Last year, US law enforcement officials pressed Swiss bank UBS Group AG about Henry Hsiaw (蕭清義), a Taiwanese-born American whom they accused of failing to file tax returns.
The world has changed since the days when Swiss banks stood as the peak of privacy for the rich. Already, UBS had paid US$780 million in fines and disclosed details of thousands of Swiss bank accounts held by Americans — including the records of one account controlled by Hsiaw.
Still, UBS balked at handing over information about Hsiaw’s account with the bank in Singapore.
Photo: AFP
That information, it said, was protected under the city-state’s bank secrecy laws.
The courthouse dispute illustrates the growing pressures on Singapore, an increasingly popular destination for money that wants to stay under the radar.
Tight bank secrecy laws have helped draw US$1.1 trillion in foreign funds to the city-state, according to an estimate from Boston Consulting Group.
Singapore is growing faster than Switzerland and is set to become the largest cross-border financial center in the world by 2028, the firm forecasts.
However, in the face of growing international efforts to crack down on tax cheats, and complaints from abroad about its measures to stop illicit money, Singapore has made moves to show it takes the criticism seriously.
It has jailed local and foreign bankers and closed down branches of two Swiss banks related to more than US$3 billion that was said to have been siphoned from 1Malaysia Development Berhad (1MDB), a Malaysian sovereign wealth fund, some of which moved through the city-state’s banks.
Ravi Menon, chief of the city-state’s top financial regulator, has said that 1MDB showed Singapore can do better.
“There is no doubt that the recent findings have made a dent in our reputation as a clean and trusted financial center,” Menon said in a speech in July last year.
The authority was “disappointed with the lapses” in financial controls, he added.
The Straits Times, a Singaporean newspaper, warned the city-state’s banks over 1MDB in an editorial last year.
“Business is part of Singapore’s DNA ... but not the business of facilitating dubious deals,” it said.
Singapore’s position illustrates the new scrutiny global authorities are giving to quiet money.
The Financial Action Task Force, a multicountry advisory group set up to combat money laundering, last year said that Singapore’s financial firms had “a less developed understanding of the risk of illicit flows into and out of Singapore.”
“Singapore is the new Switzerland,” Shanghai-based independent economist Andy Xie (謝國忠) said.
Xie was fired as chief Asia economist at Morgan Stanley in 2006 after a private e-mail he wrote calling Singapore a money-laundering center became public.
“Since the US Department of Justice went after Swiss banks for hiding tax dodgers years ago, Singapore has filled the role,” he said.
The Monetary Authority of Singapore, its top financial regulator, disputed the allegation.
“There is no doubt some increased risk of illicit fund flows associated with the rapid growth of private banking flows into Singapore,” a spokeswoman said in a written statement.
Nevertheless, Singapore “will not tolerate its financial system being used as a refuge or conduit for illicit fund flows,” she said.
Singapore has positioned itself as a one-stop shop for Asia’s rich. It encouraged private wealth managers to use the city-state as a regional base in the 1990s just as China’s rise created a new generation of wealthy.
Today, in Singapore’s financial district, big names in the private-money world, such as Credit Suisse Group AG, Julius Baer Group Ltd and UBS, keep offices in gleaming skyscrapers among the squat facades of century-old colonial British buildings.
Billionaires can fly in to a private jet terminal, gamble at private high-stakes tables at two new casinos, and buy and sell on the world’s first diamond trading exchange.
They can store art, wine, gemstones or gold bullion bars in an ultra-secure, duty-and-tax-free facility called Le Freeport. Modeled on similar installations in Switzerland, the facility has been called “Singapore’s Fort Knox.”
The 1MDB scandal has cast a shadow over Singapore’s success.
US officials are trying to recoup more than US$1 billion that they say was taken from 1MDB and ultimately spent in the US by family and friends of Malaysian Prime Minister Najib Razak.
The funds were used to buy luxury homes in Manhattan and Los Angeles, help finance the Hollywood movie The Wolf of Wall Street, and acquire paintings by Picasso and Monet, they said in a civil suit last year.
The officials have focused on Low Taek Jho (劉特佐), also known as Jho Low, a young Malaysian financier who partied with the likes of Paris Hilton.
US officials say Low played a crucial role in laundering hundreds of millions of US dollars from 1MDB into the US.
Low and Najib have denied wrongdoing.
“1MDB and these other cases are a game-changer for Singapore,” said Chris Leahy, a co-founder of BlackRock Inc, a corporate advisory and investigations firm, who is based in Singapore.
In December last year, a Singaporean court sentenced Yeo Jiawei (楊家偉), a former private banker at the local branch of Swiss bank BSI SA, to 30 months in prison for tampering with witnesses and obscuring his ties to Low.
In March, Singaporean regulators barred Tim Leissner, a former Goldman Sachs Group Inc banker who worked with 1MDB, from dealing in securities there for 10 years.
A lawyer representing Leissner did not respond to a request for comment.
Goldman Sachs said it was cooperating.
In the case of Hsiaw, lawyers say the US Department of Justice chose a particularly aggressive approach.
Independent lawyers say US prosecutors based their initial action against UBS on a powerful type of summons that would have allowed them to follow the money from previous Swiss bank prosecutions that was later deposited in Singapore.
The US dismissed its charges after UBS produced some information on Hsiaw’s Singaporean accounts.
Hsiaw, a former telecommunications executive who relocated to China in 2007, could not be reached for comment.
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