AsiaCiti hack raises questions about Singapore’s tax regime

Amidst the ongoing revelations from the Paradise Papers, the lion’s share of the attention has been focused on offshore advisory firm Appleby. Appleby is not the only source of the leaked financial documents in the Paradise Papers, however.

On Wednesday 15 November the International Consortium of Investigative Journalists (ICIJ) released its first story from the half a million documents leaked from the Singapore headquarters of AsiaCiti Trust.

AsiaCiti Trust is an international trust and corporate services provider with operations in Hong Kong, the Cook Islands, Dubai, Nevis, New Zealand, Panama and Samoa.

According to the ICIJ, AsiaCiti has often skated on thin ice when it comes to conducting due diligence and complying with anti-money laundering and tax evasion obligations.

An audit by the Cook Islands Financial Supervisory Commission in 2008 found the company had only a 33% level of compliance with regulatory standards.

AsiaCiti’s activities in the Cook Islands include helping to set up three trusts for a Kazakh oil and gas baron convicted of embezzling US$20 million.

The Paradise Papers are far from the first time AsiaCiti’s operations have come under scrutiny for tax evasion. In just the last twelve months AsiaCiti Trust has played a key role in two major cases in Australia and New Zealand.

In late 2016 the Australian High Court ruled on a case initiated by the Australian Taxation Office against a bank with a registered office in Samoa, of which all of the directors were employees of AsiaCiti Trust.

The primary judge on the case called this form of corporate organization a ‘crooked pantomime’, an ‘elaborate deceit’, and ‘an illusion’, and the High Court unanimously ruled in the ATO’s favour, ordering the beneficial owner to pay back AU$16 million in taxes and penalties.

Barely a month later the New Zealand authorities released a report implicating AsiaCiti’s involvement in an alleged NZ$140 million tax evasion scheme by three local charity organisations, via a network of companies spread across New Zealand, Switzerland and the Isle of Man.

Both AsiaCiti and its Australian founder and Chairman Graeme Walter Briggs appear in the Panama Papers, including having shared ownership of several companies with the now-infamous offshore law firm Mossack Fonseca.

The Monetary Authority of Singapore (MAS) has said that it is reviewing the documents released by the International Consortium of Investigative Journalists and will take action against any breaches of regulations.

Whether regulations have been breached is only part of the question, however; the other side of the coin is whether the regulations themselves are strong enough to prevent this kind of alleged tax evasion.

Singapore’s corporate tax rate is 17%, [rating] among the lowest in the world. In 2016 a report by Oxfam ranked Singapore as the world’s fifth worst corporate tax haven.

The report claims that these countries are creating a “race to the bottom” which undermines the entire global taxation system, through a combination of policies including ever-lower corporate tax rates and anonymity as a shelter from tax authorities in other jurisdictions.

Flows of wealth from other jurisdictions have helped to buoy Singapore’s private banking industry.

Another recent research project sheds more light on Singapore’s place in the global offshore network.

The research found that Singapore and similar jurisdictions including Switzerland and the UK play a crucial role as conduits between jurisdictions where wealth originates and so-called ‘sink’ jurisdictions such as the Cayman Islands or Panama.

Conduit offshore financial centres generally have low or zero taxes imposed on the transfer of capital to other countries, either via interest payments, royalties, dividends or profit repatriation, and highly developed legal systems to help channel and disperse wealth to ‘sink’ jurisdictions.

This is exactly the pattern of behaviour which the Paradise Papers have exposed at AsiaCiti Trust, which takes in wealth from its clients in the USA, China, Switzerland, Romania, Nigeria, Thailand and South Africa and re-routes it via Singapore to corporations in Samoa, the Cook Islands and Panama.

Singapore’s government has pushed back strongly against the tax haven label.

In response to Oxfam’s report, the Ministry of Finance said that “Singapore’s tax policies are designed to support substantive economic activities in order to create skilled jobs and build new and enduring capabilities in Singapore. We do not condone any tax evasion activities or actions aimed at base erosion and profit shifting.”

Authorities in Singapore are taking some concrete steps to reduce tax evasion.

The government has signed the OECD’s Multilateral Convention To Implement Tax Treaty Related Measures To Prevent Base Erosion And Profit Shifting, and has since implemented all of the four internationally-agreed standards for preventing base erosion and profit shifting.

Singapore participated in the Forum on Harmful Tax Practices’ peer review of tax practices, which found that the country’s tax incentives satisfy international standards on countering harmful tax practices.

Singapore has also committed to implementing the OECD’s Automatic Exchange of Information, an initiative aimed at boosting transparency and preventing cross-border tax evasion.

As the fallout from the Paradise Papers continues, the response from governments and tax authorities in the key conduit jurisdiction of Singapore is likely to shape the future of tax evasion for the entire region.

Elise Thomas Melbourne-based Elise Thomas has a background in international affairs and a strong interest in financial crime, data and technology issues.