Quiet Money

Singapore, a Rising Home for Quiet Money, Comes Under Pressure

By NEIL GOUGH
MAY 12, 2017
SINGAPORE — Last year, American law enforcement officials pressed the Swiss bank UBS about Henry Hsiaw, a Taiwan-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 $780 million in fines and disclosed details of thousands of Swiss bank accounts held by Americans — including the records of one account controlled by Mr. Hsiaw.

Still, UBS balked at handing over information about Mr. Hsiaw’s account with the bank in Singapore. That information, it said, was protected under the Asian city-state’s bank secrecy laws.

That 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 $1.1 trillion in foreign funds to the city, according to an estimate from Boston Consulting Group, a consulting firm. Singapore is now growing faster than Switzerland and is set to become the largest cross-border financial center in the world by 2028, the firm forecasts.


But 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 $3 billion that was said to have been siphoned from 1Malaysia Development Berhad, a Malaysian sovereign wealth fund, some of which moved through the city’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,” Mr. Menon said in a speech in July. The authority, he added, was “disappointed with the lapses” in financial controls.

The Straits Times, a Singaporean newspaper, cautioned the city’s banks over 1MDB in an editorial last year. “Business is part of Singapore’s DNA,” it said, “but not the business of facilitating dubious deals.”


American officials are trying to recoup more than $1 billion that they say was taken from 1MDB, a Malaysian sovereign wealth fund, and spent by family and friends of the country’s prime minister, Najib Razak, pictured. According to a United States lawsuit filed in July, hundreds of millions of dollars of the absconded funds were moved through bank accounts in Singapore and elsewhere.

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, said last year 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,” said Andy Xie, an independent economist based in Shanghai. Mr. Xie was fired as chief Asia economist at Morgan Stanley in 2006 after a private email he wrote calling Singapore a money laundering center became public.

“Since the U.S. 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 that 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, she said, Singapore “will not tolerate its financial system being used as a refuge or conduit for illicit fund flows.”


Singapore has positioned itself as a one-stop shop for Asia’s rich. It encouraged private wealth managers to use the city 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, like Credit Suisse, Julius Baer and UBS, keep offices in gleaming skyscrapers among the squat facades of century-old colonial British buildings. Billionaires can fly in to the private jet terminal, gamble at private high-stakes tables at the 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. American officials are trying to recoup more than $1 billion that they say was taken from 1MDB and ultimately spent in the United States by family and friends of Malaysia’s prime minister, Najib Razak. Those funds went to American purchases like luxury homes in Manhattan and Los Angeles, to help finance the Hollywood movie “The Wolf of Wall Street” and to acquire paintings by Picasso and Monet, they said in a civil suit last year.



The officials have focused on Low Taek Jho, also known as Jho Low, a young Malaysian financier who partied with the likes of Paris Hilton. American officials say Mr. Low played a crucial role in laundering hundreds of millions of dollars from 1MDB into the United States. Mr. Low and Mr. Najib have denied wrongdoing.

“1MDB and these other cases are a game changer for Singapore,” said Chris Leahy, a co-founder of Blackpeak, a corporate advisory and investigations firm, who is based in Singapore.

In December, a Singapore court sentenced Yeo Jiawei, a former private banker at the local branch of the Swiss bank BSI, to 30 months in prison for tampering with witnesses and obscuring his ties to Mr. Low. In March, Singaporean regulators barred Tim Leissner, a former Goldman Sachs banker who worked with 1MDB, from dealing in securities here for 10 years.


A lawyer representing Mr. Leissner did not respond to a request for comment. Goldman Sachs said it was cooperating.

Singapore is acting ahead of tighter regulations. Next year, new rules on global financial information exchanges among members of the Organization for Economic Cooperation and Development are set to go into effect locally.

Le Freeport has also come under additional scrutiny. In its report in September, the Financial Action Task Force said that in some cases, the Singaporean authorities did not know enough about what was going on at Le Freeport, given the risks.

Customs officials in Singapore say they have “robust regulatory measures” to prevent illicit activities. Lincoln Ng, the chief executive of Le Freeport and a former Singapore police officer, said local regulators “are aware of the activities through stringent checks and audits.”

Le Freeport, which is controlled by Yves Bouvier, a Swiss art dealer who is also a resident of Singapore, rents the space to firms that park merchandise there on behalf of clients. Tenants include Mr. Bouvier’s own art transportation and storage firm, Natural le Coultre, which says it conducts due diligence on its clients and goods.



“In short, we know what we have on hand and with whom we are dealing,” says Christian Pauli, general manager of fine art logistics at Natural le Coultre.

The facility combines European chic with the sort of security one might see in a James Bond movie. Private vaults lie behind an 11-ton steel door flanked by concrete walls that are more than 15 inches thick. Three different people are required to unlock the door. Some tenants, like companies handling precious metals, install extra cameras, facial recognition technology or iris readers.


Le Freeport cannot gain access to the vaults once they have been leased to customers, which include art storage services like Christie’s and companies specializing in handling gems and precious metals, wine, or banks storing gold bullion. In marketing materials, many tenants highlight confidentiality as a selling point.

In the case of Mr. Hsiaw, the American born in Taiwan, lawyers say the Justice Department chose a particularly aggressive approach. Independent lawyers say American 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 United States dismissed its charges after UBS produced some information on Mr. Hsiaw’s Singapore accounts. Mr. Hsiaw, a former telecommunications executive who relocated to China in 2007, could not be reached for comment.

UBS said it had complied with all applicable laws, but did not elaborate.. Singapore’s monetary authority said Singapore officials “can render assistance so long as there are legitimate grounds.”

Lawyers say the case, the first of its kind in the United States to target Singapore accounts, amounted to a warning shot.

“It’s the nuclear option,” said Jeffrey Neiman, a lawyer in Florida who was one of the lead prosecutors on the federal government’s initial 2009 case against UBS’s Swiss bank.


He added, “the ultimate death knell for secrecy in any jurisdiction would be a bank getting served one of these subpoenas and choosing to litigate, then losing in court.”

Correction: May 12, 2017
An earlier version of this article misstated the name of a corporate advisory and investigations firm co-founded by Chris Leahy. It is Blackpeak, not BlackRock.