After Switzerland, is Singapore next?

Anyone with even a cursory interest in the world of banking has noticed what has been happening in Switzerland for the better part of the last decade. The mighty US government has managed to get Switzerland to do what no one else could ever do. The US managed to get Switzerland to circumvent their own rules on banking secrecy to turn over client details to the US authorities.

In short, it started back in 2007. Then in 2008 an American named Bradley Birkenfeld, a former UBS private banker, became a whistle blower who testified to the US Department of Justice (DOJ), the US Securities and Exchange Commission (SEC), and the US Internal Revenue Service (IRS) that UBS had directed its North American sales force to recruit US taxpayers by offering them access to offshore financial vehicles to hide their assets and avoid taxes.

In the years that followed, we saw the indictment of senior bankers and the investigation extend beyond just UBS (and other Swiss banks with US branches) to many of the largest and some of the most venerated names in Swiss private banking.

Casualties included Wegelin and Co, the oldest private bank in Switzerland, established in 1741, which had managed to survive every threat over the last 300 years including: revolution, financial disaster, and wars including Napoleon's invasion, the Sonderbund civil war, and then Hitler.

Unfortunately when its alleged issues with US authorities became public, there was a run on the bank which resulted in a fire sale to another financial group.

Fast-forwarding to 2015, we have the investigation into the world's governing body for football/soccer – FIFA. FIFA is also headquartered in Switzerland and traces the beginning of its investigation by the US authorities to another whistle blower – Chuck Blazer.

Just when Switzerland thought they were easing away from the limelight of the US authorities, this FIFA scandal comes up.

Undoubtedly, the results of the ongoing investigations in Switzerland helped provide an incentive to enact FATCA. FATCA stands for the Foreign Account Tax Compliance Act and was enacted by the United States Congress back in 2010 to encourage tax compliance by US persons using non-US financial accounts.

FATCA requires all financial institutions outside the US to transmit on a regular basis information about financial accounts held by US persons to the Internal Revenue Service (IRS). Financial Institutions that fail to comply could have certain US-source payments subject to 30% FATCA-related withholding.

The reach of FATCA aside though, there are those who believe that much of the private banking wealth that left Switzerland has ended up in Singapore.

It is therefore no surprise that the Monetary Authority of Singapore continues to review and tightens its regulations around Financial Advisers and Advisory Firms. Many Financial advisers now routinely refuse to touch anyone with US indicia.

The IRS has listed seven indicia of US status: US citizenship or permanent residence (i.e. a green card), US birth place, US residence address or US correspondence address, a US phone number, Standing instructions to transfer funds to an account maintained in the US, a Power of Attorney or signatory authority granted to a person with a US address, and an 'in care of' address or 'hold mail' address in the US.

Also entities such as companies and partnerships have to be checked intensively whether they are substantially owned by US persons i.e. whether the interest of a US person in a company is higher than a certain percentage.

While I understand the logic of those Financial Advisory firms who avoid US clients, it seems rather shortsighted given the fact that they still need to comply with both Singapore and US reporting rules, regardless of whether they have US clients or not!

Now as to whether the US government would focus their attention on Singapore after Switzerland, some suggest that it may have already quietly begun. In the meantime, Singaporean financial institutions may be cutting heads in some departments, but they are careful when it comes to their compliance teams. No one wants to end up on the wrong side of the regulators.