The Banking Act and the Trust Companies Act: guarantors of

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to any international crisis, and therefore volatile, for instance in 2008 it witnessed a three-fold decrease in comparison to the previous year.

Therefore the MAS is intensively looking forward to diversifying the origin of companies that are willing to issue bonds. China, India, and the ASEAN are natural markets where Singapore is interested to tap into. Yet, until today, more than 90% of non-SGD corporate bonds have been issued in USD, making the local market extremely sensitive to a crisis originating from the USA (Jin, 2005).

In order to lower the current volatility, the MAS launched in 2013 the

“Singapore Dollar corporate bond securities lending facility”, which will aim at centralizing the trade of corporate bonds, in order to ensure that the liquidity of the SGD and non-SGD primary and secondary market is optimal. This move was also accompanied by the creation of the SGD corporate bond index that aims at improving the benchmark system (Monetary Authority of Singapore, 2013d).

2.3.2 The Banking Act and the Trust Companies Act: guarantors of Singapore’s status as a “tax heaven”

Singapore has acquired its nickname of the “Switzerland of Asia” not only because of the performance and quality of its financial sector, but also thanks to its well-known banking secrecy laws; having made it one of the best places in the world to hide its wealth from overbearing governments. This status has been mostly based on the Banking Act, and the Trust Companies Act, which will therefore be reviewed in the following sections.

2.3.2.1 Singapore’s Banking Act

The main characteristic of the Banking Act is to require full secrecy concerning customers’ personal information and accounts; this is specifically mentioned in the section 47 of the law. It was first enacted in 1970, and last revised in 2008 (Attorney-General’s Chambers Singapore, 2008).

economic growth slowed down, and governments were asked to the rescue of many banks. Up until today the effects of the crisis have still been felt in many European countries.

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The drafting of this law was a smart move, as the region faced severe political turmoil and racial tensions in the late 1960’s and l970’s, many entrepreneurs and wealthy individuals were more than relieved to find the city-state as a safe heaven for their hard-won fortune.

This particularly appealed to Chinese communities in Indonesia and Malaysia who faced discrimination over their supposedly privileged situation. The Indonesian killings of 1965–66, which were originally an anti-communist movement, saw the occurrence of the killing of many Chinese people. However, anti-Chinese tensions culminated with the “13 May 1969 incident” in Malaysia, where ethnic-riots occurred between Malays and Chinese, and many got killed (Cho & Park, 2013).

Originally the Act was implemented to emulate what had made the success of Switzerland’s financial cluster, i.e. the protection of its customers’ information. In Singapore, both the banking institutions and all their employees are required to keep strict confidentiality. Even though the disclosure of information was made easier in 2001 through the “Amendment Act” it was still very tightly controlled until 2008 (Attorney-General’s Chambers Singapore, 2001).

Still, until today for instance only a few specific events can lead to the disclosure of information, such as if a Singaporean public officer or a Singaporean Supreme Court Judge orders the information to be made public.

Concerning foreign banks or banks incorporated abroad, if the banking authority from the parent country requires the disclosure of information, it can only be made in compliance with the general rules of disclosure applied in Singapore and announced in the Banking Act. Thus it safeguards clients from overly invasive dictatorial government, etc.

If a bank or any of its employees breaches the obligation specified in the

“Banking Act”, they may face heavy penalties and potential prosecution leading to imprisonment. An individual can be fined up to 125,000 SGD, and a corporation up to 250,000 SGD (Attorney-General’s Chambers Singapore, 2008).

2.3.2.1.1 Impact of the 2008 financial crisis on the Banking Act

Banking secrecy is important for customers of offshore banking centers, especially in light with the “Lagarde list” scandal that took place in 2010. Hervé Falciani stole a list of around 130,000 potential tax offenders, who had secret bank

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accounts in Switzerland. The employee of HSBC bank sold the list to member countries of the European Union (EU). This event shook the Swiss financial center, and shed the light on the controversial practices of many offshore banking centers including Singapore (Hesse, 2013).

This scandal took place in the aftermath of the 2008 financial crisis. Cash-strapped governments, mainly in the EU and the USA, pushed for a crackdown on banking secrecy, which according to them allows tax evasion. Many countries were targeted, the most famous being Luxembourg, Switzerland and Singapore.

In order to be removed from the tax heaven “grey list” of the OECD, in 2009 the Singaporean Ministry of Finance announced its decision to take part in the

“standard for exchange of information” agreement, which allows foreign governments to ask Singapore for the disclosure of banking information concerning suspects of tax evasion (Brown, 2009; Monetary Authority of Singapore, 2013e).

Critics often raise the fact that to be removed from the list signing, it only required signing “bilateral information-sharing agreement” with twelve countries.

This led many tax heavens to simply sign agreements with each other. However, Singapore has signed agreements with major economies like France, and in 2013 with the USA (Armstrong & Lim, 2013).

Nonetheless, the disclosure of information to foreign governments must fit in with the cases under which the Banking Act allows the release of information about a customer by a bank. Thus, while from a legal point of view Singapore is no longer considered as a Tax heaven, it has though not shown that much willingness to actually move away from secret banking.

2.3.2.2 Singapore’s Trust Companies Act

The Trust Companies Act was only enacted in 2005, which means that it is a rather recent legislative evolution for Singapore’s financial cluster.

Trust companies¹⁸ are becoming increasingly popular among HNWIs, as they insure tax optimization and greater confidentiality, as often the identity of the beneficiary of the trust is hard to track.

18 A trust company is a legal vehicle that manages and administers individuals’ or companies’ assets.

The trust company does not own the assets; it acts as a mere custodian for the beneficiary of the funds.

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As trust companies can be easily used for malevolent aims, Singapore strictly regulates them. Strong requirements are set to ensure the professionalism of managers, and the purpose of company trusts is clearly delimitated (Janus Corporate Solutions, n.d).

2.3.3 Summary

To conclude we can say that Singapore, through the MAS, has been able to endow Singapore with an unprecedented set of factor conditions.

The Asian Dollar Market provides the necessary international exposure to an otherwise conservative domestic banking sector. Further improvements are necessary.

The Banking Act and the Trust Companies Act though more controversial, as they are believed to be widely used for tax evasion purposes, are still key features of