One of the largest corruption scandals in the history of Singapore’s corporate sector has come to glaring light, tarnishing the image and credentials of prominent state-backed conglomerate Keppel Corp and raising questions about the city-state’s supposed incorruptibility.
Its subsidiary, Keppel Offshore & Marine Ltd (KOM), the world’s largest builder of oil rigs, has been implicated in a 13-year-long US$55 million bribery scheme involving Brazilian executives and politicians to win business deals.
KOM’s US subsidiary last month pleaded guilty to conspiring to violate anti-bribery laws and agreed to pay US$422 million in criminal fines as part of a deferred prosecution agreement with the US Department of Justice (DoJ), as well as authorities in Brazil and Singapore.
KOM made the bribe payments between 2001 and 2014 through a chain of shell companies that used the US banking system to conceal and disperse kickbacks, according to court documents released by the DoJ. The documents claimed the company “knowingly and willfully conspired” to win business through bribery.
The illegal payments were made mainly to officials at Brazil’s state-owned oil giant, Petroleo Brasileiro SA (Petrobras), the largest listed company in Latin America.
The scheme enabled the Singapore-listed company to secure 13 contracts with Petrobras and another Brazilian entity, Sete Brasil Participacoes SA (Sete Brasil), securing KOM and its related entities US$351.8 million in earnings.
Both Petrobras and Sete Brasil have been embroiled in Brazil’s largest corruption investigation – “Operation Car Wash” – which ensnared almost a third of Brazil’s current government ministers and revealed millions of dollars laundered under legitimate consulting agreements.
Illicit payments were transferred to Petrobras officials who channeled funds to politicians at the then-ruling Workers’ Party for use in election campaigns. The sprawling graft probe, carried out by Brazil’s federal police beginning in 2014, sparked events that led to the arrests of top executives, politicians and the 2016 impeachment of former president Dilma Rousseff.
Brazilian media reports in 2015 were the first to link a KOM subsidiary, Keppel FELS Ltd, with the ongoing graft investigations. Pedro Jose Barusco Filho, a senior Petrobras executive, named Brazilian consultant Zwi Skornicki as the person responsible for paying bribes on behalf of KOM in statements made to Brazilian authorities in a 2014 plea bargain.
Skornicki was arrested in February 2016 and told a Brazilian judge in July that year that five KOM executives had authorized him to pay the bribes on the conglomerate’s behalf. Keppel Corp initially denied the allegations and reiterated its “zero-tolerance stance against any form of illegal activity” in a statement to the Singapore Exchange.
Bloomberg then published court documents in August 2016 referring to Skornicki’s testimony, naming the five senior KOM executives, including then-chief executive officer (CEO) Chow Yew Yuen, said to have endorsed and authorized bribe payments. Keppel Corp issued a statement at the time strongly denying the involvement of individuals named in the article.
But Keppel Corp contradicted its earlier statements when it recognized in October 2016 that “certain transactions” associated with Skornicki “may be suspicious” following internal investigations. The Singapore multinational then notified investigators in the relevant jurisdictions of its intention to fully cooperate with the graft probe.
Keppel Corp’s stock tumbled by as much as 5.1% following December’s settlement disclosure in what analysts say was a “knee-jerk reaction.” But the firm’s shares have since regained footing and are trading at levels higher than before the sell-off.
Investors appear to have shrugged off uncertainty about the repercussions of the graft probe, though the incident has arguably tarnished the firm’s reputation and cast doubt on the quality of its auditing and internal governance practices.
“The bribes themselves are naturally an area of critical concern. But what is more disturbing is the extremely long period that these have been happening without being detected,” said Lawrence Loh, an associate professor at NUS Business School.
He opined that Keppel’s earlier denials of the bribery allegations had backfired and compounded the damage of subsequent revelations.
Keppel Corp has indicated that it took disciplinary action “including separation and financial penalties” against 17 former or current employees involved in misconduct following the December settlement.
Public and market attention is now focused on whether and to what extent Keppel Corp’s board of directors and senior management knew of the illicit payments.
