Reckoning time for wealth-management abettors?


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Asia-region wealth managers dumping some high-risk clients

In a fascinating sign of the times in tax-related and AML Compliance, Reuters last week ran an extensive story under the headline “Asia’s wealth industry booting out clients in costly clean-up.”

That kind of kick-in-the-financial-pants is usually reserved for marijuana-grow businesses, less influential geographic regions, or more obviously seamy industries, but AML Compliance and tax-revenue enforcement through initiatives like the U.S. FATCA have gained a level of traction never before seen.

The Reuters article asserts that regional wealth-management institutions—particularly in Asian money hubs like Hong Kong and Singapore—are closing thousands of accounts because of risk and the cost of adequate Compliance on these high-risk accounts.

Reporters cite as catalysts the avalanche of Mossack-Fonseca disclosures, the intense emphasis by the U.S. and other countries to curtail tax evasion, and the domino effect of ongoing criminal disclosures related to Malaysia’s massive 1MDB fund. Moreover, nations in the region in 2014 joined with the growing movement in the West toward an emphasis on better transparency and tougher AML regulations.

Interestingly, “aggressive tax amnesty programs” in Indonesia and India also appear to be having an effect, according to Reuters. If tax-evading customers of wealth managers take advantage of amnesty deals, the individuals and financial institutions that provided the tax-evasion assistance will likely be exposed during the process. This puts financial facilitators of tax evasion in the position of cutting ties or else risking full exposure of their own behaviors.

Wealth managers in Singapore and Hong Kong alone manage over $1 trillion, according to Reuters. One source cited in the story asserts that some wealth managers in Asia may need to off-board nearly a third of their clients based on the high risk of tax evasion and money laundering in the context of the increasingly punitive and assertive regulatory environment.

Some customers, according to the story, are finding their accounts closed with no warning whatsoever. And some account holders are finding themselves unable to access the funds in the closed accounts due to the account holder’s inability to verify the source of the funds or the identities of the board of directors, for example.

The new AML Compliance rules adopted by much of the Asian region in 2014 now call for full KYC/CDD of account holders, verified sourcing of the funds, and evidence of tax compliance. The cost of these new Compliance measures—especially when many institutions remain stuck in manual KYC and monitoring with only archaic mainframe terminals—is outpacing the profit from the accounts.


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