There is an eastward shift underfoot in the world of private banking.

As pressure builds in Europe against bank secrecy and tax evasion, parts of Asia are cropping up as the new favoured private banking centres. A report published by PwC  in June 2011 estimates that Singapore is set to take the slot as the world’s top wealth manager by 2013. This easterly impetus comes in part due to a push, as increased regulatory pressures see a move away from Switzerland, and on the other hand from a pull, as places like Singapore begin changing their financial structures to be more attractive destinations for potential clients becoming nervous under mounting scrutiny from tax authorities in their own jurisdictions. It is in many ways logical. Asia was relatively unscathed by the sub-prime crisis; in combination with increased investment opportunities, a rising affluence in the Asian population and global investors seeking a more balanced portfolio, the tides turning east seems natural.

Singapore in particular is shining in its role as the new Swiss protégé. Seeking to diversify away from electronics manufacturing in the face of increasing competition from lower cost countries such as China, since the 1970s Singapore has steadily been building itself to a service economy - now heavily focused on the development of the private wealth management sector. The World Bank now ranks Singapore as the world’s easiest place to do business .  It has beefed up security protections, changed trust laws and begun allowing foreigners who meet minimum wealth requirements to purchase land to become residents. In 2001, Singapore stiffened laws against breaching confidentiality of bank customers in a way that makes penalties to violators tougher than in Switzerland – imposing fines of more than $76,000, imprisonment of up to 3 years or both. In addition to a growing number of international private banks and wealth managers moving in, even Swiss banks are setting up shop in Singapore including the bastions of Swiss banking Julius Baer and Lombard Odier Darier Hentsch & Cie as a result of these developments. Many see Singapore as a place where you can find what you lost in Switzerland - secrecy provisions, a lack of taxes on capital gains and most foreign dividends, a system that allows depositors to open accounts under corporations and trusts.  Singapore authorities say that the low tax rate is the result of prudent fiscal policy and that their banking system is open and transparent and the rules strictly enforced. Tax evasion is a crime in Singapore.  However, cognisant of the negative attention it was receiving from some parts - and the importance of being removed from the OECD grey list of uncooperative tax havens - Singapore swiftly renegotiated its tax treaties with at least 12 other countries to implement the international standard for exchange of information and successfully removed itself from this list by June 2011. This quick reaction helped enhance its credibility as a well-regulated economy which in turn promotes further inflows from private banking clients. It is a game of balance.

In Switzerland things are looking considerably less rosy for the private banking industry. The economic crisis has put pressure on the pillar of private banking, once known for managing a third of the world’s cross-border invested wealth. As governments elsewhere look to tighten their belts and increase their fiscal budgets, the spotlight is shed on such cross-border assets and as one of the world’s biggest offshore banking centres Switzerland has taken the brunt of it. In 2007 the US Justice Department began criminal investigations into UBS and later other Swiss banks for selling private banking services to Americans that allowed them to evade taxes. UBS paid $780 million to settle the case and later handed over the names of 4,450 American clients to the IRS. At the same time, European tax officials were gaining possession of discs stolen from Swiss banks holding data on thousands of clients. The Economist identifies the Swiss stance as ‘a morally neutral battle of wits against the fiscal authorities’. Tax evasion in Switzerland is an administrative offense, not a crime. Conversely, breaching client confidentiality is an offense. Dual criminality means that Swiss courts don’t lift requirement of bank/client confidentiality unless the act being investigated by the court is punishable under the law in both Switzerland and the country requesting the information.

Under pressure from the OECD and G20, in 2009 Switzerland signed up to OECD standards and agreed to end its previous distinction between tax evasion and tax fraud to avoid being blacklisted as a tax haven. Its tax policies with neighbouring EU countries has also developed since 2005 when it agreed to charge a withholding tax on all interest earned in the personal Swiss accounts of EU residents, to more recent bilateral agreements such as the latest deal signed with the UK on October 6, 2011 in which it agreed to tax money held in its banks by British residents who now face a levy of up to 35% as well as a withholding tax from 2014. Germany had already completed a similar deal earlier. Some estimate that this could bring the UK Treasury £5 billion. Others argue that it is less impressive, essentially enabling Switzerland to pay a flat fee to avoid revealing client names – which undermines OECD efforts to set international standards on exchanging information. 

Since 2008, it is estimated that $520 billion has left European offshore centres, mainly from Switzerland. Not a member of the OECD or EU, these pressures are not being felt quite as strongly 9,000 miles away in Singapore. The use of offshore facilities is not going away anytime soon but for the moment, it looks as though it is going east.