Give and take - attacking the corruption equation

19 March 2012

Contacts

In recent times, Singapore has been uncharacteristically troubled by a number of actual and alleged public sector fraud and corruption scandals. In the aftermath, there have been difficult questions asked and pointed debates on the effectiveness of the existing laws and regulations. The fact that such news broke against the backdrop of Singapore’s slide in ranking on Transparency International’s Corruption Perceptions Index from number 1 (in 2010) to number 5 (in 2011) is further cause for concern. Some have wondered whether such developments will impact on Singapore’s sterling reputation for integrity and incorruptibility. Many have condemned those accused of accepting bribes and other favours but, interestingly, there has been little commentary on the role of those individuals alleged to have given the bribes and the corporations they are employed by, which potentially stand to benefit from their conduct. Focus has remained predominantly on the alleged recipients of bribes. Every incident of corruption has a giver and a taker and, while attention has been rightly drawn to civil servants and public sector processes that should be held to higher standards of integrity and stringency, it would be remiss for the actions and practices of the private sector givers to escape scrutiny.

Within the last year, various corruption and fraud investigations and cases have surfaced in Singapore.

In one of the largest public sector fraud cases, two former senior executives of the Singapore Land Authority (SLA) and a former swimming instructor defrauded the SLA into awarding IT contracts to false proprietorships. In total, the SLA paid out approximately S$12.2 million in 282 fictitious contracts. The swimming instructor, also the owner of the proprietorships, was charged with cheating and sentenced to 10 years’ imprisonment in January 2011. His accomplices, the deputy director of technology and infrastructure at the SLA and a former SLA manager, were sentenced to longer jail terms of 22 years and 15 years respectively, for charges of cheating and money laundering. Following the SLA case, a thorough review of the system of approving government contracts in Singapore was carried out.

In January 2012, as a result of the government-wide audit, it was discovered that a relatively junior clerical officer working for the strategic planning and development division in the Ministry of Home Affairs (MHA) had defrauded the MHA of S$617,000 since 2007, by forging the approval of senior directors in order to receive gift vouchers. In total, the officer allegedly committed 218 counts of cheating, four counts of forgery, one count of criminal breach of trust and 232 counts of converting proceeds of crime. Police seized approximately S$474,963 worth of goods from his premises. Five MHA officers involved in the case have since been disciplined.

More recently, the probe into former Singapore Civil Defence Force (SCDF) Commissioner Peter Lim and former Central Narcotics Bureau (CNB) director Ng Boon Gay again cast the spotlight on the integrity of senior civil servants and the public procurement process. The case allegedly revolves around the tender process for IT related products and the two men are believed to have had inappropriate relations with a 36-year old woman, who is said to be a former sales director of a data storage firm. Both Lim and Ng have been arrested and are being separately investigated by the Corrupt Practices Investigation Bureau (CPIB) for offences under the Prevention of Corruption Act (PCA). While investigations are ongoing, questions have been posed on the level of due diligence conducted on senior appointees in public service, the rigours of the public procurement process and the effectiveness of public sector internal controls.

Clearly, steps are being taken to review and address any potential deficiencies in the public sector framework of systems and controls, including the effectiveness of whistleblowing channels. Deputy Prime Minister Teo Chee Hean, who is also Minister-in-Charge of the Civil Service, said in Parliament, “Our zero tolerance approach to corruption in the public and private sectors can only work if Singaporeans continue to be imbued with the right values and recognise that whilst corruption may be a fact of life, it is not our way of life in Singapore… We also require good leadership by example at the top, as well as a population which rejects corruption and does not accept any form of corruption at all.” However, it is less clear what steps are being taken to look at the system of governance concerning the ethical and regulatory compliance programmes of private commercial enterprises. After all, in tackling a crime as complex and insidious as bribery and corruption, one needs to holistically target both sides of the equation - the receiving as well as the giving.

