Glen Chee, Heritage Trust Group, examines Singapore's reputation as a trusted and competitive financial hub that stems from the jurisdiction's robust financial regulatory system.
Singapore has a stable, competitive and open economy with one of the highest per capita GDP in the world and with a booming wealth management industry, which includes the trust industry, it is fast becoming a favoured jurisdiction for wealthy individuals.
As a major financial hub, it has more than 700 local and foreign financial institutions, including 120 commercial banks, 50 licensed trust companies and 46 merchant banks. Its main wealth management rival, Switzerland, has come under intense scrutiny and pressure from the United States in the last few years to cast aside the formerly impregnable veil of Swiss banking secrecy. However, several of the key factors that propelled Singapore into becoming a financial hub are its favourable tax laws, strong confidentiality laws, the reform of trust legislation in 2004 and its commitment to meet international regulatory and compliance standards.
The importance of the wealth management and banking sector to Singapore’s economy means that Singapore plays a active role in the international fight against financial crimes. As such, Singapore, as a member of the Financial Action Task Force (FATF) and a founding member of Asia-Pacific Group of Money Laundering, has pro-actively sought to combat money laundering and terrorist financing.
In October 2008, the UN Committee of Tax Experts on International Cooperation in Tax Matters, endorsed the OECD enhanced Standard for effective exchange of information (EOI), and on 6 March 2009, Singapore endorsed this internationally agreed Standard. In order to implement the requirements set forth in the Standard, Singapore amended its domestic legislation to allow for more cooperation in information exchange, through Avoidance of Double Tax Agreements (DTAs) that incorporate the internationally agreed Standard. Singapore has actively sought to update and extend its network of tax agreements and to date Singapore has entered into 69 comprehensive DTAs. However, these DTAs do not automatically override confidentiality laws under s47 of the Banking Act and s49 of the Trust Companies Act, which protect clients information. Under the Standard, as set out in the DTAs, specific conditions must be established before there can be any access to information because Singapore must also safeguard taxpayer’s rights as part of the international standard.
Unsubstantiated, speculative and spurious requests will not be entertained. Any request for information has to be specific, detailed and relevant to the tax affairs of the tax payer in question and the requesting jurisdiction must also comply with the documentary requirements set in the legislation. Notwithstanding, the requesting jurisdiction must also have pursued all domestic means to access the requested information before putting in such a request to Singapore. The Standard also sets clear limits on the types of information, the jurisdictions are oblige to exchange. The Singapore authorities may decline certain information if by doing so would be contrary to public policy. If the request is deemed legitimate, the authorities may exercise their powers to obtain confidential bank and trust information regarding any person’s income for purposes of a request for information made under a prescribed DTA, and the authorities will have to make an application under s105J Income Tax Act for a High Court order to exchange such confidential information prescribed under a DTA.
Only the Singapore Courts have the power to lift the veil of banking and trust confidentiality for Singapore to assist in bona fide requests. The affected person, bank or trust company will be notified of such a request and the person, bank or trust company has a right to apply to the Court to discharge or vary the Court order. This judicial process is part of the rule of law in Singapore to ensure that a fair, just and independent assessment of the validity of such requests by foreign jurisdictions and providing effective judicial protection for individual rights to privacy, therefore Singapore’s EOI regime is consistent with the internationally agreed standard for the EOI found in Article 26 of the OECD Model Tax Convention on Income and on Capital.
In October 2011, the Money Authority of Singapore (MAS) announced its intention to criminalise the laundering of proceeds from serious tax offences and increase the resources used to deal with suspicious banking activities and supervision.
MAS managing director, Ravi Menon, said: “Some people think that Singapore’s banking confidentiality regime fetters such international co-operation. Let me stress that banking confidentiality is not absolute. It is intended to protect the legitimate privacy needs of investors. But we will not allow banking confidentiality to be used to shield criminal activities. Where there are sufficient grounds to indicate that a crime has been committed with willful intent, then confidentiality is no bar to co-operation. MAS will review the Banking Act to ensure that this continues to be the case, as new modalities on cross-border co-operation evolve.”
This clearly indicates that Singapore will soon fully remodel its regime to the new FATF revised recommendations agreed on 15 February 2012; not because Singapore is a FATF member, but more importantly, because Singapore wants to discourage tax evasion monies attempting to enter the system.
Singapore’s reputation as a trusted and competitive wealth management and financial hub is built upon the high standards of progressive financial regulation, supervision, and transparency, a robust legal system, and corporate governance framework, underpinned by a pro-business operating environment. As a successful international financial centre, Singapore is committed to being a responsible and accountable jurisdiction in the area of international compliance and co-operation and the revised Trust Companies Act has certainly met with approval from the wealth management businesses around the world.
Singapore is now said to be the one of the leading wealth management centers with many international trust companies, Caribbean and Channel Islands professional firms now established in Singapore.
Glen Chee, Legal Counsel-Legal & Compliance, Heritage Trust Group, Singapore