Lionel Messi is regarded by many as one of the greatest footballers of his time; some pundits even argue that he is the greatest of all time. However, for all his wizardry and silky smooth moves on the football pitch, he and his father stand accused of evading the Spanish tax authorities (pun not intended) and are set to stand trial for alleged tax fraud. His is just one of numerous instances where taxmen around the world are tightening the noose around suspected tax offenders. Cooperation amongst tax authorities have also increased as they coordinate efforts to fight tax offenders who set up complex vehicles worldwide in an attempt to hide the extent of their wealth.

Singapore, being a world-renowned wealth management and financial center, is not far away from the action. It was recently reported in the Singapore daily, The Straits Times, that the US Internal Revenue Service is investigating into whether a Singapore asset management firm had wrongly accepted transfers from undeclared Swiss accounts closed by American taxpayers.

Tax prosecution is not the only fear for would-be take offenders. A littleappreciated fact is that parking of the proceeds of a tax offense in Singapore will now constitute money laundering under Singapore law and expose offenders to additional criminal charges.

In light of this flurry of action, it is increasingly important for individuals who “park” money in Singapore and asset management firms themselves to find out what legal obligations or risks they may be exposed to.

The Singapore Landscape

Singapore was one of the 47 countries which agreed to the Declaration on Automatic Exchange of Information in Tax Matters (the OECD Declaration) at the OECD’s annual Ministerial Council Meeting in Paris in May 2014. The Declaration obliges Singapore to implement a system of sharing of information annually. However, once the information is shared, what then happens if a foreign tax authority requires assistance to enforce on the illgotten gains?

The two main pieces of legislation in Singapore are the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Cap. 65A) (CDSA) and the Mutual Assistance in Criminal Matters Act (Cap. 190A) (MACMA). Both laws were amended, effective 1 September 2014, to allow the Singapore authorities to pursue individuals or entities that have willfully intended to evade or assist another in evading a foreign tax. The wideranging definition of “foreign serious tax offense” in both acts is as follows.

foreign serious tax offense” means an offense against the national law of a foreign country that consists of the doing of any of the following (however described) willfully with intent to evade, or to assist any other person to evade, any tax of that country:

(a) omitting from, or understating or overstating in, a return made for the purposes of that tax any information which should be included in the return;

(b) making any false statement or entry in any return, claim or application made, or any document or information required to be given, for the purposes of that tax;

(c) giving any false answer, whether verbally or in writing, to any question or request for information asked or made for the purposes of that tax;

(d) failing to inform the authority responsible for the collection of that tax, in the required manner, of any incorrect information appearing in any assessment made by that authority, when required to do so;

(e) preparing or maintaining, or authorizing the preparation or maintenance, of any false books of account or other records, or falsifying or authorizing the falsification of any books of account or records;

(f) making use of any fraud, art or contrivance, or authorizing the use of any such fraud, art or contrivance.

Assistance to a Foreign Tax Authority

Following the MACMA amendments, Singapore can now lend assistance to foreign tax authorities even if the commission of the acts in Singapore would not have violated any local Singapore laws. Previously, the Singapore government could only lend assistance if the acts complained of also constituted an offense in Singapore. The scope of assistance includes 1) assistance in obtaining evidence for the purposes of prosecuting a tax offense, 2) enforcement of a foreign confiscation order, and 3) assistance in searching for and seizing anything that is relevant to the foreign tax offense.

In particular, it should be noted that the confiscation order not only applies to the monetary sum which the tax offender had evaded, it may also include an “instrumentality forfeiture order.” Accordingly, any property used in connection with the commission of the tax offense may be confiscated or destroyed. This would include immoveable property or valuable items that the tax offenders had used tax proceeds to pay.

The sum total of the amendments gives the foreign tax authority as much teeth to pursue a tax offender and their assets in Singapore as though the tax offender and their property were located in the foreign jurisdiction. This would render the tax offender’s complex web of corporate vehicles useless (at least with respect to his assets in Singapore).

