Singapore judges say that bad actors, "silent” directors, will be jailed.

The SINGAPORE High Court has set a stiffer sentencing framework for "silent" directors who are paid not to exercise oversight over the companies they incorporate in Singapore.

• Imprisonment will now be the presumptive sentence for such offences, and
• The director will be required to explain why this should not be the case.

Chief Justice Sundaresh Menon, Justice Tay Yong Kwang, and Justice Vincent Hoong

• Set out the new sentencing framework in a written judgment dated April 24.
• Ruled on the prosecution's appeal against an S$8,500 (US$6,600) fine given to convicted company director Zheng Jia. They allowed the appeal and imposed a heavier sentence of 10 months' jail instead of a fine.
• https://www.channelnewsasia.com/singapore/s8500-fine-nominee-director-company-involved-laundering-scam-money-4880076

CONVICTED COMPANY DIRECTOR ZHENG JIA

• According to the judgment, Zheng was a "silent" director who had incorporated or been registered as the director of 384 companies.
• In 2019, he set up a business in Shenzhen for Chinese clients who wanted to incorporate companies in Singapore, pricing his services between S$1,000 and S$1,400 annually.
• Zheng would register himself as the locally resident director of the companies and open bank accounts in their names. He was ignorant of the companies' affairs and exercised no control over them.
• The business was so successful that he paid another person, Er Beng Hwa, to help him with the volume of work.
• Er acted as a nominee director for 186 companies and also helped to open bank accounts for them.
• In 2020, scam proceeds from four foreign victims, totalling more than US$2.4 million, were routed through the bank accounts of two companies incorporated by Zheng and Er.
• Last year, Zheng pleaded guilty and was fined for failing to exercise reasonable diligence in discharging his duties as a director and abetting Er to do the same.
• He was also banned from acting as a director or partaking in the management of any company for five years.

THE JUDGES

• Explaining their decision, the High Court judges noted that the duty to exercise reasonable diligence as a director is broad and can be breached in "any number of ways".
• They observed that in Zheng's case,
• "The offender is a professional chartered accountant whose business model was
• Predicated on him being registered as a locally resident nominee director of numerous companies incorporated for foreign clients,
• But who would then exercise no control or supervision over the affairs of those companies whatsoever".
• "There is simply no equivalence at all between such a director, and another who is involved in the affairs of a company or a group, but who makes a negligent error in the discharge of his duties."  
• In fact, it was the "concerted dereliction of his core duty" as a director that enabled Zheng's "high volume, low effort enterprise and fuelled its growth",  
• Zheng had "every intention to neglect" his duty from the outset, and this was precisely what made his services "attractive" to the clients whose criminal activities he enabled,  
• In this context, the judges disagreed with the existing sentencing approach,
• Which is that preserving Singapore's commercial environment should weigh against imposing imprisonment except where a director has acted "intentionally, knowingly or recklessly".
• The judges said
• "This is much too broad a statement, and it overlooks the gross differences between
• One who offers a particular form of directorship that entails looking away from the affairs of the company, and
• One who is committed to the company's best interests but makes a mistake while carrying out his duties.
• "Directors who assume their offices to abdicate their duty ... present serious risks to their companies specifically and Singapore's corporate and financial ecosystem generally, and they are acting knowingly, if not intentionally,"  

NON-EXHAUSTIVE LIST OF FACTORS THE COURT MAY CONSIDER IN SENTENCING OFFENCES

• They set out a non-exhaustive list of factors the court may consider in sentencing offences under Section 157(1) of the Companies Act:
• Extent of due diligence taken by the director about the company's activities and/or client
• Efforts made by the director to monitor the company's bank transactions
• The extent to which the director knew or should have known that failing to oversee the company affairs could or would enable abuse
• Duration of offending
• Whether the offence was pursued as part of a business or other profit-driven scheme
• Whether the director tried to conceal wrongdoing
• Whether there was a transnational element to the offence
• Harm caused by the offence
• They then set out three revised bands as sentencing guidelines, based on the number of factors present:
• For one to three factors, up to four months' jail
• For four to five factors, five to eight months' jail
• For six or more factors, nine to 12 months' jail
• This would give an indicative sentence for the court to adjust based on offender-specific factors, such as remorse and cooperation with authorities, the judges said.

Source

• https://www.channelnewsasia.com/singapore/silent-company-director-money-laundering-sentence-jail-high-court-5109361
• https://www.channelnewsasia.com/singapore/s8500-fine-nominee-director-company-involved-laundering-scam-money-4880076