Author: Amanda Cartey

A Singaporean court has commenced the sentencing phase in a high-profile case involving 10 Chinese nationals accused of laundering $2.2 billion (£1.8 billion) obtained from criminal endeavors abroad.

This scandal implicated several banks, property agents, precious metal traders, and a prestigious golf club, triggering extensive raids in affluent neighborhoods. Authorities seized billions in cash and assets, including 152 properties, 62 vehicles, luxury bags and watches, jewelry, and thousands of bottles of alcohol.

Recently, Su Wenqiang and Su Haijin became the first to receive sentences in the case. Su Haijin attempted to evade arrest by leaping from a second-floor balcony. Both individuals will serve slightly over a year in prison before deportation and a ban from reentering Singapore. The fate of the remaining eight defendants is pending.

Despite nearing its conclusion, this case, the largest of its kind in Singapore, prompts crucial inquiries. Prosecutors assert that the funds sustaining the defendants’ lavish lifestyles originated from illicit activities overseas, such as scams and online gambling. The ability of these individuals, some with multiple passports from various countries, to reside and conduct banking operations in Singapore for extended periods without detection has sparked scrutiny. Consequently, policies are under review, particularly regarding clients holding multiple passports, with banks tightening regulations.

Above all, this case underscores Singapore’s challenge in attracting the ultra-wealthy while preventing the inflow of illicit wealth.

Show me the money

Often hailed as the “Switzerland of Asia,” Singapore embarked on a campaign to attract banks and wealth managers in the 1990s. The dividends of economic reforms in China and India, coupled with a stable Indonesia in the 2000s, propelled Singapore into a haven for foreign enterprises. Offering investor-friendly legislation, tax breaks, and other inducements, the city-state swiftly became a magnet for international businesses.

Today, the ultra-wealthy can jet into Singapore via its private terminal, indulge in opulent waterfront districts, and engage in speculation at the world’s premier diamond trading exchange. Adjacent to the airport lies Le Freeport, a high-security vault offering tax-exempt storage for fine art, gems, wine, and other treasures, often likened to Asia’s Fort Knox due to its $100 million facility.

According to Singapore’s market regulator, the country’s asset managers attracted S$435 billion from overseas in 2022, nearly doubling the 2017 figure. More than half of Asia’s family offices, which oversee private wealth, are now based in Singapore, as reported by consulting firm KPMG and family office consultancy Agreus. Among them are offices linked to luminaries like Google co-founder Sergey Brin, British tycoon James Dyson, and Chinese-Singaporean entrepreneur Shu Ping, head of the world’s largest chain of hotpot restaurants, Haidilao.

Authorities suspect that some of the individuals implicated in the money laundering case may have ties to family offices that received tax incentives.

“There is an inherent contradiction for a place like Singapore, which prides itself on clean and good governance but also wants to accommodate the management of massive wealth by offering advantages such as low taxes and banking secrecy,” says Chong Ja-Ian, a non-resident scholar at Carnegie China.

“The risk of also becoming a banker for individuals who earned their money through nefarious or illicit means grows.”

Analysts warn that Singapore’s appeal to the ultra-wealthy isn’t without its risks. For affluent Chinese individuals, Singapore stands out as a preferred destination due to its renowned governance, stability, and cultural ties to China. In recent years, there has been a notable increase in the influx of Chinese capital into Singapore.

One of the ten suspects implicated in this case had been sought by Chinese authorities since 2017 for his alleged involvement in illegal online gambling. Prosecutors assert that he chose Singapore as his refuge because he sought a secure haven away from Chinese law enforcement.

Hiding in plain sight

Singaporean banks have found themselves embroiled in yet another financial scandal, echoing previous incidents like their involvement in the infamous 1MDB debacle, where billions were siphoned from Malaysia’s state investment fund through cross-border laundering schemes. Additionally, Singapore has been a nexus for individuals with dubious financial ties, exemplified by the arrest of Dan Tan in 2013, once labeled by Interpol as the head of the world’s most notorious match-fixing syndicate.

Despite Singapore’s stringent regulations targeting white-collar crimes and its active participation in global initiatives like the Financial Action Task Force aimed at combatting money laundering and terrorist financing, loopholes persist. While banks have invested significantly in bolstering compliance measures, such as stringent customer screening and advocating for stringent reporting protocols, detecting suspicious activities remains a formidable challenge.

Josephine Teo, Singapore’s second minister for home affairs, acknowledged the complexity of identifying illicit transactions amid a deluge of high-value financial dealings, likening it to searching for “one needle in several haystacks.”

Notably, Singapore’s thriving property market has emerged as an attractive avenue for laundering illicit funds, according to experts. Moreover, the allure of casinos, nightclubs, and luxury retailers provides additional avenues for criminals to launder money.

Kelvin Law, an accounting professor at Nanyang Technological University in Singapore, underscored the vast sums of money coursing through the city-state’s banking system daily, highlighting the potential for criminals to exploit this volume and obscure their illicit activities amidst legitimate financial transactions.

Singapore also does not limit the amount of cash that can be carried in and out of the country, only requiring a declaration if the sum exceeds S$20,000. And that is an advantage, says Christopher Leahy, the founder of Singapore-based investigative research and risk advisory firm Blackpeak.

“If you want to move lots of money, you hide it in plain sight and Singapore is a great place for that. There is no point putting it in the Cayman Islands or the British Virgin Islands, where there is nothing [to spend money on],” he said.

When asked for a response to analysts’ comments that Singapore’s advantages as a financial capital are also a draw for dirty money, authorities pointed the BBC to the law and home affairs minister interview in a local newspaper last year.

“We can’t close the window, because if we did that, then legitimate funds will also not be able to come. And legitimate business also can’t be done, or becomes very difficult to do. So we have to be sensible,” K Shanmugam said.

“When you are successful, you are a major financial centre, a lot of money comes in, some ‘flies’ will also come in,” he added, referring to an oft-repeated quote of the late Chinese leader, Deng Xiaoping.

Singapore has to decide how far it will go in accepting “money with varying shades of grey”, says Dr Chong of Carnegie China.

While increased regulation will help, he says transparency poses a bigger challenge: “Transparency goes against the very model of discretion that allows many wealth management hubs to thrive.”

Some analysts say this may well be the price Singapore is willing to pay to retain its position as a financial hub.

“The vast majority of the funds are legitimate, after all,” Mr Leahy says. “But there is an inevitable cost to being a major financial centre.”