By Emma Thomasson and Saeed Azhar
GENEVA/SINGAPORE (Reuters) - The financial crisis will heap even more pressure on tax havens to stop helping clients hide their money from the tax man, but offshore centers look set to retain favor for privacy and other attractions.
Germany infuriated Liechtenstein earlier this year with a probe into Germans stashing assets in the tiny Alpine state, while U.S. authorities are pursuing UBS (UBSN.VX: Quote, Profile, Research, Stock Buzz) for helping wealthy Americans hide cash in Switzerland to avoid tax.
Singapore, a growing private banking hub branded as Asia's Switzerland that is seen challenging older offshore centers, is also under pressure to open up from the European Union and due to a probe by Taiwanese prosecutors.
All this scrutiny is scaring away clients, raising banks' compliance costs and accelerating a move to onshore banking.
"The traditional private banking model based on hiding money is under attack," Teodoro Cocca, a banking professor at Johannes Kepler University of Linz, said at the Reuters Wealth Management Summit in Geneva.
"Once the dust of the crisis has settled and governments have to finance their huge rescue packages, they will certainly bring the issue of tax competition on the table again."
UBS is expected to reach a deal with U.S. authorities in coming months that could involve revealing some client details, undermining famed Swiss banking secrecy, while Liechtenstein has also signaled willingness to cooperate more with other states.
Singapore says it will not budge on its tough bank secrecy laws despite EU demands as it negotiates a free trade deal, but concedes it will act against money laundering.
"It is in our and the banks' interest to keep assets of criminal origin out of the Singapore financial system, thereby safeguarding the reputation of the financial center," a Monetary Authority of Singapore spokeswoman said.
Sebastian Dovey of London-based consulting firm Scorpio Partnership said regulators and politicians had decided that pursuing offshore centers was politically popular.
"Private banks need to use the situation to improve the way that they demonstrate their value to clients," he said.
"There will be likely more burden on the banks ... They will certainly have to ensure that the source of wealth is compliant with the market where the wealth was made."
KEEPING PRIVATE BANKING "PRIVATE"
The Boston Consulting Group has forecast total offshore assets under management will climb to $8.8 trillion by 2012 from $7.3 trillion in 2007, but it expects offshore's share of total assets under management to fall to 6.4 percent from 6.6 percent.
Traditional offshore centers like Switzerland, the United Kingdom's Channel Islands, Ireland and Luxembourg still make up two-thirds of assets under management, but Singapore and Dubai are growing fast. Continued...
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