Breaching Singapore Money Laundering Legislations

The means in which a foreign tax offender can be pursued in Singapore do not stop at the enforcement of foreign confiscation orders or rendering assistance to tax authorities. Singapore has also recently amended the CDSA to allow the Singapore authorities to pursue the “proceeds of crime” of a foreign tax offender.

Under the amendments, a person convicted of a foreign tax offense may be liable under Section 47 read with Section 2 of the CDSA if he conceals, possesses or uses the proceeds from the tax offense in Singapore. The scope of this is not to be underestimated— opening a bank account in Singapore to hold any undeclared income would trigger the provision. This offense and corresponding punishment is distinct and on top of the foreign tax offense of which the person is already convicted.

Further, the power of the Singapore authorities is not predicated upon a final finding of guilt for a tax offense in the home jurisdiction. Under the CDSA a suspect can be deprived of using his ill-gotten gains once tax evasion proceedings have been instituted against him even though he has not been convicted yet. This can be done through an order directly restraining him from using that asset or through a charge over his property. Second, once convicted, a confiscation order can be made to directly deprive the offender of the proceeds of the tax offense. Similar to the “instrumentality forfeiture order” in the MACMA, the Singapore court can also order a “substitute property” confiscation order to confiscate any property used or intended to be used for the commission of the foreign tax offense. Third, the Singapore authorities may search premises and seize anything that they have reasonable grounds for suspecting relates to the foreign tax offense. These informationgathering powers also extend to compelling individuals and entities (financial institutions included) to produce information that may be related to the foreign tax offense.

Of particular concern to foreign individuals, who may leave the design of their web of commercial vehicles to experts without keeping tabs on the location of these assets, is Section 26 of the CDSA regarding “absconded persons.” Under Section 26, if a person cannot be “found, apprehended or extradited” six months after investigations have been commenced, he would be “deemed” convicted of the said offense. Upon this deemed conviction, the Singapore court could proceed to make confiscation orders. Section 26 would also apply if an individual passes away before criminal proceedings are instituted against him or if he passes away midway through criminal proceedings. Upon the “deemed” convicted, a confiscation order could then be made against the estate of the deceased.

As for how the law stands now, a foreign tax offender, who is focusing his efforts on fighting tax prosecution within his home jurisdiction, could find himself hit with a confiscation order because his advisors had failed to inform him of CDSA proceedings in Singapore— a jurisdiction totally unrelated to the tax prosecution. Another situation could be that the beneficiaries of a deceased estate are unaware as to the deceased’s tax offenses or extent of the estate’s assets, only to discover that the estate is slapped with a confiscation order when they finally get around to administering the estate’s assets in Singapore.

Third Parties Beware

Asset managers and bankers who assist in the holding or moving of assets also face exposure. First, they could potentially be guilty of an offense under Section 44 of the CDSA if they had reasonable grounds to believe that they were assisting the tax offender in retention or control of the proceeds of the foreign tax evasion. The offense carries a maximum fine of S$500,000 and/or a maximum imprisonment term of 10 years (an organization, on the other hand, is held liable for a maximum fine of S$1 million). Furthermore, they can be held liable even if only part of the assets they managed directly or indirectly represented the proceeds of the foreign tax evasion.

Second, the CDSA (and industry regulations) imposes a duty to disclose suspicious transactions in connection with foreign tax offenses. Failing which, they would be held liable for a maximum fine of S$20,000.

Conclusion

The OECD Declaration assists in the detection of tax offenses. However, one must not lose sight of the enforcement mechanisms and legislations available in financial hubs like Singapore. In light of the wide-ranging powers under the MACMA and CDSA, individuals and corporations alike should be put on high alert of any potential legal liability. There are several important takeaways:

  • Offenses under the MACMA and CDSA are extremely serious and carry penal consequences of a high quantum fine and/or imprisonment.
  • Individuals and corporations should seek legal advice on whether their corporate structures comply with their relevant tax laws and codes.
  • Individuals and corporations should constantly be aware of and monitor the distribution of their assets through any corporate vehicles they may utilize.

Singapore’s football team may be ranked 150th in the world, but even the world’s best players might find it a little hard to give the new Singapore legislations the runaround.