Speech by Mr. Louis Ng Kok Kwang, MP for Nee Soon GRC at the Second Reading of the Variable Capital Companies Bill [Bill no. 40/2018]
Sir, I stand in support of this Bill. When investment managers are deciding where to house their funds, they look for three key things: privacy for their investors; flexibility in their operations; and tax exemptions from the government.
Until now, we have had no corporate structure providing all of these features. This means that asset managers based in Singapore have been overseeing funds mostly domiciled in offshore jurisdictions like the Cayman Islands.
I am happy to say that this Bill plugs the gap. It allows investment funds to use popular global accounting standards rather than just the Singapore standard.
It allows non-disclosure of the fund’s investors and financial statements.
It allows investors to exit their investments easily. And as the Minister clarified in his 2018 Budget Statement, existing tax exemptions will be extended to this new company type.
I commend the Monetary Authority of Singapore for taking a consultative approach on this issue. In 2017, it held a public consultation on the issue. Industry observers and interested citizens provided feedback, and the MAS responded by tweaking its proposal. The final product blends sensible government with industry expertise.
That said, I have some clarifications to make.
Investigation of misconduct
The first point relates to the investigation of VCCs for misconduct.
Can the Minister clarify in what circumstances would the Ministry investigate the affairs and ownership of a VCC? What are the processes that the Ministry has in place to ensure that VCCs conduct themselves in a lawful manner?
My concern stems primarily from the fact that unlike regular companies in Singapore, VCCs not need to disclose their list of shareholders or their financial statements to the public.
While this is consistent with how unit trusts are already treated and with what investors expect from an investment fund, it nonetheless limits the level of public scrutiny and places sole responsibility on the government to spot or uncover misconduct.
We have learned from the leaks of the Panama Papers and the Paradise Papers that highly secretive company structures can hide unlawful activities. Those leaks have triggered worldwide investigations and toppled governments.
If this Bill succeeds in its goals and investment funds re-domicile from offshore jurisdictions to Singapore, the gaze of the world will inevitably turn towards our nation.
How will we distinguish ourselves from places like the Cayman Islands?
We should be concerned about the risks to Singapore’s international reputation. Fairly or not, Singapore is already widely labelled as a tax haven.
In 2016, UK charity Oxfam labelled Singapore the “fifth-worst” corporate tax haven in the world. This year, the Tax Justice Network, a global NGO, ranked Singapore fifth on its Financial Secrecy Index. A 2018 research paper by economics professors from Berkeley and Copenhagen also branded Singapore as a tax haven.
The risks come amid a sustained global push against tax havens. Entities like the European Union and the OECD have moved to blacklist tax havens, though neither has included Singapore on their lists. But researchers, reporters and NGOs namedrop us when reporting on this issue nonetheless.
Our reputation as a clean, fair, and transparent financial hub takes a hit with every mention. Not to mention the legitimate concerns about money laundering and fraud, an ever-pervasive problem in a world of complex financial and corporate arrangements.
Currently, the Bill provides little guidance on the scenarios in which the government would investigate VCCs, their managers and their shareholders.
It states that any investigations would be in the interest of the public, creditors or the shareholders, or based on allegations of misconduct. It would be good if the MAS can outline the principles, policies and systems it has in place to safeguard against misconduct related to VCCs.
Benefits for the average Singaporean
Sir, my second point relates to the average Singaporean.
In 2016, then SMS Indranee Rajah said at a conference of investment management professionals that the introduction of VCCs would create more “good jobs” in the professional services sector, including in accounting, legal, compliance, marketing, and IT. That was quite some time ago.
The MAS’s public statements in more recent weeks have not addressed similar topics and have instead tailored its message to investment managers.
In addition to what SMS Indranee said, VCCs will surely contribute to the Singapore economy by paying corporate registration fees, name registration fees, annual filing fees and legal fees. This direct impact can be measured in dollars and cents.
Can Minister provide an estimate or outline of the benefits that the establishment of VCCs in Singapore would bring for the average Singaporean?
Sir, clarifications notwithstanding, I stand in support of this Bill.