Euromoney: Singapore not yet stainless in private banking

Euromoney, December 2009

At the APEC 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 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 Singapore’s private banking industry – a mainstay of its financial services success story – if it does?

Lee told us it hadn’t featured in discussions with Obama. He underlined Singapore’s “high standards of probity and integrity”, and revealed that Singapore had now signed enough double taxation agreements with other jurisdictions to join the so-called “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 tax information-sharing deal signed with France, the 12^th such link, does take Singapore off an unappealing-sounding grey list held by the OECD (though notably the US is not among the countries with which it has signed agreements). But the pressure meted out to Switzerland in the last 12 months shows us the future for private banking in Singapore just as much as Zurich.

It’s not really 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 over Rp1 trillion apiece with the first two each given a life sentence. There is also discomfort about the support the private banking industry may 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 inked, allowing Indonesia more confidence that embezzled funds won’t now fly so easily to Singapore again. This, too, is the future: less safe harbours for funds of dubious provenance; less havens for tax avoidance.

The odd thing is that these trends have been coming together for years and Singapore has actually 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 they have benefited from the alarm among private clients in Switzerland over the gradual and apparently inevitable erosion of secrecy there. It’s 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, in order to stay further ahead of international attention. Make no mistake, Prime Minister, international scrutiny is a burning issue.