Singapore firms navigate in corrupt markets abroad

Staying clean: To not bribe and yet bag deals is a challenge for Singapore firms venturing overseas

A worker at the Keppel FELS Pioneer Yard. Keppel Offshore & Marine and its US subsidiary were slapped with criminal penalties of US$422 million two weeks ago for paying US$55 million in bribes to Brazilian officials.
A worker at the Keppel FELS Pioneer Yard. Keppel Offshore & Marine and its US subsidiary were slapped with criminal penalties of US$422 million two weeks ago for paying US$55 million in bribes to Brazilian officials.ST FILE PHOTO

Local firms face Catch 22 situation trying to do business in high-risk jurisdictions

The international bribery scandal that a unit of blue-chip conglomerate Keppel Corp is ensnared in underscores a Catch 22 situation faced by Singapore companies venturing overseas, particularly into high-risk jurisdictions.

And that is: whether to uphold business ethics and rule of law, and miss out on lucrative but dodgy business deals - or pay bribes in return for these.

For paying US$55 million (S$73 million) in bribes to Brazilian officials to secure contracts, Keppel Offshore & Marine (KOM) and its American subsidiary were slapped with criminal penalties of US$422 million two weeks ago under the Foreign Corrupt Practices Act (FCPA). The bribes were shelled out over 13 years. It also emerged that in 1997, a firm that is now part of KOM - Keppel Shipyard - was fined $300,000 after pleading guilty to paying $8.53 million in bribes to get business overseas.

In the Brazilian case, the United States Department of Justice said the agreements relate to corrupt payments made with knowledge or approval of former KOM executives. In total, Keppel earned US$351.8 million through the bribery scheme - now far outweighed by the hefty fine.

But the fact is, the realities of operating in graft-ridden markets and sectors are often challenging, many say. As more firms heeded the Government's push to venture overseas, and as emerging economies open up, keener competition may push some firms to take short cuts.

"They typically could allocate specific budgets for bribes under various guises, including entertainment and consulting fees, and laundered through shell companies to avoid detection," says Nanyang Technological University College of Business Associate Professor El'fred Boo Hian Yong.

Despite more countries clamping down hard on corruption, not only under the FCPA but also the UK Bribery Act, this may be trumped by economic pressures and corrupt governments.

NEED TO ASK QUESTIONS

The board cannot just rely on information provided by management. Corruption risks are known to be fairly high in certain sectors and countries, and it is well known that there are risks associated with using third parties.

CORPORATE GOVERNANCE ADVOCATE MAK YUEN TEEN

Highlighting the challenges, some of Singapore's major trading partners are in the bottom half of 176 countries ranked by graft watchdog Transparency International's Corruption Perceptions Index for 2016. These include a number of countries in the Asia-Pacific, such as Indonesia and the Philippines. Malaysia was in 55th place, alongside Croatia.

Companies operating in graft-ridden industries - such as offshore and marine, mining, aerospace, military-related and construction - are also vulnerable.

This is such a sensitive subject that 10 local companies and industry leaders The Sunday Times approached for comment about how they achieve the balance between staying clean and making a profit declined to comment.

But there are those who make a stand. Ho Bee Land chairman and chief executive Chua Thian Poh has said at an annual general meeting that he preferred to do business only in countries where there is rule of law and transparency in transactions.

In theory, companies should have in place robust anti-corruption compliance programmes and whistle-blowing processes. But that is often easier said than done.

In the case of the Keppel unit, netizens discussing the scandal wonder how the board could not have known about the corruption. As Mr Nizam Ismail, founder of RHT Compliance Solutions, tells Insight: "The fact that this dates back 13 years shows how insidious the culture can become."

This especially when court re-cords reveal it was a former senior member of KOM's legal department who drafted contracts that were used to make bribe payments.

Jeffrey Chow, 59, a US citizen who had worked at Keppel for more than 25 years, pleaded guilty on Aug 29 last year to conspiring to violate the FCPA. He said he drafted contracts with a Keppel agent in Brazil whom he realised was being overpaid by millions of dollars so he could bribe officials there.

When asked how Keppel's management could have been unaware over such a long period, a company spokesman tells The Sunday Times: "The illegal payments were deliberately concealed by those complicit in the bribery, and structured as agency fees. The agency fees were not approved by the boards of Keppel Corp or KOM as they were built into the contract values of the respective projects and bidding for projects is in the ordinary course of KOM's business."

But corporate governance advocate Mak Yuen Teen says while it may be difficult for boards to know everything, the question is whether they had asked. "The board cannot just rely on information provided by management. Corruption risks are known to be fairly high in certain sectors and countries, and it is well known that there are risks associated with using third parties... Did the board ask how sales were achieved in sectors and countries high in corruption risks? They should, rather than just ask tough questions when sales and profit targets are not being achieved."

Professor Mak says the fact that Keppel was implicated in two cases suggests a "deeper corporate culture issue that spans many years".

As for third-party involvement, a flip side is this: The risk of being subject to enforcement and prosecution still exists, even if bribe payments are made by third parties.

 
 
 
 

Prof Mak notes: "Anti-corruption laws in various countries including the US and UK do not allow companies to circumvent their rules just by creating a chain of separate legal entities, or using subcontractors or third parties to pay bribes.

"I've been surprised by senior executives who have admitted to making 'facilitation payments' through third parties but said they do not believe in paying bribes."

Another important factor is the extra-territorial nature of Singapore's Prevention of Corruption Act, which allows charges to be filed against Singaporeans - even for corrupt acts committed abroad.

PAYING THE PRICE

Refusing unclean deals can be painful but in the long run, firms that pay bribes will erode their competitiveness because they build their business not from their unique value propositions, says Prof Boo.

Money that could have been channelled into R&D and innovations to create better products or services are instead squandered in bribes.

If a corporation is caught giving a bribe, not only does it face criminal and civil sanctions which are usually far larger than the value of the contract or the bribe paid, but it also suffers reputational harm.

In Keppel's case, one industry analyst notes: "The point of the global settlement is so that Keppel can continue to do business in Brazil."

So how should business be done legally in a country or sector where corruption risk is high?

Prof Mak says: "Group compliance and internal audits, audits of third parties, on top of code of conduct (and) whistle-blowing policies need to be in place. But setting realistic budgets, balanced reward systems, are also important. You can put in all the policies you want. But if someone's job or bonus is on the line, they may still do what it takes."

 
A version of this article appeared in the print edition of The Sunday Times on January 07, 2018, with the headline 'To not bribe and yet bag deals is a challenge'. Print Edition | Subscribe