At the Asia-Pacific Economic Cooperation meeting in November, Euromoney put a question to host nation Singapore’s prime minister, Lee Hsien Loong, who had spent part of his morning in talks with US president Barack Obama. The Obama administration, we said, was getting tough on private-banking centres over client confidentiality and bank secrecy, most obviously Switzerland. Is that scrutiny coming to Singapore too, and what’s the impact on the country’s private-banking industry – a mainstay of its financial services success story – if it does?
Lee told us it had not featured in discussions with Obama. He underlined Singapore’s “high standards of probity and integrity”, and revealed that Singapore had now signed sufficient double-taxation agreements with other jurisdictions to join the white list the OECD keeps of countries that show an acceptable degree of international cooperation on tax matters. “I do not think it is a burning issue for us,” he said.
We’re not so sure about that. It’s true that the deal signed with France to share tax information, the 12th such link, does take Singapore off an unappealing-sounding grey list held by the OECD (although notably the US is not among the countries with which it has signed agreements). But the pressure meted out to Switzerland in the past 12 months shows us the future for private banking in Singapore just as much as in Zurich.
It’s not just about tax. One of the most uncomfortable truths about private banking in Singapore is the origin of some of the money that resides there. Many senior Indonesians believe a lot of money that rightfully belongs to that country sits in Singapore; convicted white-collar criminals who are believed to have lived and banked in Singapore include Bambang Sutrisno, Andrian Kiki Ariawan and Sudjiono Timan, all of them convicted of embezzlement of more than Rp1 trillion ($105 million) apiece, with the first two each given a life sentence. There is also discomfort about the support the private-banking industry might have provided to Burmese leaders. After a stand-off in 2007 in which Indonesia briefly refused to sell Singapore any more sand (a crucial commodity in a place that has none of its own and needs tons of the stuff for land reclamation and construction), an extradition treaty was begrudgingly signed, allowing Indonesia more confidence that embezzled funds won’t now fly so easily to Singapore again. This, too, is the future: fewer safe harbours for funds of dubious provenance; fewer havens for tax avoidance.
The odd thing is that these trends have been coming together for years and Singapore has done very well out of them to date. Middle Eastern capital started to flow to Singapore after 9/11, whether in fear of greater scrutiny of accounts in the US and Europe or in protest at the conflicts that followed it. Some bankers report that they have benefited from the alarm among private clients in Switzerland over the gradual and apparently inevitable erosion of secrecy there. It has been a short-term gain. But sooner or later this attention is coming to Singapore too.
Happily, Singapore these days has more than enough going for it to remain a viable, indeed leading, private-banking hub regardless: friendly business regulation, all the right banks represented, ease of doing business, efficiency and infrastructure. A cleaner reputation will be to its benefit. But don’t be surprised if some big redemptions start cropping up as money moves again, to more obscure locations, to stay further ahead of international attention. Make no mistake, prime minister, international scrutiny is a burning issue.
