HONG KONG (Reuters Breakingviews) - Indonesia's tax amnesty could have been a real nightmare for the world's top private banks. Instead, the scheme, which resulted in the disclosure of $365 billion in assets, has turned out to be a blessing in disguise resulting in limited actual outflows to Indonesia and providing a chance to wash away undesirable customers.
Nearly 1 million Indonesians disclosed assets previously unknown to the taxman in a nine-month long scheme, which ended on March 31 and now ranks as the most successful in Asia. All past sins were forgiven in exchange for a modest penalty ranging from 2 to 5 percent of assets, or double that for assets declared but not repatriated.
The bold scheme, launched last year with great fanfare, initially alarmed private bankers. Some feared a flood of money would head back home. This was particularly true for wealth managers in Singapore, where Jakarta says an estimated $200 billion of Indonesian assets are held.
In the end, only a fraction of the headline amount actually flowed out of private banks with Indonesians still preferring to keep large sums of money outside of the country. Assets worth just over $11 billion were moved back to Indonesia against around $77 billion declared to tax authorities but legally left overseas.
Indeed, Credit Suisse disclosed in its annual report that its Asia Pacific wealth management division had seen in the three months to December 1.4 billion Swiss francs ($1.4 billion) of regularization outflows, a term often used to describe money taken out to join amnesty schemes. Its Swiss compatriot UBS said total cross-border outflows amounted to 7.4 billion Swiss francs in the same period, mainly in emerging markets and Asia Pacific. Neither bank gave specific details about Indonesia.
That is a small price to pay for clearing some big risks off the balance sheet and avoiding future regulatory headaches or even fines. Assets moved onshore may even be recouped over time as banks progressively expand their footprint in Asia, beyond the traditional money hubs of Singapore and Hong Kong.
Wealth managers also privately concede the amnesty was an opportunity to get rid of some of their more problematic clients without causing too much offence, effectively killing two birds with one stone.
Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.
Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.