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Singapore tops as black money destination

Indians have turned to Singapore after the Finance Ministry began scrutinising transactions involving Mauritius.

ABHINANDAN MISHRA  New Delhi | 2nd May 2015

ingapore has emerged as the foremost destination for Indian black money. Officials say that tax-evaders are now using this tiny Southeast Asian nation, instead of Mauritius and European tax havens, for investment purposes to turn their black money white and are then bringing it back to India.

Official sources say that the Singapore route is being used just the way the Mauritius route was used to "round-trip" ill-gotten funds. There are also reports that a number of wealthy and influential Indians are seeking NRI status in this island country. This would enable them to derive benefits existing in India's current laws and help them in financial manipulation.

For the first time, in the 2013-14 fiscal, Singapore became the biggest source of Foreign Direct Investment (FDI) into India at over $4 billion. Officials attributed this largely to the fact that Mauritius was exposed as an Indian tax haven, bringing the island nation's investment under Ministry of Finance scrutiny. "Once Mauritius started invoking suspicion, all those who were parking their money there got concerned. So their wealth managers advised them to look at Singapore," said a Mumbai based chartered accountant.

As per the Reserve Bank of India, in 2012-13, FDI worth US $1,605 million ($1.6 billion) came to India from Singapore, which increased to US $4,415 million ($4.4 billion) in 2013-14. The corresponding figures for Mauritius were $8,059 million (over $8 billion) for 2012-13, which decreased to $3,695 million ($3.6 billion) in 2013-14.

Officials familiar with the issue said that the emergence of Singapore as the new hub for parking black money is a global phenomenon. "At the global level too, people have withdrawn their investments from countries like Switzerland and moved to Singapore. The perception is very clear: the European countries cannot guarantee banking secrecy now. Singapore is the new Switzerland," said a senior official with the Ministry of Finance.

This observation is not without basis. Officials keeping a tab on the movement of black money have come across several instances where the trail has led to Singapore. Most recently, in the multi crore Saradha Ponzi scam, officials found evidence that trusts based in Singapore were used to siphon off the scam money. During the probe, the Central Bureau of Investigation came across some properties and a hotel in Singapore where Sudipta Sen, the now-jailed boss of Saradha, invested money, allegedly on behalf of a senior Trinamool Congress leader.

"Many Indian politicians purchased numerous immovable properties in Singapore in the last one decade. How they got the money to buy all this in an expensive place like Singapore is a matter of investigation," the official said. Among those who have invested in a hotel in Singapore in the past 10 years is a former Chief Minister, sources said.

Experts and officials say that Indians are increasingly looking at Singapore to park their money because of that country's strong banking secrecy laws, stable political environment and a system that encourages investment. "The offshore banking services offered by Singapore are unmatched. Singapore also provides a high level of privacy and confidentiality. In some cases, Singapore companies, when filing their documents do not need to disclose who their owners are. Only one shareholder and one director are needed to incorporate a company. Furthermore, corporations can be incorporated using nominee directors and shareholders, which stops the names of the true owners from being revealed. Companies can also seek audit exemptions. It is a place where one can legally invest one's ill gotten money," the official said.

According to Singapore Indian Chamber of Commerce and Industry (SICCI), Singapore has more than 4,000 Indian companies. The SICCI defines an Indian company as one that is incorporated in Singapore by an Indian and/or its shareholding is held by an Indian company, or held through a tax haven company, or any other intermediary company owned by Indians or an Indian company; and its shares are held by Indians residing in India or in Singapore.

In the multi crore Saradha Ponzi scam, officials found evidence that trusts based in Singapore were used to siphon off the scam money.

According to a senior corporate lawyer, Indians prefer Singapore as an investment destination because of its "conducive business environment": "Singapore has one of the most stable economies in the world and is considered as a tax haven by many. Having said that, Singapore has in place strict anti money laundering rules, which aim to curb unauthorised inflow of money from other jurisdictions, thereby preventing Singapore from becoming a shelter for money laundering and tax evasion activities."

Noted economist Gopal Agarwal stated that round-tripping of black money was a problem but felt that blocking the Singapore route completely was not desirable. "A lot of money goes to these (Singapore) tax havens and then through a camouflaged route comes back to India. If we have to stop the channelling of black money, this needs to be checked. But that does not mean that the whole Singapore route is bad. Many other bona-fide investments too come through this route and we need to segregate the sound legal investment from the one that is coming through black money by round-tripping. We need to have very strong KYC (know your customer) norms to prevent black money from entering the system. Completely blocking the route is not desirable," he said.

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