Inside the FCPA: Ensuring Anti-Corruption Compliance, Even in Low-Risk Countries: Surveying Singapore

This commitment to integrity predates independence and is rooted in Singapore’s main anti-corruption laws, the Prevention of Corruption Act (“PCA”), enacted in 1960, and the broader Penal Code. The PCA and the Penal Code cover private and public bribery and target both givers and recipients of bribes, which may include financial and other benefits. Neither permits facilitating payments.

Unlike many countries that adopt comprehensive anti-corruption laws only to summarily ignore them in practice, Singapore created the effective Corrupt Practices Investigation Bureau (“CPIB”) in 1952 to identify suspected misconduct at home and began paying high salaries to public servants, all with the clear intent of combatting corruption. Singapore’s consistently high ranking in Transparency International’s annual Corruption Perceptions Index, where the country compares favorably with all of its South and Southeast Asian neighbors, reflects the success of these measures. Even those corruption cases that have been publicly investigated by Singapore authorities, and which have garnered headlines over the last year or two, are notable more for salacious allegations of sexual misconduct than for any large sums paid as bribes, as one sees in more typical corruption investigations.

As compliance practitioners know, however, it is not only a company’s home country that matters in terms of anti-corruption compliance. Equally important, in terms of compliance with the PCA and the world’s most-enforced anti-corruption law, the U.S. Foreign Corrupt Practices Act (“FCPA”), or the more-recent U.K. Bribery Act, are the foreign countries in which one does business.

Singapore’s impressive economic prosperity and laudable transparency may ironically expose its companies to increased risks of liability under applicable anti-corruption laws, as many use the country as a regional hub for Asia, a region perceived to have a high corruption risk. Many companies employ a Singapore holding company structure for Asian subsidiaries and run their regional sales and marketing teams from Singapore, raising the risk that misconduct by those subsidiaries or regional teams could taint their Singapore business.

These risks have not always carried the weight they should in Singapore and Asia generally. While the CPIB aggressively investigates and the Attorney General’s Chambers diligently prosecute corruption arising at home, there are far fewer instances of enforcement actions arising out of Singapore companies or individuals acting abroad. Too many Asian companies, including some in Singapore, therefore dismiss anti-corruption laws as irrelevant, and laws like the FCPA are often viewed by Asian companies as applying solely to U.S. persons. Yet, there are aspects of these laws that can and do affect Asian companies in several contexts. Moreover, when account is taken of local legislation, there is an increasingly complex web of anti-bribery laws that companies doing business in Singapore and greater Asia need to be mindful of whether they are acquiring businesses or just running day-to-day operations.

The pressure of regulation at home for multinationals and financial investors such as private equity funds, coupled with the expectations of shareholders and investors, affects how companies assess acquisition opportunities and invest in Singapore and Asia generally. The investigation or due diligence process is increasingly demanding, with buyers asking their lawyers and forensic accountants to look much more closely at potential bribery and other compliance issues that may affect the target. There is fear of inheriting liabilities that crystallize post-acquisition or the continuation of conduct that will trigger new liabilities for the buyer’s group. In the worst case, acquirers and investors worry about buying into a business model based on misconduct that is simply unsustainable given the compliance framework that they have to observe.

The greater awareness among companies of compliance risk is changing the way cross-border deals are done. First, whereas the traditional due diligence exercise involves a desktop review of documents, compliance and anti-corruption due diligence entails a more nuanced approach. Buyers’ advisors must appreciate the risk profile of the target business and their client’s home regime in order to ask more focused questions that will identify “red flags” for the deal.

Rarely will the diligence exercise reveal a smoking gun on the face of the material provided by the seller. Therefore, in addition to the desktop review, it is important to raise questions through management interviews, usually conducted by senior lawyers who can tease out the issues and get a sense of the compliance culture within the target organization. For example, does the target have codes of conduct and other procedures in place such as gift-giving and entertainment policies to guide its staff? Does it investigate and verify the credentials of third-party agents and consultants engaged to do business on its behalf especially if overseas? Does it conduct employee training and how has it dealt with incidents of misconduct in the past?

Secondly, depending on the severity of any issues uncovered in the diligence process, buyers are expecting more from sellers in the sales contract. They will try to leave as much compliance risk as possible with the sellers. This may take the form of sweeping indemnities or warranties and, if specific remediable issues are uncovered in due diligence, an insistence that the seller put things right before closing or carve out any tainted assets from the deal, assuming that is possible.

Thirdly, in addition to changes in diligence and deal terms, investors are looking to put procedures in place that reduce their future exposure. How problems are addressed, in particular through training and the roll-out of new standards and processes in the newly-acquired target, can help build credibility with enforcement authorities should they ever come calling.

The changing practices are not confined to the acquisition context. Increasingly, Singapore-based distributors, agents, and consultants – indeed any service providers – are facing demands from their international trading partners to provide more information on who they are, including their ultimate beneficial ownership, and on any government connections, backed up by promises to refrain from corrupt practices that may violate applicable anti-bribery laws.

Companies and their partners in Singapore must bear in mind that, even when laws may not be directly applicable, they can face liability for the actions of third-party intermediaries. In order to avoid confusion over whether or not a given law would apply to a particular party or parties – and thus to avoid asking one’s business team or business partners to “play lawyer” – we recommend phrasing anti-corruption contract provisions in terms of the specific behaviors expected and prohibited and not in terms of violating this or that law. Of course it will not hurt to include as well an omnibus “compliance with laws” provision in addition to the more-specific “no improper payments” and other compliance provisions.

This enhanced diligence process and contractual protection combine to serve a second important function for buyers and trading partners: leaving a paper trail for their home regulators. Indeed, a significant element of the compliance process involves the ability to demonstrate to the authorities, should it become necessary, that compliance issues are taken seriously. There is little chance of leniency if there is nothing to point to in terms of diligence, deal documentation, or remedial action post-acquisition.

For the moment, most local Singapore companies have only felt these changes when they are on the receiving end of demands from their foreign counterparties. However, knowing one’s acquisition targets and service-providers and securing proper contractual protection in these transactions represent good practices in any country, especially in the high-risk, high-reward markets that comprise the primary region where Singapore companies function.

Andrew Martin is a Partner in the Singapore office.