Monitoring and enforcement remain challenges
While perpetrators of money laundering and other financial crimes only need one company to exploit, it is clearly unreasonable for one individual to be a candidate for directorship in as many as 980 companies.
As part of a risk-based approach to monitoring and oversight, the number of directors held by an individual should at least be an “orange flag” of potential problems. Business reasons for having many subsidiaries, especially if these companies do not belong to a legal group.
The Subsidiary Act on Filing Agents and Qualified Persons, introduced in 2015 under the ACRA Act, to assess whether individuals are competent and appropriate, who is considered a qualified person, and courses and training. element is specified. These may also apply to candidate directors.
The challenge is the effectiveness of such rules and their compliance, monitoring and enforcement. An individual may well have met the fitness and proper requirements prior to being arrested, and simply attending a course or training may not prove that the individual is capable or inclined to meet their responsibilities. does not necessarily guarantee that there will be.
In addition to better leveraging technology and data analysis to identify relationships and red flags, regulators need to encourage whistleblowers to come forward and strengthen protections for them. Research has repeatedly found that most fraud is discovered through tip-offs.
ACRA’s website provides avenues for filing a complaint, but it can be quite intimidating for those who want to file a complaint. For example, it seems reasonable to ask for contact details to facilitate an investigation, but suggests that anonymous complaints are not allowed. If individuals are reluctant to log complaints in these situations, ACRA may miss an important source of information.
The recent abuse of shell companies and director nominees requires decisive action from the authorities to ensure Singapore does not lose its hard-earned reputation as a reliable financial hub.
Mak Yuen Teen is Professor of Accountancy (Practice) at NUS Business School and Founding Director of the Center for Investor Protection, specializing in corporate governance.