The ironies of Singapore's massive investment in troubled Swiss banking giant UBS are piling up. Even Lee Kuan Yew himself has now said that the Government Investment Corporation invested "too early" in UBS, with the result that is now showing a loss of billions of dollars of citizens' money on the deal.

GIC put 11 billion Swiss Francs (approx US$10 billion) into UBS in late 2007 and followed that up by subscribing to a rights issue in 2008. UBS was the biggest of all Singapore's ill-starred investments in foreign banks that made just as markets were starting to show major faults.

But Singapore may need to be worrying about rather more than just the losses sustained by UBS through its follies and forays into all manner of spivvy instruments. The fact is that UBS was more than just the recipient of GIC cash. The relationship with this high-powered Swiss instrument of tax-avoidance and money-laundering goes deeper. UBS is the most important foreign player in Singapore's mostly successful promotion of itself as the wealth management center of Asia.

For that one needs a no-questions-asked view of money's origin and freedom from taxes – both of which are readily supplied by the government. But it also needs big investment-house names whom the billionaires of Asia think they can trust with their money. That was where UBS came in. Could there be any name more representative of discretion and skilled and conservative management than the largest of all the Swiss institutions? The biggest gnome in all of Zurich – or to be more precise, in Zug, that even more money-friendly little town in an adjacent canton populated mainly by multinational tax evaders.

So in 2007 UBS became the privileged occupant of one of the top 10 colonial era buildings in all of Singapore -- Command House, the former residence of British military commanders and the Singapore president. The UBS website thus describes what is now the UBS Wealth Management Campus, sitting atop a hill and with a commanding view of the city below:

Command House – an architectural gem with a rich history

The Campus in Singapore is set on half a million square feet of landscaped grounds, with its classrooms in an unusual black, white and brown colonial building. Command House has had a rich history as the headquarters for influential British military leaders and statesmen, including Admiral Lord Louis Mountbatten, 1st Earl Mountbatten of Burma, last Viceroy and first Governor General of Independent India and Lieutenant-General A E Percival, who commanded the British forces during the Battle of Malaya and Battle of Singapore. More recently, it was the official residence of former President Ong Teng Cheong, the first directly-elected President of Singapore.

Other big-name "wealth managers" can use the facility for training and promotion, but the name on the door is UBS.

Unfortunately for both UBS and Singapore, the Swiss bankers have not only recently lost billions of dollars through incompetence (and worse). They have also attracted the wrath of the US authorities being caught red-handed encouraging US citizens to break the law by siphoning money into tax-free accounts in Switzerland to avoid the global tax assessments to which US citizens are subject. It has had to pay $780 million and hand over accounts details in respect of cases. Even more dangerous, it is having to fight US attempts to get data on another 52,000 or so Americans who have accounts with it.

If UBS eventually loses in US courts it will either have to break its promised secrecy on a massive scale, or have its whole US operations shut down. Try being a global wealth manager if you cannot operate in the largest market!

There appears to be more trouble coming in the form of a new American determination to do something about tax scofflaws. US Internal Revenue Service Commissioner Douglas Shulman says that the Obama administration is "committed to taking aggressive action on offshore tax abuse". US Sen Carl Levin said offshore tax havens cost the US economy $100 billion a year and that Switzerland bears llmuch of he blame. In addition, Treasury Secretary Timothy Geithner told a Congressional hearing that the government is going after companies using offshore tax havens.

But it is not just the US taxman who is looking at offshore tax and other scams. The collapse of global markets has shown up a multitude of examples of secrecy of offshore locations hiding all kinds of nefarious activities conducted in the name of investment. Defrauded investors are on the warpath, regulators are being woken from their slumbers and dispatching sleuths to all corners.

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Most important of all, governments soon to be in desperate need of revenues to pay down debt incurred in bank bailouts and economic stimulus packages are about to be looking very closely at the role of places from the Cayman to the Cook islands via Singapore and Suriname in methods used by individuals and companies alike to avoid tax by not declaring income or by transfer pricing which enables profits to be generated in low tax intermediaries. Singapore and Hong Kong are prime suspects because they have huge trade volumes and low taxes so bogus pricing is easy to hide.

Also under increased scrutiny at a time when governments in the developing world are, after a period of easy money, looking at dwindling foreign reserves and stretched fiscal situations is the role of offshore centers in promoting capital flight. Singapore could well come in for particular scrutiny on several counts. Firstly, Indonesian patience with Singapore's role as safe haven for ethnic Chinese crooks as well as cash may not be inexhaustible.

Secondly, its role as banker to the military drug and gem barons of Myanmar may come in for closer scrutiny. And thirdly the US is increasingly aware that Singapore is trying to gain from Switzerland's discomfort by trying to attract western tax-evaders. Likewise Germany, having been ruthless in tracking down its citizens using Lichtenstein as a tax-evasion centre will turn its attentions to other "wealth management" centers.

Meanwhile the European investment houses which have made Singapore their Asian base will come under scrutiny at home for their role in tax schemes and for laundering the ill-gotten gains of Southeast Asian generals and politicians.

There is nothing new in the Swiss banks' use of secrecy to make money for themselves regardless of ethical issues. There are enough in Europe who remember their theft of the assets of murdered German Jews – and their more recent role as bankers to assorted corrupt dictators – that they will be happy to add to Swiss discomfort.

Singapore's use of strong-arm tactics to silence even comments on its role as sleaze-money manager is well established. Remember the grotesque behavior of Morgan Stanley in sacking a well-regarded, straight-talking economist Andy Xie for remarking in a note to colleagues (not the general public):

"Actually, Singapore's success came mainly from being the money laundering center for corrupt Indonesian businessmen and government officials. Indonesia has no money. So Singapore isn't doing well. To sustain its economy, Singapore is building casinos to attract corrupt money from China."

Like many of its investment banker brethren, Morgan Stanley worships money as surely as Osama Bin Laden worships his version of god. And as the War on Terror winds down a War on Ill-gotten Wealth is starting up.

All told then, UBS and the wealth management crowd in Singapore may find that they have rather less to manage than they imagined. Instead of boasting about their occupation of Command House they should remember that it was the command post for perhaps the most disastrous military campaign in Britain's imperial history – the Malaya/Singapore rout by the Japanese in 1941. Lee Kuan Yew needs no reminding of the impact that had on his world view. Perhaps he may wonder whether the GIC investment in UBS was "too early" not by a few months but by a decade or three.