A company spokesperson claimed the payments were “deliberately concealed by those complicit in the bribery and structured as agency fees” and not approved by Keppel Corp’s board of directors. Local investigations into individuals involved in the scandal are ongoing, though their identities have yet to be disclosed.
Singapore’s attorney general has lodged requests for evidence from international investigators, according to reports.
A conditional warning in lieu of prosecution issued to Keppel Corp from the Corrupt Practices Investigation Bureau (CPIB) acknowledged due consideration of the company’s “substantial cooperation” and imposed “extensive remedial measures,” a stance some local commentators regard as lenient.
Opposition parliamentarian Sylvia Lim raised questions about the scandal in the year’s first session of parliament, inviting response to perceptions that KOM has been afforded “lenient treatment” and a mere “slap on the wrist.”
Indranee Rajah, senior minister of state for finance and law, claimed the company had not gotten off lightly and that the US$422 million financial penalty KOM is now liable for would have been “far less” under the city-state’s own anti-corruption law, which carries a maximum fine of S$100,000 (US$75,677) per charge.
The penalty, which accounts for roughly 4.5% of Keppel Corp’s third-quarter net asset value, is regarded by analysts as negative from a financial standpoint, but largely manageable and expected to have a minimal impact on the company’s operations in Brazil or its ability to bid for future contracts.
Questions about the role of state investment firm Temasek Holdings, which owns 20.43% of Keppel Corp, have emerged from the debacle pertaining to oversight of government-linked companies’ (GLCs) activities overseas. Ho Ching, the wife of Singapore’s prime minister Lee Hsien Loong, has been CEO at the state investment arm since 2004.
Temasek has over S$275 billion (US$208 billion) worth of assets under management and paid a 13% to shareholders in 2017, according to the company’s website.
Addressing the issue in parliament, senior minister Indranee said neither Singapore’s government nor Temasek interfere in or influence the business decisions or operations of the state investment firm’s portfolio companies.
“If the boards do not perform,” she added, “Temasek can, collectively with other shareholders change the board,” should members fall short of required standards.
It remains to be seen, however, whether Temasek will overhaul Keppel Corp’s board of directors or to what extent its members would be subject to sanction or disciplinary actions.
Keppel Corp is chaired by Lee Boon Yang, a former cabinet minister and parliamentarian with the ruling People’s Action Party (PAP) who exited politics in 2011. He is also chairman of Singapore Press Holdings Ltd, Asia’s largest media organization and publisher of The Straits Times newspaper.
A statement credited to chairman Lee issued following the bribery scheme assured Keppel had “put in place stricter controls and embedded best practices” and vowed that graft would not be repeated.
Lee became chairman in 2009 and accepted accolades when Keppel Corp clinched an award for “best-managed board” at the Singapore Corporate Awards in 2015.
A previous corruption bust at Singapore Technologies Marine (ST Marine) in 2014, also among the city-state’s largest-ever graft scandals, saw seven ex-executives, including former chief executive officer and president See Leong Teck, convicted.
Temasek did not act to overhaul the board of directors at ST Marine or its Temasek-owned parent company, Singapore Technologies Engineering Ltd (ST Engineering), after the incident.
KOM’s bribery admission and settlement followed a year that saw Singapore’s political leadership on the defensive regarding issues of executive accountability. Prime Minister Lee was forced to refute allegations of nepotism and abuse of power following allegations made by his siblings in a dramatic public spat over social media that garnered international media coverage.
A string of public train breakdowns in October due to neglected maintenance work also took on a political dimension when transport minister Khaw Boon Wan deflected blame for the incidents and exonerated senior executives of Singapore’s public transport operator, SMRT Corporation Ltd.
The incident arguably strengthened rising public perceptions that a culture of executive unaccountability has taken root under Lee’s watch.
Still, Singapore consistently ranks as one of the least corrupt countries in the world, coming in the 7th position on Transparency International’s annual Corruption Perceptions Index in 2016. Despite another major graft incident at a state-linked company, officialdom in this city-state long synonymous with clean governance has predictably framed the lapse as an aberration and not the norm.