Singapore’s financial regulator has warned fund managers that a popular low-tax investment structure introduced to attract offshore capital could be exploited for money laundering, according to the Financial Times.

The structure, known as the variable capital company (VCC), was launched in 2020 to draw fund managers and family offices registered in low-tax jurisdictions to Singapore. The vehicle can be used for traditional and alternative investment funds, either as a standalone entity or as an umbrella structure for multiple sub-funds, the newspaper said. 

The Monetary Authority of Singapore (MAS) gave the warning in a private briefing to industry participants in late January, the FT reported, citing people with knowledge of the session. MAS told industry participants that VCCs had proved popular with hedge funds, private equity managers, and family offices, but cautioned that they could also be used to transfer illicit funds.

Singapore introduced the VCC regime as part of a broader push to compete with Hong Kong as Asia’s leading financial center and to attract investment businesses that had traditionally favored offshore jurisdictions such as the British Virgin Islands and Mauritius, the FT reported. The structure shares tax-efficient features with Luxembourg’s Sicav, the Cayman Islands’ segregated portfolio company, and Hong Kong’s open-ended fund company, according to the report. 

During the January briefing, MAS officials said more than 1,400 VCCs had been established and about 3,300 sub-funds were in operation, according to the FT. The officials also said more than half of Singapore’s licensed fund managers had set up VCCs and that international investor interest had been strong, the report said.

The newspaper also cited a review published by the regulator last summer that found most VCCs were being used appropriately, but that some showed little fund management activity and others lacked proper custody arrangements. The review said VCCs should “continue to remain vigilant” to money laundering and terrorist financing risks, according to the FT.

Read more at the Financial Times