[Clips] Swiss Fight Against Tax Cheats Aids Singapore's Banking Quest

R. A. Hettinga rah at shipwright.com
Mon Feb 6 07:53:50 PST 2006

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  Date: Mon, 6 Feb 2006 10:51:48 -0500
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  From: "R. A. Hettinga" <rah at shipwright.com>
  Subject: [Clips] Swiss Fight Against Tax Cheats Aids Singapore's Banking
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  The Wall Street Journal

  February 6, 2006


  New Haven
  Swiss Fight Against Tax Cheats
  Aids Singapore's Banking Quest
  Island Seeks Foreign Deposits
  To Diversify Its Economy;
  Denies Wanting 'Evaders'
  Mr. Widdeck's Dream House

  By EDWARD TAYLOR in Frankfurt and CRIS PRYSTAY in Singapore


  February 6, 2006; Page A1

  For decades, the ultrarich looking for discreet banking services gravitated
  to Switzerland, where account secrecy was sacrosanct. But when Swiss
  authorities acceded to pressure from the European Union to discourage tax
  evasion, the door opened for a new challenger to woo the world's wealthy:

  The tiny Asian nation has beefed up account secrecy protections, has
  changed trust laws and has begun allowing foreigners who meet minimum
  wealth requirements to purchase land and become residents.

  Now private-banking money is flooding in from at least three sources:
  Asians who have grown rich from the booming Asia-Pacific economy,
  foreigners seeking to invest and do business in Asia, and Europeans moving
  money from Switzerland for tax purposes. Swiss banks are expanding in
  Singapore to get in on the action.

  The money flow demonstrates how one nation, in the borderless world of
  international banking, can use banking regulation as an economic
  development tool -- and how complicated it is for tax authorities around
  the world to plug revenue leaks.

  "While tax authorities have increased surveillance and regulation in a bid
  to stem the flow of investment capital and profits to low-tax
  jurisdictions, it's easier to shift money around than it used to be thanks
  to technology," says Chris Edwards, director of tax policy at Cato
  Institute, a Washington think tank that favors free trade. "Both legal
  avoidance and illegal evasion techniques have become more accessible."

  In Singapore's asset-management business, which includes private-banking,
  total funds under management rose to more than $356 billion at the end of
  2004, from $94 billion at the end of 1998, according to the Monetary
  Authority of Singapore, the nation's financial regulator. Roman Scott, a
  director of Boston Consulting Group in Singapore, estimates private-banking
  assets account for about $125 billion of the total.

  Singaporean officials involved in the private-banking push say the new
  foreign depositors are attracted by Singapore's sound legal system, lack of
  corruption and transparent financial systems. Some Swiss private bankers
  also have been billing Singapore as a way around new taxes in Switzerland,
  Luxembourg and tax havens such as Jersey in the English Channel. Under
  pressure from the EU to crack down on tax evasion, Switzerland imposed a
  withholding tax last July on some accounts held by EU citizens.

  "Singapore is one way of getting around the withholding tax," said Raymond
  J. Baer, chairman of Zurich private bank Julius Baer Holding Ltd., in a
  September interview following the announced purchase of Banco di Lugano, a
  small Swiss bank with private-banking operations in Singapore. Last week,
  Mr. Baer said that being in multiple jurisdictions enables the bank to
  serve an international clientele, and that the Singapore office was a
  platform for growth in Asia. "Singapore also offers a tax-friendly
  environment," he noted.

  A spokeswoman for the Monetary Authority says Singapore "does not seek to
  attract tax evaders."

  The number of private banks operating in Singapore jumped to 35 at the end
  of 2005, from 20 in 2000. International banks such as Swiss giants Credit
  Suisse Group and UBS AG have expanded private-banking operations in
  Singapore to cater to new demand from Asians and Europeans.

  Private banks typically provide customers holding at least $1 million of
  liquid assets with advice on investments, estate planning and taxes. They
  also often help the wealthy move assets abroad, which some use to avoid
  domestic taxes.

  Singapore has taken various steps to attract wealthy foreigners. Under
  legal changes made in 2004, foreigners with assets of at least $13 million
  now can apply for residency if they place $3.1 million in a financial
  institution in Singapore. Those applying for residency can use as much as
  $1.25 million of the $3.1 million to buy property in a government-backed
  resort-style residential development on Singapore's Sentosa Island. New
  residents are entitled to take advantage of Singapore's income-tax rate of
  about 20%. (Americans, however, face U.S. tax liability on their income
  regardless of where they live.)

