SINGAPORE (Dec 31): Keppel Corp ruined my Christmas break last year. On Dec 23, 2017, the company owned up to its involvement in a bribery scandal in Brazil, and unveiled a “global resolution” that would see it pay fines of more than US$422.2 million. The scale of the fines, and the fact that Keppel had been denying bribery allegations since early 2015, made this exactly the sort of story we would ordinarily jump on. 

Unfortunately, The Edge Singapore had already closed its last issue of the year, and our next issue was not going to be out until about a week after the New Year. And, by then, I knew any story we pulled together would lack the impact of timeliness. 

Looking back now, the Keppel bribery case was actually part of a bigger story that has unfolded over the past year about the effectiveness of market regulators and law enforcement agencies in bringing big corporates to heel. With increasingly globalised businesses, and sometimes employing disruptive new technologies, big companies are becoming harder to regulate. In some cases, the appropriate laws might not exist. In other cases, public apathy or some competing interest might prevent regulators from acting.

Although Keppel is a homegrown Singapore corporate group, and it was involved in the bribery of politicians in Brazil, it was the US that apparently had the inclination as well as necessary laws and enforcement mechanisms to ultimately bring the company to justice. Specifically, Keppel had violated the US Foreign Corrupt Practices Act, which essentially prohibits the payment of bribes to foreign officials to obtain business. With its illicit activities in Brazil exposed, Keppel accepted a deferred prosecution agreement (DPA) with the US authorities, which required the company to pay fines and incentivised it to cooperate with the investigations and implement remedial measures.

While the penalties did little damage to Keppel’s market value, they were hefty compared with the profits from the business the company corruptly obtained in Brazil. According to the US Department of Justice (DOJ), the company paid some US$55 million in bribes over several years and earned profits of more than US$350 million from corruptly obtained contracts. More importantly, the penalties imposed on it were greater than if the Singapore authorities had gone after the company. It was widely reported early this year that Keppel would only have been liable for a fine of $100,000 had it been prosecuted in Singapore.

Shouldn’t Singapore introduce laws to enable prosecutors here to go after companies that behave improperly overseas? And, wouldn’t having a DPA mechanism make sense too? The answer seems obvious. Being a small country, Singapore’s largest companies naturally do a substantial amount of business overseas. Yet, the US Foreign Corrupt Practices Act has been criticised for adversely affecting the competitiveness of US companies when they venture overseas. In 2012, current US President Donald Trump said that “the world is laughing at us” for enforcing the law. 

Do Singaporeans particularly care that a local company such as Keppel might be a corrupting influence in some faraway country like Brazil? Or, are they more concerned that Keppel — whose financial performance indirectly impacts the national budget through investment returns generated by Temasek Holdings — be left unencumbered in its pursuit of shareholder value? 

Goldman under fire

Across the Causeway, Malaysian voters brought the more than six-decade rule of Barisan Nasional to an unexpected end in May, clearing the way for the 1Malaysia Development Bhd (1MDB) case and other financial scandals to be properly investigated. Backed by the righteous outrage of ordinary Malaysians, the new Pakatan Harapan government seems determined to bring all the perpetrators to justice.

Already, former Malaysian prime minister Najib Razak has been charged with money laundering, criminal breach of trust and tampering with an audit report on 1MDB. Arul Kanda, former CEO of 1MDB, as well as a number of other former 1MDB officials have also been charged. Meanwhile, Low Taek Jho, the chubby Penang-born wheeler-dealer at the centre of the scandal, who is also facing charges in absentia in Malaysia, has been complaining about the new Malaysian government seizing his luxury yacht, Equanimity. The yacht is said to have been built at a cost of US$250 million, and is now reportedly for sale at a minimum asking price of US$130 million ($178 million).

Malaysian prosecutors are also going after global banks that were involved in the scandal. On Dec 17, they filed criminal charges against Goldman Sachs for its handling of three 1MDB bond sales in 2012 and 2013 worth a total US$6.5 billion. Goldman Sachs is alleged to have omitted material information and made statements that were untrue in the offering circulars. The US DOJ has said some US$2.7 billion of the proceeds were misappropriated. Goldman Sachs earned US$600 million in fees and commissions from the bond sales, which is widely seen to be excessive.

A couple of years ago, Singapore seemed to be leading the way in going after individuals and banks involved in the 1MDB affair. On May 30, 2017, the Monetary Authority of Singapore announced the completion of a two-year review of banks involved in the 1MDB transactions known at the time. “Arising from its extensive review, MAS has shut down two merchant banks, BSI Bank and Falcon Bank, owing to egregious failures of [anti-money laundering (AML)] controls and improper conduct by senior management,” MAS stated.

