Tuesday, July 06, 2010

IRS Money Laundering Investigation Comes to Singapore

Just reported in the news today, "HSBC Clients With Singapore, India Accounts Said to Face U.S. Tax Probe". The IRS is investigating possible tax evasion by American citizens through bank accounts in Singapore. This follows a major crackdown on the Swiss private bank UBS for abetting tax evasion.

Just over a year ago, yours truly pointed out the risks that Singapore faced by positioning itself as a low-tax, private banking jurisdiction. I analyzed the UBS tax fraud case, and Andy Xie's accusation of Singapore being a high-rolling money laundering center. I noted that Singapore was rushing headlong into the private banking and casino business, businesses that depend on a sustained influx of large amounts of private capital, that often comes from illegally derived sources, or that is seeking to evade taxes.

The bloomberg article notes:
Several weeks ago, Downing toured Singapore, Hong Kong and Beijing, meeting with regulators and bankers about offshore tax prosecutions. He spoke to tax lawyers at a conference sponsored by New York University on June 18.

“We just took down the largest private wealth management bank in the world,” Downing said, referring to UBS. “Do you really think we’re going to have trouble doing the next one?”

He referred to his tour in Asia, saying: “Neither the banks nor the governments want to have a UBS-type situation. They want to do it nice and quiet. They don’t want to be the focus of attention. The Department of Justice and IRS are devoting a ton of resources to this issue.”

The Justice Department has charged three HSBC clients with tax crimes in the past year.

While nothing definite has been uncovered yet, I am convinced that sooner or later we are going to see a major international tax fraud or money laundering case that ends up pointing towards money that has flowed through Singapore's bank accounts or casino system.

If UBS' private banking business has been reeling from the IRS crackdown, imagine the damage to a Singapore based private bank if the same were to happen.
UBS said in May it aims to attract net new funds by the end of this year as redemptions slowed in the first quarter from the previous three months. Clients pulled 205.6 billion Swiss francs ($193 billion) from the wealth management and Swiss bank unit in the two years through March after a government bailout and the second-biggest writedowns and losses reported by European banks.


While the bank has attracted funds from rich customers over the past couple of quarters, that hasn’t countered money leaving UBS as a result of pressure on Swiss banking secrecy and departing client advisers, Zeltner said.

This is a ticking time bomb waiting to blow up.

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