  The incentives are prompting some private-banking customers to actually
  move there. Helmut Widdeck, an Austrian who owns a company in Hong Kong
  that makes leather shoe uppers, heard about the new policy from his private
  bankers at Goldman Sachs in Hong Kong and decided Singapore would be a good
  place to semiretire. After Singaporean authorities conducted an audit to
  verify the source of his wealth, he says, he transferred the required
  amount to an account in Singapore, then bought a 8,557-square-foot
  oceanfront property at Sentosa Cove. He and his wife are planning their
  dream home, which they expect to cost $3.8 million.

  "For me, it's an interesting plan. I can invest the money into a property I
  want, and with that I get residency in a place I'd like to live in," says
  Mr. Widdeck, who is 63 years old. He says he will gain no tax benefit from
  the move because taxes in Hong Kong, where he used to live for eight months
  each year, are even lower.

  Last summer, Gianpiero Fiorani, former chief executive of Banca Popolare
  Italiana Scarl, shifted some assets to Singapore from Jersey, an offshore
  banking center that also came under EU pressure. He had assets with various
  banks and used Banco di Lugano, the Swiss bank now called Banca Julius Baer
  (Lugano) SA, to move the assets. Mr. Fiorani was arrested in December in
  Milan and remains jailed pending an investigation into suspected market
  manipulation and misuse of corporate funds. When he was questioned by
  prosecutors, he told them he had shifted the funds "to better protect the
  money" and for "peace of mind," according to a person familiar with the
  matter. His lawyers declined to comment, as did the spokeswoman for the
  Monetary Authority of Singapore. A spokesman for Julius Baer said the bank
  is cooperating with investigators.

  Singapore's private-banking expansion is part of a broad effort to
  diversify its economy away from electronics manufacturing, which faces
  increasing competition from lower-cost countries such as China. The
  government is trying to foster growth in biotechnology, and in chemical and
  pharmaceutical manufacturing. In 1998, after the Asian financial crisis, it
  drew up a plan to turn Singapore into an investment-banking, mutual-fund
  and private-banking hub.

  Switzerland's private-banking industry, currently home to about 30% of
  offshore assets globally, was a model. Banking confidentiality has been a
  feature of Swiss law since 1934. For decades, foreigners could hold
  personal accounts recorded within the banks merely by numbers. Tax evasion
  is an administrative offense, not a crime. Swiss authorities refuse to
  cooperate with other countries' tax investigations, although they lift
  confidentiality in criminal matters.

  Stiffer Laws

  In 2001, Singapore stiffened laws against breaching the confidentiality of
  bank customers, making penalties for violators even tougher than in
  Switzerland. It imposed fines of $78,000, imprisonment for as long as three
  years, or both. In Switzerland, a similar breach could result in a prison
  term of six months or a fine of about $38,600.

  Singapore's private-banking initiative aimed to capture some of the new
  wealth created by Asia's economic boom. China's rapid economic growth has
  created fortunes throughout Asia. Liquid assets held by individuals in the
  Asia-Pacific region, excluding Japan, are projected to increase 8.9%
  annually from 2004 through 2008, according to UBS, far exceeding the global
  annual average of 5.5%. Credit Suisse customers domiciled in the
  Asia-Pacific region accounted for $47.8 billion in private-banking assets
  as of September, compared with $105 billion in such assets from customers
  domiciled in Switzerland.

  While Singapore was bidding for new private-banking business, the EU was
  pressuring authorities in Switzerland and other offshore banking centers to
  take a tougher line with EU citizens who move money to reduce the taxes
  they pay. In 2000, EU finance ministers proposed ending client
  confidentiality in tax havens in Europe, including Switzerland. The
  Organization for Economic Cooperation and Development, of Paris, also had
  pushed for an "exchange of information" on tax matters in an effort to
  suppress "harmful tax competition."

  Although Switzerland, Jersey and other offshore centers aren't EU members,
  they are dependent on EU nations for trade. Swiss authorities agreed to
  compromise. The new withholding tax compels Swiss banks to withhold a
  portion of interest earned on personal savings accounts held by EU citizens
  living outside of Switzerland, and to hand over some of that money to
  national tax authorities. The withholding tax applies to account holders
  who haven't reported all of their assets to their own tax authorities.