“Financial penalties of $29.1 million in aggregate have been imposed on eight banks (BSI Bank, Falcon Bank, DBS Group Holdings, UBS Group, Standard Chartered, Coutts & Co, Credit Suisse Group and United Overseas Bank) for various breaches of AML requirements,” MAS added.

Will MAS now go after Goldman Sachs too? In fact, why hasn’t it already done so? The charges being brought by Malaysia are directed at three entities of the US bank: Goldman Sachs International (UK), Goldman Sachs (Asia) and Goldman Sachs (Singapore). Clearly, Singapore has a strong interest to act in order to uphold the international standing and reputation of its financial services sector. 

Belated investigation at Noble

Another important segment of the story on the effectiveness of market regulators and law enforcement agencies this past year related to Noble Group. On Nov 20, the Commercial Affairs Department (CAD), MAS and the Accounting and Corporate Regulatory Authority (ACRA) said they were jointly investigating suspected false and misleading statements and breaches of disclosure requirements by the troubled commodities supplier, and potential non-compliance with accounting standards by its subsidiary, Noble Resources International.

This came more than three years after Noble’s detractors began warning that the company had been overstating the value of its assets, and understating the value of its liabilities. What took the authorities so long to finally act? CAD, MAS and ACRA said they had actually been working together since 2015, reviewing the allegations that had been raised against Noble. Even though Noble’s auditors found nothing wrong with the company, the authorities continued to gather and review information to establish a basis for a deeper probe. In the end, information related to the writedowns Noble took in 2017 and 2018, as well as other information gathered, provided the basis to actually start an investigation. 

It should be pointed out here that in the time it took CAD, MAS and ACRA to act, Noble had lost about 98% of its value. It was also on the brink of a controversial restructuring that would have seen its shareholders severely diluted. In my view, this episode is a clear indication that Singapore ought to create a dedicated financial markets regulator and law enforcement agency that is capable of acting more quickly. 

I doubt such a regulatory agency will be created anytime soon, though. For one thing, a more robust and aggressive capital markets regulator might make it harder to attract new listings and could increase the cost of raising money in the local market. That is bound to create opposition to the whole idea from the outset. Moreover, much like the Keppel bribery case a year ago, there seems to be insufficient moral outrage from the public about Noble to spur any real change. If Noble’s accounting is indeed faulty, I have a feeling most people do not have a clear sense of why that would necessarily be bad for society, or what to do about it. 

More concern about Facebook

If anything, there seems to be much more concern about the risk posed to society by Facebook than Keppel or Noble or Goldman Sachs. The social media platform’s capacity to spread falsehoods on a grand scale at a low cost became apparent in the wake of the US presidential elections in 2016. Since then, one revelation after another has reinforced the notion that Facebook is interested only in perpetuating and exploiting its dominant market position in social media networks. Earlier this month, a trove of internal emails was released, showing Facebook executives discussing ways to undermine competitors and conceal its collection of its users’ personal data.

In my view, it is inevitable that Facebook will eventually be stymied by all manner of regulation, undermining the attractiveness of its platform to its users and curtailing its ability to exploit their personal information. Given Facebook’s global nature, however, countries around the world — especially small ones such as Singapore — will have to work together to formulate rules and regulations that Facebook cannot ignore. 

This already seems to be happening. On Nov 27, parliamentarians from nine countries attended a hearing of the International Grand Committee on Fake News and Disinformation at the UK’s Parliament. Attending on behalf of Singapore were Senior Minister of State for Law and Health Edwin Tong, Senior Parliamentary Secretary in the Ministry of National Development Sun Xueling and MP for Aljunied GRC Pritam ­Singh. Judging from their questions and comments, everyone seemed to believe that Facebook is dangerous, self-interested and needs to be controlled. 

Nevertheless, it is my hope that Singapore will look into regulating more than just the likes of Facebook in 2019. Investigating the accounting standards of public companies such as Noble might seem far less important than heading off political and social turmoil caused by fake news on Facebook. But Singapore does need laws and enforcement mechanisms calibrated for our times to promote honest behaviour and disrupt illicit activities in the corporate sector. And, with any luck, our Christmas breaks will never be interrupted again by a scandal that we are unable to immediately report.

This story appears in The Edge Singapore (Issue 863, week of Dec 31) which is on sale now. Subscribe here