Singapore’s New Family Office Scandal Prompts Questions in Parliament

Singapore’s New Family Office Scandal Prompts Questions in Parliament

The MAS tells parliament it will not add additional governance requirements and compliance controls to family-controlled entities benefiting from tax incentives. 

The new family office scandal sweeping through the city-state’s justice system appears to be nearing a watershed, at least in the public eye.

finews.asia reported on it at the end of March, mentioning the alleged substantive multi-million dollar fraud could potentially tarnish the wealth management and banking sector for the second time in as many years, given it follows closely on the steps of 2023’s large-scale money laundering crime.

Governance Requirements

Now, lawmakers have started asking questions, as a written parliamentary reply on Tuesday published on the Monetary Authority of Singapore (MAS) website indicates.

Member of Parliament Jerome Lim (Sengkang constituency) asked what «specific» standards of corporate governance were imposed on family offices seeking tax incentives, and whether the MAS required them to have robust fraud prevention mechanisms, third-party audits and whistleblower protections.

Mandatory Assessments

He also asked what percentage of such entities were subject to «intensive» supervision and compliance review in the past three years and why they had not been required to undertake mandatory risk assessments related to potential fraud vulnerabilities.

The questions were well informed and indicated substantial knowledge of the financial industry, with a public LinkedIn profile confirming that indirectly by indicating Lim is an associate professor of economics at ESSEC, a European business school. 

Before that, he was chief economist of ThirdRock Group, an investment and wealth advisory. Moreover, he was educated at Harvard and the London School of Economics, among other institutions.

Up to the Family

The written answer came from deputy prime minister Gan Kim Yong, also minister for trade and industry and MAS Chairman.

It essentially said that it «is for» the family to establish governance and control while hiring «the right people» to manage their private vehicles.

No Need for Regulation

«They do not need to be regulated nor be subject to specific corporate governance standards beyond those which apply to all corporate entities, whether they receive tax incentives or otherwise. This approach is consistent with major financial centers worldwide,» the statement indicated.

The MAS stated that its approach to so-called SFOs would be mainly focused on preventing money laundering risks and that «imposing unnecessary regulations» would increase compliance costs and «undermine the city state’s position as a business and financial center.

Talking Specifics

It then went into the details about the current fraud case by the former employees of the Chinese family office in question, saying that the misappropriation of funds was a risk faced by all businesses and not unique to SFOs.

«All businesses should institute appropriate controls to guard against such risks. Where misappropriation of funds occurs, Singapore’s legal regime allows for recourse against such misconduct,».

Connecting the Dots

There are clear takeaways from the statement, with the first being the very public – and sharp - light that is now being shed on the incident itself.

A closer look at the rationale of the government also reveals an element of defensiveness while not entirely connecting all the dots, although that may be intentional, given that the case is still making its way through the courts. 

Somewhat Suspicious

Still, many features of the scandal are likely to come under very close scrutiny in the upcoming months. 

As finews.asia indicated in its first report, the fact that the former employees were able to get away with appropriating S$74 million in suspicious in and of itself. 

The International Bank Question

It could be that they acted entirely without the assistance of international banks or legal advisors in setting up a BVI controlled by the four alleged perpetrators (Singa Wealth) entity, but it seems somewhat unlikely.

Moreover, if an international bank helped to transfer what appeared to be massively inflated salaries to the employees themselves, that would be something that would potentially warrant serious scrutiny, and a suspicious transaction report to the Singapore Financial Intelligence unit (FIU).

Circular Transaction

At the very least, it appears to be a circular and unusual transaction without proper rationale, given what is publicly known now. 

Given this, any lack of institutional scrutiny by third parties at any point in the transaction chain and flow of assets is potentially a clear issue that is likely to come into sharp focus soon, as at that point it would intersect with money laundering regulations, and that might tie with the MAS’s rationale about the legal recourses legally available for misappropriation of funds at the end of its parliamentary reply.

All Singaporean

Another key element is the fact that the alleged perpetrators all appear to be Singaporean. Here, the reply by the MAS leaves many things open. When the Singapore government adjusted its so-called global investor program two years ago, which also encompasses single-family offices, as finews.asia reported on then, it also doubled down on local hiring requirements. 

For example, a single-family office with about $150 million needs to hire at least five professionals, with at least three of them being Singaporean.

Heavily Question

The fact that it was Singaporeans who appear to have committed the crime is going to make family offices heavily question those kinds of requirements in the context of the current situation.

The best thing now would be to make everything transparent about all the exact modalities of the incident and how things could crystallize to such a sharp degree without anyone noticing or taking steps to prevent it, regardless of whether it occurred during the pandemic or not, when travel was sharply curtailed.

Transparency Needed

Although the MAS is reasonably not setting additional burdens on family offices, particularly in the confused economic and market picture resulting from Trump 2.0, it is still wiser to be transparent – and detailed - about everything as soon as it is legally feasible.

As of right now, many family offices are likely to want to know in detail how this could even happen with local hires.