  Swiss bankers say the withholding tax and the continuing push to further
  restrict client confidentiality are discouraging wealthy Europeans from
  keeping money in Switzerland. Singapore isn't a member of either the EU or
  the OECD, so it hasn't faced the same pressure. By keeping money in
  Singapore, Europeans can avoid the new tax, some bankers say.

  Tax evasion in Singapore is a crime. But Singaporean authorities tend to
  respond to requests from other countries for information about tax evaders
  only when evasion of Singaporean taxes is at stake, says Jeffrey Owens,
  director at the center for tax policy and administration at the OECD.

  In a written response to questions about its policies, Singapore's Finance
  Ministry said requests for information from tax authorities in other
  nations are considered under the terms of international agreements designed
  to avoid double taxation. Singapore has such agreements with 50 countries,
  a Finance Ministry spokesman says.

  'Open and Transparent'

  Singapore bills itself as being tough on crime and free of corruption. Like
  Switzerland, Singapore says it cooperates with foreign authorities
  investigating money laundering and terrorism financing. "Our banking and
  financial system is open and transparent, and our rules are strictly
  enforced," the Monetary Authority of Singapore said in a statement.

  Singaporean officials traveled repeatedly to Switzerland to describe
  Singapore's private-banking capabilities to wealthy customers of Swiss
  banks, to Swiss bankers themselves and to lawyers specializing in wealth
  management. In February 2002, for example, Alison Lim, an executive at the
  Monetary Authority of Singapore, appeared at a seminar in Geneva. According
  to written promotional materials, the program touted Singapore as a
  "jurisdiction that protects clients' interests." Ms. Lim says she spoke
  about Singapore's role as a financial center and some trends in Asian

  To become better versed in private banking, Ms. Lim completed an internship
  at UBS in late 2003, according to UBS. Ms. Lim declines to comment on the
  internship, but says the Monetary Authority routinely places staffers with
  various types of banks for short-term stints so they can learn about the

  Lee Hsien Loong, Singapore's prime minister and finance minister, has
  personally overseen the city-state's private-banking push. Before becoming
  prime minister last year, he served as deputy prime minister, finance
  minister and chairman of Singapore's Monetary Authority. Under Mr. Lee, the
  government set up working groups of bankers, consultants and ministry
  officials to drum up ideas for creating a global banking hub. In that
  capacity, Mr. Lee met regularly with Swiss and other international bankers
  to discuss how to structure a bank-friendly regulatory environment,
  according to some bankers who attended.

  One suggestion from the bankers: make Singapore's trust laws more
  attractive. Many European nations practice a concept known as "forced
  heirship," in which the state dictates the proportions of an estate that
  must pass to certain family members. These laws supersede wills and trusts.

  In December 2004, Singapore adopted new trust laws that let foreigners who
  set up trusts in Singapore avoid these limitations. Assets placed in trusts
  in Singapore have increased to almost $50 billion in 2004 from just under
  $25 billion in 2002, according to the Monetary Authority of Singapore.

  Singapore is now Credit Suisse's largest private-banking center after
  Switzerland. In 2005, the bank moved its head of international private
  banking to Singapore from Zurich and hired 150 additional staffers,
  bringing its total there to 450. By 2007, Credit Suisse aims to hire an
  extra 100 client advisers to serve the Asia-Pacific region.

  "Singapore is run like a company, and regulators want to help you win
  business," said Joachim Straehle, Credit Suisse's head of international
  private banking who relocated to Singapore from Zurich in April 2005.

  Credit Suisse runs a "eurodesk" in Singapore where bankers versed in
  English, French, German, Italian and Spanish work until almost midnight
  Singapore time to serve European clients. Credit Suisse now has at least
  $4.6 billion of European private-banking assets booked in Singapore,
  according to someone with knowledge of the figures. UBS has at least $3.1
  billion of such assets, according to another person familiar with that
  bank. Representatives of both banks declined comment on those numbers.

  Clariden Bank, a Swiss private bank controlled by Credit Suisse, opened a
  Singapore office at the end of November. "Singapore will be the fastest
  growing offshore private-banking center in the next five years," says
  Roland Knecht, a member of Clariden's executive board of management. He
  estimates that within three years about 20% of private-banking assets
  booked at the bank in Singapore will come from Europe.

  Already Clariden has started assembling staff for a eurodesk, and a number
  of Clariden's clients, including some Russians, have flown to Singapore for
  a visit, he says. Several clients have inquired about becoming Singaporean

  R. A. Hettinga <mailto: rah at ibuc.com>
  The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
  44 Farquhar Street, Boston, MA 02131 USA
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R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'

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