HONG KONG -- Singapore has stepped up scrutiny of Chinese wealth coming into the city, including rejecting applications to set up family offices, following a recent money laundering scandal.
The Monetary Authority of Singapore since January has denied two family office applications with Chinese-affiliated wealth, according to two sources working on the cases. These include people who hold only a Chinese passport and those who hold additional foreign passports. The rejections were given in a written format but without a detailed explanation, as indicated by an email seen by Nikkei Asia.
On the other hand, there has been at least one recent approval, from a non-Chinese national applicant, one of the people said.
MAS does not publish a breakdown of applications or rejections.
China nationals looking to set up family offices in the city-state are also facing closer questioning this year, the people said, with inquiries covering everything from how many passports the applicants hold to whether any entities connected to them are facing mainland regulatory action that could have implications for Singapore's anti-money laundering efforts, the people said.
Single-family offices submit applications with MAS to qualify for tax breaks, but they can also choose to operate in the city-state without using those incentives. There were 1,400 single-family offices qualified for the incentives as of the end of 2023, a 27% jump from the end of 2022, latest official figures show.
The rejections come as Singapore continues to investigate the biggest money laundering case in its history. In August, police arrested 10 individuals of nationalities from China, Turkey, Cambodia, Cyprus, Vanuatu, Dominica, and St. Kitts and Navis in connection with the case. Authorities have seized or frozen assets worth over 3 billion Singapore dollars ($2.3 billion).
Inquiries to set up family offices in Singapore slowed in the months following the money laundering investigations, lawyers and wealth advisers told Nikkei Asia in late October.
In a statement to Nikkei Asia, MAS said there were rejections in the past, even before the money laundering scandal, though it did not provide figures or a breakdown of applications by nationality.
"All applications for tax incentives from Single Family Offices (SFOs) are assessed against a set of criteria, which include assets under management, number of investment professionals hired and an assessment of money laundering risks," an MAS spokesperson said.
"The set of criteria applies to all applicants, regardless of nationality. Applicants that had failed to meet [MAS's] criteria were rejected. This has always been the case. There have been rejections before the money laundering investigation in August," the statement continued. "MAS continues to receive a steady stream of applications for tax incentives from SFOs."
According to an email sent recently by MAS to a Singapore family office entity and seen by Nikkei, the entity's name and "a letter of rejection" were highlighted following a brief statement from the MAS. "We have considered [entity name]'s application made under the 13O to use tax incentives, but we regret to inform you that the application is not yet successful," according to the email. Nikkei Asia was asked not to name the entity due to the sensitivity of the matter.
The Singapore entity, which had sought to utilize a tax incentive program for family offices known as the 13O, is now considering diversifying from Singapore to Canada after the failed attempt, one of the people said.
To qualify for 13O incentives, family offices must put at least SG$20 million of assets in funds and invest SG$200,000 in local businesses, as well as employ at least two professionals. Wealthy individuals are allowed to put money into private banks in Singapore without using the family office scheme.
A person familiar with the matter said MAS did not usually reject applications outright in the past. "They just let you wait for very long, and the wait has been longer and longer, [from] 12 months [to] 18 months and 24 months. From the start of this year, we start to see some outright rejections."
A rejection means the MAS will not consider the application again, the person added.
A second source said MAS is posing more questions to private banks and family offices about their know-your-client processes in relation to money laundering. There are still applications in the pipeline, "but the process has been extremely slow," the person added.
"With an upcoming election, the priority of Singapore is not to take in more family offices but to address the wealth gap following a huge inflow of money that pushed up real estate prices," a private banker said. Garnering a high level of support is crucial for the long-ruling People's Action Party, he said.
Singapore is set to hold a general election by November 2025, while Prime Minister Lee Hsien Loong is set to pass the baton to a new leader, Lawrence Wong, this year.
Alvin Tan, Minister of State for Trade and Industry and a board member of the MAS, said in May that "family offices themselves have had virtually no impact on our private housing market, as there was no residential property transaction attributable to family offices over the last six years." Tan was addressing the parliament's questions on family offices.
All sources declined to be named due to the sensitivity of the matter.
Many are still hopeful that Chinese wealth will keep coming to the city following the need to diversify from their home country.
Han Shen Lin, a finance professor at New York University Shanghai, said such rejections reflect a tightening of Singapore's anti-money laundering standards after the recent scandal. "Yet Chinese will continue to transfer their wealth to Singapore as they look to diversify their assets away from a riskier onshore environment," he said.
"The U.S. and Europe are increasingly unwelcoming of Chinese money, thus leaving Singapore as the most attractive hub," Lin added. "The rejections signal that China family offices should expect more hurdles going forward."
Additional reporting by Dylan Loh in Singapore
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