Keppel case - A wake up call for bankers

• A low rating of corruption does not mean it does not exist on a large scale.  Corruption is a hidden crime and agencies and organisations including banks must be proactive to detect it
• Singapore, which is rated fifth on the International Financial Secrecy Index, is a black hole for corruption funds earned offshore and laundered through the financial sector in the city
• A bank could enhance it protection from prosecution for violating an anti-bribery and corruption law by adopting international standards in anti-bribery management and requiring its international customers or customers with an international connection to do so as well

The recent news about Singapore’s Keppel Offshore and Marine being involved in corruption sent shock waves through the business community. For decades, Singapore has basked in the belief that it has low corruption.  A view created and reinforced by international ratings.  But unfortunately, those public assessments are based on perceptions not on actual evidence, because it is very hard to identify and measure corruption.  In fact, countries that have pursued corruption cases vigorously, fall in the ratings because of the negative perceptions the cases create.  This acts as a deterrent to expose and pursue corruption.  While a rating of low corruption creates an environment that is dismissive of any suggestion that corruption could and does exist in a country.

Singapore is no exception. There has been a view amongst Singapore citizens and international businesses operating in Singapore that since Singapore has low crime, it also has low to no corruption.  Low crime does not mean no crime.  And street level crime is vastly different to corruption, which generally has no specific victim to report it to the police. Corruption is a hidden crime. And is therefore difficult to identify.  Identifying corruption requires active and robust national reporting in all areas, particularly from the public, government, industry and financial sector. And exposure requires agencies responsive for investigating corruption to be proactive and undertake covert investigation techniques.

US Justice Louis Brandeis once said: “Sunlight is said to be the best of disinfectants”.  And hopefully the Keppel case is the sunlight that shines the spotlight on corruption committed by Singapore companies abroad and criminals who seek to hide the proceeds of corruption in Singapore.  The latter has been of significant concern for many years as corrupt foreign based individuals are suspected of using Singapore to conceal their illegal wealth.  In 2016, the peak anti-money laundering body Financial Action Task Force advised Singapore that it should take steps to improve the capability of its law enforcement agencies to proactively identify and investigate money laundering.  Particularly the proceeds from complex foreign offences such as corruption and tax evasion.

Acts of international corruption where money is transferred or paid, usually involves a bank during some stage of the bribery process.  And often the funds used to commit bribery or are the proceeds of bribery, are denominated in US dollars; or sent through a US account or through a US controlled payment system or any multiple of those options. Which automatically results in the case coming under the jurisdiction of US authorities.    And if a bank is involved in moving funds intended for corruption or derived from corruption, the it can be assured, the US Government will shine a spotlight on it to establish what knowledge, if any, did the bank have of the illegal acts or what measures did it have in place to detect and report the activity.  If the bank is found to have breached US anti-bribery law, then it could face criminal or civil prosecution in the US.

US Federal Sentencing Guidelines published by the US Sentencing Commission provide for leniency if a company had an effective corporate compliance programme, including an anti-bribery and corruption (ABC) compliance programme in place, at the time it got caught up in a corruption matter. While the US Sentencing Commission prescribes the elements for an effective compliance programme, the determination of whether it was effective would be questionable given a company, which is trading as a bank was involved in the scandal. 

A bank could enhance its protection against prosecution for bribery and corruption by implementing the following additional measures to its ABC programme and know your customer processes:

• Establish if a corporate customer has an anti-bribery & corruption compliance programme and that the programme is being implemented.
• Examine a corporate customers code of conduct and relevant ABC statements in it.  A serious red flag would be the absence of a code of conduct and any reference to ABC values.
• Seeking evidence of company boards members and senior managers having undertaken a comprehensive anti-bribery training programme.  Comprehensive does not include a simple online learning programme requiring answers to basic questions.
• Asking if the corporate customer and if all board members, managers and staff have undertaken an ABC pledge.
• Dispelling bias amongst ABC compliance and sales staff that large established companies, including publicly listed companies, do not engage in corruption.
• Whether the corporate customer is compliant with the peak global ABC standard ISO 37001 Anti-Bribery Management Systems and has being certified or is in the process of being certified.  ISO 37001 was introduced in 2016 and is relatively unknown in the financial industry.

A bank could also improve the effectiveness of its ABC compliance programme and any defence to any action by a regulator by adopting ISO 37001.

These additional processes should be undertaken during the onboarding process; progressively for established corporate customers; and importantly when a customer undertakes business in an emerging market or with a customer based in an emerging market.  A bank before releasing any payment or providing any trade finance, should require its corporate customer to obtain information from its customers or clients by making the same inquiries.

It is understandable that a bank would be reluctant to follow the advice given above. Banking is a very competitive industry and costs must be kept low.  And particularly with international business, where the returns on investment can be higher than domestic operations.  Implementing what are incorrectly seen as intrusive measures could drive off high quality customers to a competitor. But that situation applies to most businesses operating domestically and internationally.  And the established position that ABC measures push up costs has arisen because organisations have not thought to market the benefits of being intolerant to corruption. 

People place their money with a bank based largely on trust.  That trust is built on safety, integrity and performance.  A bank associated with corruption in any form risks erosion of that trust amongst is customer base, shareholders and external stakeholders particularly corresponding banks. Being an anti-corruption advocate and being seen to be corruption free are marketing opportunities for a bank.    

The Keppel case is a wakeup call for banks in Singapore and throughout Asia.  Banks cannot afford to be complacent. Any bank wants to be seen as the best place to work for, the safest bank to invest in and totally trust worthy.  Corruption causes financial damage to the offending company and to the reputation of the firm and its employees.  But they are not the worse outcomes.  Where bribery is committed offshore, it results in the theft from a foreign government of funds that could have been spent on improving the lives of its citizens.  Poor people, the least who can afford it, suffer.  No bank should or wants to be associated with what is one the worst violations of human rights - corruption.

Chris Douglas is owner, financial crime consultant and trainer at Malkara Consulting. The views expressed herein are strictly of the author.