When Conyers Dill & Pearman opened its office in 2001, Singapore was a lucrative but lonely place for the offshore Bermudan law firm. However with Singapore’s rising status as a global financial centre – it ranked fourth in the latest edition of the Global Financial Centres Index (GFCI 10) – it is no surprise that fellow offshore firms have been arriving at a rate of one a year since 2008. Collas Crill was the latest edition, opening its doors in August this year, and now rumours abound that Withers (an onshore firm that specializes in private clients) is about to make an appearance.
“It’s about competitive edge,” said May-Lin Low, managing partner of Barker Adams’ Singapore office. “There are very few offshore firms here compared to, say Hong Kong. Plus,there is the proximity to Southeast Asia. We can be based here and still have a foothold in Greater China.”
Location, location, location
With the explosion of wealth in Southeast Asia, Singapore’s geographical location as the gateway to the region, and its easy access to India and Australasia, is undoubtedly a major reason firms are opening here but, in this era of e-commerce, is a physical presence really needed? “It is well received by clients,” said Low,“Even if face to face meetings aren’t required, they gain confidence from a physical presence, and there are the advantages of a shared timezone.” So why Singapore and not its big sister Hong Kong? “When we were looking to set up an Asian headquarters we looked everywhere,” explained Mike Edwards, the head of Cains’ Singapore office, “then narrowed it down to Hong Kong and Singapore. In the end Singapore was chosen because of its convenient location to serve Southeast Asian clients, the lower set-up costs at the time and the better environment.”
Indeed, the environment is frequently mentioned by firms as a factor in their decision along with its “superior urban landscaping,” lower pollution and the fact that, as well as being a financial hub, Singapore is a leading medical and entertainment centre. For some it wasn’t a case of either/or. “Although there is some overlap,” said Tan Woon Tiang, a director in the Singapore office of Conyers Dill & Pearman, “Hong Kong and Singapore serve different markets.
Hong Kong is strategically placed to serve Greater China, while Singapore,for geographical and cultural reasons, can better serve the ASEAN countries and India.” Meanwhile,Ashley Gunning, managing partner of Walkers’ Singapore office suggested that the demarcation is determined by how the banks have divided themselves, with investment banking and asset management being centered in Hong Kong and their private wealth management activities in Singapore.
There is, however, another reason why some choose Singapore over Hong Kong. “For some clients, Hong Kong is too close for comfort,” said one offshore lawyer who asked not to be named, referring to mainland China. “Even Chinese individuals without other links to Singapore may prefer to have their private wealth managed in Singapore rather than in Hong Kong,” said Tan, “because Singapore is geographically and politically more removed from their home jurisdiction.
Also, although Hong Kong has bank secrecy laws, these are embedded in the common law rather than in statute. Chinese clients, not familiar with the concept of common law based on judicial precedent, may feel more comfortable with the protection offered by enacted written laws.” However Joe Field, Withers’ senior regional partner, Asia, feels this sense of security is false. “Some people eschew Hong Kong because of China; however, depending on where the client is from, I would argue that Hong Kong is safer. It has the protection of Beijing and that doesn’t exist in Singapore.’ He continues: “If sabres are rattled, who knows how the Singapore government will react? The rules and regulations in Singapore might be better, but if there’s a scandal involved, who knows? This is untested; however, there is precedent: Nick Leeson was dragged off a plane by German police at the request of the Singapore government and extradited back to Singapore. If the reputation of Singapore is tarnished, if it’s a matter of national security, if the Government is embarrassed then there is a risk.
Timing is all
Of course, no one would be here if money was not involved. “In the last three to four years there has been an influx of high net-worth individuals from Asia arriving in Singapore,” said a private banker based in Singapore,who asked not to be identified. “Since the 2008 financial crisis, many people have shied away from U.S. and European banks. Hong Kong and Singapore are now the main centres.”
"There is certainly a lot of work for a private client lawyer,” said Simon Michaels, partner and head of the private client practice at Berwin Leighton Paisner, Singapore. “It smells of momentum.” “Most European money is staying in Europe,” said Gunning, “but the Asian money is coming back to Asia. Asia is growing millionaires on a daily basis.” And these millionaires and billionaires are arriving from all over Asia, with Indonesia, Malaysia and the PRC as the current forerunners, thanks to Singapore’s hospitable private wealth environment.“Ten years ago, the Government didn’t understand private banking” said the private banker. Field goes further: “Foreign private wealth firms were not welcome.” Understandably,the government had concerns about money laundering and illegal activities that have been associated with offshore jurisdictions.
However, with the emergence of Asian wealth, the requirement for private wealthmanagement couldn’t be ignored. In 2007, Chief Justice Chan Sek Keong speaking at the 10th Singapore Conference on International Business Law laid out the measures to be taken for the country to succeed as a wealth management centre: “We must get our infrastructure right, and by this I mean not only the sound and successful development of financial institutions for this purpose but also the law and its enforcement of legal rights.”
