got it may not be in accordance with our laws, for example through tax crimes. Most importantly, when we repatriate the funds and tell them to pay the taxes, there has to be an incentive. And that incentive is in the form of an amnesty."

Finance ministry officials have indicated the law could be implemented as soon as this year or next, and that once the money is brought back to Indonesia, it must stay there. Brodjonegoro said in the newspaper interview that repatriated funds would be locked in, to prevent them from being stashed overseas again. The amnesty will aim to put an end to capital flight, he said.

But bankers in Singapore and Indonesia warn that it would be difficult to ensure the repatriated funds stay in Indonesia. 

"The only way to control things is through transfer of funds and that would mean capital controls which would not look good for Indonesia," says one foreign banker in Jakarta.