Singapore Must Toughen Chinese Family Office Supervision

Money laundering by China-born suspects highlights risks of ballooning family offices

By: Toh Han Shih

The recent bust involving nearly US$1 billion in laundered money shows the need for tougher scrutiny of the fast-growing number of Chinese family offices in Singapore, with reports of the extravagant lifestyles of some of the suspects highlighting the glaring wealth disparity between rich Chinese emigres and many Singaporeans struggling with the rising cost of living.

In mid-August, more than 400 officers from the Commercial Affairs Department (CAD), the Criminal Investigation Department, Special Operations Command, and the Police Intelligence Department conducted raids at multiple locations across the city-state and arrested 10 people, all of whom are originally from China, although some are citizens of Cambodia, Cyprus, Ni-Vanuatu and Turkey, Asia Sentinel reported on August 18. Assets worth about S$1 billion (US$740 million) have been seized or frozen, including 105 properties, at least 50 cars, jewelry, bank accounts, and liquor, according to Singapore media reports. The dragnet has widened to 24 more suspects named in addition to the 10 who were arrested, Channel News Asia reported on August 29.

It is unknown if any of the 10 apprehended individuals own family offices – entities wholly owned or controlled by family members to manage assets – but Chinese individuals who set up family offices typically have wealth on a scale of the suspects or sometimes even less. These offices ballooned from 700 at the end of 2021 to 1,100 at the end of 2022, according to the government. Nor are they all Chinese. Some of the more notable are Google Co-Founder Sergy Brin (Bayshore Global Management), Indian billionaire businessman Mukesh Ambani, and American hedge fund investor Ray Dalio (Dalio Family Office) according to the back-office service provider Empaxis.

In a speech to the Singapore Parliament on April 18, Foo Mee Har, a Member of Parliament of the ruling People’s Action Party (PAP), said, “Family offices are typically extremely private. Recent reports of flashy and ostentatious behaviors are restricted to a minority. Inflows of funds are subject to MAS’s (Monetary Authority of Singapore’s) stringent rules of comprehensive customer due diligence including establishing a clear and legitimate purpose for the use of the family office structure, ascertaining the ultimate beneficial owners, and corroborating the sources of wealth and funds.”

The lifestyles of these 10 arrested people were indeed flashy and ostentatious. Some of the suspects have flown singers from Taiwan to Singapore for their parties, with each singer charging as much as US$20,000 per night, according to a report in the Chinese-language local newspaper Lianhe Zaobao. Some of the suspects threw parties on a yacht and behaved in a loud manner in the Sentosa Golf Club, where it costs an estimated S$950,000 for a foreigner to be a member, reported the Straits Times.

Family offices contribute towards job creation, directly and indirectly, said Foo, who is also chief executive officer (CEO) of the Wealth Management Institute (WMI). Founded by two Singapore sovereign wealth funds, the Government of Singapore Investment Corporation (GIC) and Temasek, WMI provides training in asset management, wealth management, compliance, risk management, and family offices.

Some of these suspects spent millions of dollars in nightclubs to have mainland Chinese hostesses accompany them and drink booze while carousing loudly, according to an August 21 Zaobao report. The generous sums lavished by these suspected money launderers on nightclub hostesses were probably not the kind of job creation Foo had in mind.

“Today, as Singapore continues to be an attractive destination for global wealthy individuals, our doors will always be open for those who desire and can co-create purposeful wealth with us, Foo said. “To preserve our social compact, it is critical that they are orientated to integrate with Singapore’s social norms…. so that they can ramp up their contributions in terms of investments and impact.”

Some of the arrested 10 individuals have made questionable investments, setting up investment firms, IT companies, and construction companies in Singapore. A local IT executive said foreigners who set up companies to open bank accounts in the country, according to a Zaobao report. IT companies especially offer convenience for foreigners because fewer questions are asked in their establishment, the IT executive added. Thus, such dubious investments possibly provided a cover for laundering money.

Foo is probably right in saying “flashy and ostentatious behaviors are restricted to a minority,” given the large and fast-growing number of family offices in Singapore. WMI said it has had more than 1,500 enrollments since 2020. A significant fraction of these family offices are believed to be linked to Chinese moving their wealth out of China.

Nonetheless, this S$1 billion money laundering case highlights the need to be even more stringent in ensuring Chinese money flowing to Singapore is clean. At least two of the suspects among the arrested were wanted by Chinese police, reported ChannelnewsAsia, raising the question as to how they got into Singapore. The entrance of suspects wanted by Chinese police has an international dimension. If the Singapore authorities cooperate with the Chinese authorities in apprehending such wanted people, relations between Singapore and China will improve. Conversely, if Beijing perceives Singapore is harboring too many wanted Chinese suspects, ties between them risk deteriorating.

The splashing of wealth by suspects in this scandal may grate on the many Singaporeans who work hard to buy a home. As rich Chinese snap up luxury properties in Singapore, they can indirectly drive up the prices of the country’s state-supported economic housing called Housing Development Board (HDB) flats.

Ferrari crash

The wealth gap between some newly arrived Chinese and native Singaporeans highlighted in this scandal recall a tragic accident in Singapore in May 2012. While nobody died in the recent anti-money laundering bust, three people died and two were injured when a wealthy Chinese, Ma Chi, crashed his Ferrari into a taxi which in turn hit a motorcycle in May 2012. Ma, the taxi driver and his passenger, a Japanese woman, died. The motorcyclist, a Singaporean Malay, was injured. Also injured was a young mainland Chinese woman in the Ferrari with Ma, who was believed to be a nightclub hostess according to Shin Min Daily News, a Singaporean Chinese newspaper.

The taxi driver, a Singaporean Chinese named Cheng Teck Hock, was the sole breadwinner of his family. Singapore Law and Home Affairs Minister K Shanmugam gave “cast-iron assurance” of assistance to the taxi driver’s family, including funding the education of Cheng’s children and the family’s HDB flat, local media reported in May 2012. Shanmugam should be commended for alleviating the financial challenges of the taxi driver’s family, who lived in the ward where Shanmugam was the MP.

In an interview with local Malay media on August 21, Shanmugam said Singapore will not tolerate the influx of illegal money from abroad. Like Shanmugam, the Singapore government should make the cost of living affordable for Singaporeans, while ensuring the inflow of Chinese money is legal and beneficial for Singaporeans.

Toh Han Shih is chief analyst of Headland Intelligence, a Hong Kong risk consultancy