On the cusp of the worst global financial crisis since the Great Depression, Singapore opened its arms and provided a safe port in the perfect storm. “Singapore… has a diversified financial sector that offers investors a broad range of financial services,including access to capital markets,” said Edmund Leow, principal and head of tax and wealth management practice at Baker & McKenzie.Wong & Leow. “Its vibrant financial centre thrives within a larger economy consisting of manufacturing, trade and services sectors. A key motivation for the inflow of foreign funds is a greater proximity to the Asian markets and opportunities. This unique 'onshore-offshore'feature of Singapore's economy gives Singapore an edge over classic offshore tax havens.”
And if offshore is the choice,where is the money heading? “Many Singaporean individuals are investing in foreign properties. Properties in England are popular. They typically use British Virgin Islands companies as holding vehicles,” said Tan. “Singapore entities are investing all over the world, buying real estate and shares of businesses in various industries. Many of our clients are investing in China, India, Indonesia and Vietnam. Cayman Islands and British Virgin Islands vehicles are frequently used.” Gunning listed the BVI, Cayman and Bermuda as the most popular destinations.
A matter of trust
There seems to be one structure in particular that is becoming increasingly popular – trusts. “[Whilst] the majority of our work is still corporate and commercial,” said Tan,“trust is a growing area with private clients coming mainly from China,Taiwan, India and Indonesia.” “Asian clients have become more sophisticated and as wealth passes from the first to second and third generations, there is an increased focused on the use of trust structures for business succession purposes,” said Leow. “A lot of businesses in the Asia region have been family businesses,” said Gunning, “and now the patriarchs are maturing and ready to hand wealth to the next generation. Once this was done in Switzerland, now it is being done here.”
In fact, according to the PricewaterhouseCooper Global Private Banking and Wealth Management Survey 2011, Singapore is set to overtake Switzerland as the top wealth management centre by 2013 due to a combination of wealth globalization and increased regulatory pressure. “With globalisation, wealthy Asian families have become increasingly multi-jurisdictional,” said Lee Syin Long, head of trusts (Asia) at Walkers’Singapore office. “Usually educated in the U.S. or UK, the next generation may naturally work and settle in these countries.” And with families and assets spread across the globe, “they face possible exposure to aggressive tax authorities,” said Michaels.
Exposure that potentially increased when the OECD Model Tax Convention on Income and Capital was amended to remove the “domestic interest” exemption, the result being that,whereas previously a jurisdiction had only been required to exchange information that they themselves required for domestic tax reasons,they could now be required to go much further to meet their obligations under tax treaties. Pressure was brought to bear on countries who hadn’t both endorsed and implemented the enhanced model. For a while,Singapore remained on the “ grey list” of “jurisdictions that have committed to the internationally agreed tax standard, but have not yet substantially implemented,” with implementation requiring a jurisdiction to have signed at least 12 bilateral tax treaties containing the new standard.
In February 2010, an amendment to the Income Tax Act provided Singapore with the legislative framework to adopt the new standard in future tax treaties and, by the end of March 2010, had concluded enough new tax treaties or,amended existing ones, to be moved to the “white list.” “This changed the landscape,” said Michaels. “Clients became aware they needed to think and plan globally. They started looking for globally minded trust lawyers.”
The global move towards greater tax transparency has brought about a sea change in the way the world’s wealthy view their wealth, said Leow. “As the world becomes more transparent, we find many wealthy families place a greater emphasis on proper tax planning, instead of relying on banking secrecy and confidentiality to protect their wealth. Instead of asking whether their money or the structure will be kept confidential and undisclosed to tax authorities back home, the starting point for more clients is to ask how the structure will be treated under the tax and regulatory rules of the home country and the country in which the assets are booked,” he added.
So, as an offshore trust lawyer,it seems opportunities abound in Southeast Asia.However, not everyone agrees with the need for a Singapore presence. Frances Woo, the managing partner of Appleby in Hong Kong describes a “growing synergy” in Singapore and said the firm “is monitoring clients’ demand closely”. However, for now, it will continue meeting demand via its offices in Hong Kong, Mauritius and Seychelles, and regular trips to the region.
Everton Robertson, a partner with Thorp Alberga, Hong Kong,said he “doesn’t sense a stampede to Singapore.” He explains that while Singapore is an attractive location forlistings and private equity funds, he hasn’t seen “a change in appetite for PRC deals being governed by Hong Kong law.” In his opinion, mainland China is more compelling as a potential future location for offshore firms, and in July this year Ogier became the first firm with a mainland office. “In the future, China will be the great prize but it’ll be a long time before that wealth is harnessed,” said Field. “Now wealth is first generation,post-1985, so the issues wealthy Singapore and Hong Kong families have been dealing with are not yet relevant to China and, when it is, succession in China will be impacted by the one-child policy, the inverted pyramid.”
For now though, Singapore is the rising financial star of Asia, and other offshore firms will undoubtedly be joining the current group, with the GFCI 10 ranking Singapore as the top location where respondents were most likely to open offices over the next few years. And what about Withers? “We are looking at [a Singapore office] very closely” said Field. “We’ll decide in the next month or two, and will then move quickly.” So throw a suit, suntan lotion and a copy of trust precedents in a suitcase and come visit the Switzerland of the East. ALB
