Singapore retreats on bank secrecy laws

Singapore's tax shelter status will be taking a hit as the republic relaxes its bank secrecy laws. The Financial Times reported, 6 March 2009, in "Singapore acts on bank secrecy laws" that:

Singapore’s finance ministry said it would amend its bank secrecy laws in mid-2009 to take account of the OECD’s standards on exchange of information. “Once the legislative amendments are passed in parliament, Singapore is prepared to negotiate and conclude double taxation agreements that will enable us to provide further assistance for exchange of information.” It said: “The decision ... is in keeping with Singapore’s role as a trusted centre for finance and a responsible jurisdiction, with strong and consistent regulatory policies and a firm commitment to the rule of law.”

The promised changes will allow foreign tax authorities to request information about suspected tax evaders, although Singapore said “information fishing” would not be allowed and there would be confidentiality and privacy safeguards, as allowed under OECD rules. Even so, its announcement will be applauded by other offshore centres that have lost business to Singapore.

Lee Kuan Yew, modern Singapore’s founding father, told bankers the city-state could not escape the pressure being applied to Switzerland. “We must move with the flow,” he said.

Switzerland is under intense pressure from the US and the EU to dismantle its bank secrecy laws, on accusations that it is acting a a tax haven. UBS, in which GIC,one of two Singapore sovereign wealth funds, has a significant stake, agreed to a US$780 million fine in February 2009, to end a US government investigation into whether it had helped US clients evade taxes. As part of the settlement, the bank agreed to release names of US account holders to Washington's Internal Revenue Service (IRS). The IRS is said to be interested in 17,000 to 20,000 cross-border clients, though whether this number will be released is not yet known.

A legitimate question to ask is whether GIC's faith in UBS, prompting it to buy into the bank late 2007, is misplaced. Besides the subprime and related losses, the very model of Swiss banking may now have a bleak future, a model that Singapore had hoped to emulate.

Yet, as recently as May 2008, strongman Lee Kuan Yew told Bloomberg that UBS and Citi have "very good franchises" and that in the long term, Singapore's investment should prove profitable.