Following a headline money laundering scandal, Singapore now faces a tough balancing act between protecting its hub reputation and maintaining a sufficiently business-friendly operating environment. How will future asset flows be affected?
Singapore is under pressure from the recent headline money laundering scandal involving 10 individuals who have been arrested, charged and are now undergoing trial. While many are calling this S$2.4 billion ($1.8 billion) fiasco a one-off event, there will likely be lasting effects on the financial sector, depending on how authorities respond.
The city-state now faces a tough balancing act. On one hand, there is reason to deliver a firm response to maintain its reputation as a squeaky clean hub and discourage future launderers. On the other hand, there is a risk that any response viewed as excessive could have the unintended effect of discouraging legitimate business instead.
Foreign Inflows to Singapore
There are already signs that asset inflows from certain markets could slow down. Some banks in the city-state have reportedly been reviewing the activities of Chinese clients carrying investment-linked passports. At least one lender is making the move to close accounts belonging to clients with citizenship in countries including Cambodia, Cyprus, Turkey and Vanuatu.
Of the 10 alleged launderers, many also carry travel documents from Cambodia, Cyprus and Vanuatu.
While tighter controls will certainly discourage future launders, it also has the potential to discourage business from individuals who are simply seeking faster means to invest offshore or prefer not to undergo exhaustive due diligence processes.
Local Intra-Bank Flows
Aside from fresh assets entering Singapore, the intra-bank flow of assets locally could also be affected. According to an «Al Jazeera» report citing Singapore Management University associate law professor Eugene Tan, some banks are currently betting on the idea that funds that have successfully entered the city-state's financial system may not require further stringent reviews.
«[D]ownstream checks appear to be lax,» Tan said, highlighting that he has heard of cases where banks have accepted assets even if suspicious transaction reports were filed.
Market Segments
Although it has yet to be seen if a broad-based approach will be taken, assets linked to the China segment are already being affected. This could have a sizeable impact on the overall industry due to increased emphasis by many in recent years to establish offshore China businesses in Singapore.
Another important market segment that could be affected is family offices with questions emerging in parliament about procedures for investment entities that receive tax incentives. According to the Monetary Authority of Singapore, the number of single-family offices that were rewarded tax incentives reached 1,100 at the end of 2022, up from 700 in 2021.
Reputation Risk
The industry is now closely watching how the case unfolds and how banks will be dealt with, be it a matter of deliberate intent or honest failure. Any move too hard could have a lasting effect on business growth but any move too soft could result in reputation damage.
According to the Basel AML Index 2022, Singapore was ranked 100 out of 129 in terms of the markets with the highest money laundering and terrorist financing risk.
