SINGAPORE: It’s not uncommon for people to hold multiple director roles, but 980 directorships is a “staggering” figure and “a clear red flag”, experts told CNA.

They were referring to a recent court case involving a Singaporean who ran a business offering corporate services and became a director of 980 firms. He was fined and jailed for failing to fulfil his directorship duties after more than US$5 million (S$7.3 million) was laundered through some of the companies under him.

In the same month, another Singaporean was slapped with a fine for failing to conduct due diligence as a nominee director of 60 companies. Due to his negligence, scam proceeds were funnelled through one of the company’s bank accounts, a TODAY report said.

The Straits Times also reported last September that a Singapore resident was listed as director, secretary and shareholder of 185 companies here – several of which were linked to suspects arrested in a high-profile money laundering probe involving over S$2.8 billion worth of assets.

Singapore has no restrictions on the number of directorships a person can hold. This is in line with international benchmarks like those in the United Kingdom and United States, said Second Minister for Finance and National Development Indranee Rajah in parliament last October.

Many corporate service providers hold multiple directorships, legal and corporate governance experts told CNA. These providers offer support services such as legal and accounting as well as company incorporation and registration.

Foreigners setting up companies in Singapore must do so via a registered corporate service provider or filing agent. They must also appoint at least one director who is a Singapore resident – a service that corporate service providers also offer. These providers can act or arrange for individuals to act as a nominee director.

“Every company needs to have at least one local director and with Singapore being an open economy attracting many foreign companies, the (corporate service) industry grew from that requirement,” said Mr Robson Lee, partner at Kennedys Legal Solutions.

“It’s quite a common service provided, so it is not unusual for an employee of such a corporate service provider to be director of perhaps multiple companies,” he added.

Although nominee directors have no executive powers, they have the same legal obligations as regular directors and are required by law to discharge their duties responsibly. Failing to do so can mean possible civil liabilities and criminal penalties.

“There are no laws to forbid 980 directorships, but it definitely raises a clear red flag. It’s just untenable that a person can do so much work,” said Professor Lawrence Loh, director of the Centre for Governance and Sustainability at the National University of Singapore (NUS) Business School.

IS A CAP ON DIRECTORSHIPS THE SOLUTION?

The Accounting and Corporate Regulatory Authority (ACRA) said it takes into account the number of directorships an individual holds as part of its compliance monitoring. It said 99 per cent of directors in Singapore have fewer than 10 directorships.

In 2023, it prosecuted nine people who had more than 50 directorships each for compliance breaches. All nine, including the Singaporean man who held 980 directorships, have been disqualified from acting as a director.

The authority said it is studying restrictions that include limiting the number of directorships an individual can have. This, along with other proposals which were first put out for public consultation in 2022, are expected to be tabled in parliament this year.

While a regulatory limit is a logical step, it’s not easy to decide how many is too many, experts said.

“There’s no magic number given the types of directorships, the reason why people take on a directorship role and also each individual’s experience and capability,” said Prof Loh.

Corporate service providers are also vital players who ease the process of setting up a business in Singapore, thereby bringing in foreign investments and creating jobs, said Mr Kevin Chua, senior director of Yuen Law.

Mr Chua, who also heads the regulatory and compliance team of Yuen Law’s corporate practice group, suggested a “provisional” cap to be introduced initially instead of a “hard limit”.

“I don’t think it’s possible to have a number because it depends on the individual’s capacity to manage a maximum number of companies – and this limit varies. So I would suggest having a provisional number or a moving target … to monitor how it goes.”

Ms Marion Ho, senior partner at Dentons Rodyk’s corporate practice group, proposed that those who take on multiple roles with more than 20 companies be subject to stricter compliance checks. 

These include notarised identity documentation and proof of address, as well as scrutiny over positions held, that would be submitted to ACRA for its records.

OTHER CHANGES NEEDED

Experts also said having a regulatory limit is not a “watertight” solution and is just one way to strengthen Singapore’s anti-money laundering regime.

The recent court cases have thrown up questions about the lack of due diligence among corporate service providers, they said. For example, the Singaporean with 980 directorships only performed simple online searches to check if his clients were linked to criminal investigations.

“It’s important to raise the standards of corporate service providers, as well as the awareness of potential abuse by bad actors,” said Kennedys Legal Solutions’ Mr Lee.

These can be done by having providers undergo more training or introducing “prescriptive requirements on what needs to be done for due diligence” when providers take on new clients. 

“These will be things that they need to verify and sign off, and that will make people realise it is no longer business as usual,” he added.

This due diligence also needs to be a continuous process, said Mr Lee. 

“Somebody could come to you and pass through the litmus test at the start, but along the way, it is your business as a director or a company secretary to know what’s happening and to ask questions.

“You need to have people who are sufficiently equipped with the right training to say: ‘Sorry, we cannot continue providing services to you because there are reasons for us to believe that your activities are something that we are not comfortable.’”

Similarly, Prof Loh recommended introducing measures to educate corporate service providers on best practices for due diligence. But he called for these initiatives to be done progressively to avoid putting too much pressure on the industry.

This can start with a code of practice on due diligence. Those who prove to be compliant can be awarded a trust mark. Over time, measures such as accreditation and licensing can be introduced.

“Corporate service providers do serve a useful function for the economy and we should not in one sweep punish all of them,” said Prof Loh, while acknowledging the need for better monitoring of these companies.

As part of the proposals it will be tabling in parliament to beef up Singapore’s anti-money laundering regime, ACRA is also looking at enhancing the penalties on errant corporate service providers and requiring all such companies to register.

Ms Ho said these new legislative proposals are “a step in the right direction” to combat money laundering, but called for more regulations to prevent the setting up of illegitimate shell companies. 

“For example, financial institutions must also be more discerning of the true purposes of the transactions carried out by their corporate customers and carry out periodic and holistic reviews of such transactions.”