Singapore’s reputation as a leading financial hub is facing scrutiny following a recent S$3 billion money-laundering scandal. The incident has raised questions about whether the significant influx of new wealth is becoming unmanageable. This issue, dubbed “Singapore-washing,” highlights concerns over the integrity of the island’s private banking sector.

In recent years, many Chinese companies have relocated to Singapore to navigate US-China geopolitical tensions and escape President Xi Jinping’s “common prosperity” campaign. Between 2019 and 2022, direct investment from China surged by over one-third, significantly benefiting Singapore’s financial landscape. Notable companies like Shein Group and Hillhouse Investment have established headquarters in the city, contributing to a record S$435 billion in new funds in 2022, roughly 70% of Singapore’s GDP.

While banks like DBS have thrived in this environment—reporting a 23% year-on-year increase in fee income—the recent scandal poses a reputational risk to the entire industry. Unlike the infamous 1MDB scandal involving Goldman Sachs, this case implicates multiple banks, as a Chinese group allegedly laundered billions through over a dozen financial institutions in Singapore.

In response to the crisis, the Singapore government is intensifying oversight of family offices—an unregulated area within private wealth management—and urging banks to enhance their due diligence practices. In April, the central bank introduced a digital information-sharing system to help financial institutions flag suspicious activities. Consequently, the process of establishing family offices and private banking accounts has become more rigorous, particularly for clients with “golden” passports from countries associated with financial risk.

Historically, Singapore has grappled with issues related to money laundering, previously serving as a financial refuge for wealthy Southeast Asians with dubious ties. The recent influx of Chinese capital has thrust these concerns into the international spotlight, forcing the government to confront vulnerabilities within its financial system.

As a small, open economy, Singapore is inherently susceptible to money laundering, especially if it aims to expand its wealth management sector. In 2022, the city managed S$4.9 trillion in assets—vastly exceeding its GDP—with only 24% sourced domestically. The challenge lies in balancing robust scrutiny of incoming and outgoing funds while fostering bank growth.

While maintaining its status as a prestigious global financial center is appealing, compliance poses significant challenges. Unlike Dubai, which embraces a more lenient approach to financial regulation, Singapore is committed to safeguarding its reputation. Consequently, the phenomenon of Singapore-washing seems to have reached a critical juncture.