Historically, the enforcement of anti-corruption laws in Singapore on the supply side of bribes has focused on the individual bribe-payers (as it has been with most countries). The rationale for this approach could have been that such bribery crimes were committed by individuals and it may not be fair to prosecute the companies which employ such bribe-payers since doing so may end up penalising unwitting shareholders, especially if the employee appears to have engaged in bribery on his own accord.

In the wake of significant legal reform in the anti-corruption landscape in the last few years, led by the coming into force of the UK Bribery Act in July 2011, such thinking no longer holds sway. Enforcement of bribery offences against corporations (in addition to individual bribe-payers) is underpinned by the argument that shareholders are ultimately the beneficiaries of the commercial strategies of the corporation and therefore should bear responsibility to some degree. If the corporation employs unlawful tactics such as bribery to procure contracts, the shareholders should not be allowed to benefit from such transactions. Indeed, any monetary penalty imposed on the corporation, which ultimately hurts its shareholders would, it is argued, render it imperative for shareholders to ensure that they conduct proper due diligence and invest in companies which conduct business in a legal and ethical way. A recent notable enforcement action in the UK has seen the utilisation of anti-money laundering laws to force the shareholder of a company to disgorge dividends it received on the basis that they represent the proceeds of crime committed by the company. It was not necessary for the authorities to show that the shareholder was guilty of the act of corruption in question. Furthermore, the UK Bribery Act raised the bar and moved beyond the existing paradigm by enacting law which criminalises a corporation’s failure to prevent bribes from being paid on its behalf. This strict liability crime of omission (as opposed to commission) does not require the prosecution to show that the corporation authorised its employees or agents to bribe on its behalf, or that the corporation had knowledge of such bribery. It only needs to be demonstrated that a bribe was offered or paid by the employee or agent with the intention of benefiting the corporation. The far-reaching extraterritorial effect of the UK Bribery Act (which could apply even to non-British companies) elevates the risk of the common Asian practice of using third party agents to handle local business affairs on the corporation’s behalf to a whole new level.

The only statutory defence available under the UK Bribery Act against the offence of failure to prevent bribery is that of the corporation having in place “adequate procedures designed to prevent persons associated” with the corporation from bribing another person. Further light has been shed through UK statutory guidance on what could constitute such “adequate procedures”. Essentially, these are regulatory compliance programmes comprising internal systems and controls which effectively implement the corporation’s anti-bribery policies and procedures and create a corporate culture of ethical decision-making. This culture comprises the zero tolerance approach to corruption, the right values and good leadership by example referred to by DPM Teo.

The current laws in Singapore do not mandate the implementation of regulatory compliance programmes for corporations in general, or include any offence of failing to prevent bribery. Whilst such an offence of omission has been criticised in some quarters as being harsh and draconian by business persons and legal practitioners, calls to put proper compliance programmes in place for commercial organisations have been less objectionable.

Apart from the obvious operational benefits derived from preventing and detecting corruption and fraud, a company with a proper compliance programme is more likely to be considered well-managed and less of a risky venture to investors and financiers alike. It is also more attractive as a business partner or service provider to other companies based in countries with stringent anti-corruption regimes like the UK and US.

The Singaporean brand of ethical integrity and operational efficiency needs to keep pace with and, where possible, surpass international benchmarks set by the laws and enforcement trends of comparable jurisdictions. It is an opportune time to seize the momentum generated from the changing global anti-corruption landscape and the lessons learnt from recent incidents to take our standards and conduct to a new level. Effective and proportionate laws and regulations need to be in place to address the imbalance when targeting the corruption equation. Singapore has an enviable reputation for integrity and, in light of international developments, may wish to further strengthen its anti-corruption regime.

This article was first published on 20 March 2012 in the Business Times and is reproduced with the permission of Singapore Press Holdings.

Additional contacts

Australia: Lindsay Houghton

China: Sun Hong

Hong Kong: Jim James, Charlotte Robins

Indonesia: Susandarini

Japan: Chris Viner

Singapore: Guy Spooner

Thailand: Somboon Kitiyansub

Vietnam: Geoff Sutherland

United Kingdom: Ruth Cowley, Sam Eastwood