Singapore Shocks its Neighbor to the North
|Our Correspondent||Jun 6, 2016|
There is more than meets the eye in the Singapore investigation into 1MDB and the subsequent forced closure by the Monetary Authority of Singapore (MAS) of the local operations of Swiss private bank BSI.
This was the first time in decades that the MAS has resorted to such actions. BSI has also been heavily fined and its former executives are under criminal investigation. Established in 1873, BSI was previously known as Banca della Szizzera Italiana.
In the first place, the 1MDB investigation must have come as a personal shock, even stab in the back, to Malaysian Prime Minister Najib Razak. After all, it has been known for decades that Singapore has happily harbored and laundered the ill-gotten gains of politicians, generals and crooked businessmen from around the region, notably Indonesia and Myanmar as well as Malaysia.
It must have been doubly wounding for Najib who in the past has made efforts to improve relations with Singapore, cooperating in a way unheard of under Mahathir Mohamed and being viewed as undemanding and cooperative by his Singapore counterparts.
So what was it that spurred Singapore to act? A number of factors appear to have come together. First, it may have been becoming clear to the regulator, the MAS, that the whole 1MDB edifice was unravelling, lots more was going to be revealed as investigations in the US and Switzerland followed the paper trails and leaks of documents continued. Thus it was in Singapore’s interest to be seen to be on the side of the angels and serious about money laundering.
In particular Singapore needed to show the US that it is not simply a substitute for Switzerland, attracting dubious and tax-evading money now that the “gnomes of Zurich” have been reined in by harsh penalties handed out by the US tax authorities.
But other, closer to home, factors may have been at work. First, the bank appears to have been ignoring warnings to be less aggressive in generating sleazy business. The bank’s local head Hans Pater Brunner and relationship managers are known to have spent much time successfully cultivating politicians and senior bureaucrats in Putra Jaya and Kuala Lumpur, to the point of becoming the “go to” institution for those wanting to hide their newfound wealth. The information about BSI clients now in the possession of the Singapore authorities will doubtless be kept on file for use as and when required.
Yet another factor may well have been MAS desire to give some tangible support to its brother central bank, Bank Negara Malaysia. Under its long-serving and highly regarded – but now retired – Governor Zeti Aziz, Bank Negara had publicly sought the bringing of charges against 1MDB for breach of its regulations. However, the evidently well-founded complaints were dismissed by Najib’s tame Attorney General, Mohamed Apandi Ali.
Beyond the specifics of the 1MDB scandal, the Singapore actions against BSI reflect a recognition by the MAS that free-for-all private banking and money laundering are ceasing to be the great business they had become in recent years. The main reason for this is not so much the ballyhooed moves to prevent transfers to finance terrorist activities such as Al-Qaeda and ISIS, not even simply make the laundering of the profits of drug and other illegal trades more difficult.
The underlying fact is that for reasons of both domestic politics and revenue considerations, tax authorities from an increasing number of countries have become more concerned with evasions. China as well as the US and some countries in Europe are moving to stem losses through evasion.
They are also beginning to look for ways to plug an even bigger hole in their revenues – the technically legal but fundamentally dishonest use by corporations, most notably newcomer predators such as Google and Apple, of transfer pricing through a complex of offshore entities to reduce their tax liabilities. These schemes, cooked up by accountants who have a fiduciary duty to public as well as private interests, have been making a mockery of tax laws and bringing globalisation itself into disrepute.
As authorities take action against them, Singapore needs to be seen as a genuine intermediary in international business, not a tax haven used to disguise the origin of profits.
That does not mean it will cease to be a haven for funny money from neighboring countries and beyond, but it now has to walk a finer line. Occasional public displays of righteousness such as the BSI closure are part of its balancing act.