The New Significant Investments Review Act of Singapore – Some Insights and Lessons for Europe

By Philipp Reinhold, Saarland University

 

Singapore is known for a legal framework and public policies which are generally favourable towards foreign investors.[1] The country is one of the most open economies in the world. For 2023 as a whole, net inflows of direct investment rose by S$17.6 billion (around US$13 billion) to S$151 billion (around US$ 112.3 billion).[2] The fact that even Singapore has recently adopted a new legislation on regulation of investments proofs that something has changed in the world economy and that investment control has become a common instrument to protect national security interests. At the same time, it is essential for Singapore to maintain its openness to foreign investment (FDI). This makes the new law an interesting example of an open market investment control regime which may also serve as an inspiration for Europe, where the European Commission recently published its reform proposal for the investment screening regulation[3] and a white paper on the creation of an outbound investment control[4]. Some Member States, such as Germany, are also currently examining a reform of their national investment control law.[5]

The following article wants to give an overview about the new “Significant Investments Review Act 2023” (SIRA) of Singapore which is contained in the “Significant Investments Review Bill” (SIRB) introduced by the Singaporean Ministry of Trade and Industry (MTI). The SIRB has been approved by Parliament in January 2024.[6] After its final enactment – by which the SIRB will become the SIRA – Singapore will join a growing number of countries that have established or tightened their investment regulations. The following analysis is based on the published text of the SIRB.[7] However, no significant changes are expected for the final SIRA. According to Singapore’s Minister for Trade and Industry, Gan Kim Yong, companies to which the new law may apply in the future have already been contacted.[8]

 

I. Development and basic elements of the new investment control law in Singapore

 

Despite the generally open investment environment, Singapore already had restrictions on investments into some specific sectors, such as broadcasting and news, banking and financial services, telecommunications and utilities.[9] However, apart from these sector-specific regulations, there has been no general control of investments as of to date.

In August 2023, Minister Gan then announced plans for “new tools to manage significant investments into critical entities” in order to “make sure that investments into critical entities do not affect Singapore’s economic resilience and our national security interest”.[10] In this context, the Minister also underlined that many countries have already amended (i.e. tightened) their FDI laws.[11]

On November 3, 2023, the MTI published a press release announcing the introduction of the SIRB “to ensure the continuity of critical entities”.[12] The SIRB was described as a “new investment management system” that applies to both local and foreign investors who have either been designated under the new regime or have acted against Singapore’s national security interests. It was emphasized that the SIRB had been developed in consultation with industry representatives to consider its potential impact on businesses and investors. The press release concluded with a statement by Minister Gan, who commented on the new law: “It is critical for Singapore to remain open and connected to the world, and as such we must continually strengthen our position as a trusted hub for businesses to invest with confidence. Singapore has long had legislative powers to manage ownership and control of critical sectors such as telecommunications, banking and utilities. As most critical entities in Singapore are already adequately covered by existing sectoral legislation, we expect only a handful of critical entities to be designated under this Bill. Stakeholders will continue to be closely engaged, to ensure that the overall impact on affected businesses will be minimised and our ecosystem remains vibrant.”

The SIRB was introduced on November 6, 2023 and approved by Parliament on January 9, 2024.[13] In his speeches before Parliament, Minister Gan emphasized that Singapore “must remain open and continue to attract new investments”, but must also recognise “that the world has become increasingly complex, and the economic environment more uncertain and challenging, creating new risks and vulnerabilities”.[14] It is expected that the SIRA comes into operation mid-2024.

The purpose of this new legislation is „to protect national security interests of Singapore by regulating significant investments in, and control of, critical entities“ (section 2). As has been summarized by Minister Gan in a speech during the second reading of the SIRB: “Investors in a critical entity will normally have some form of influence or control of the entity’s decisions or its operations. Investors may then exploit their ownership and control over these entities to disrupt the delivery of essential goods and services, or access and use sensitive information, to threaten our national security. It is therefore important to have adequate and effective investment management measures to safeguard our national security, and to ensure our economy remains resilient.”[15]

 

1. Scope of application

The SIRA does not distinguish between foreign and domestic parties. According to section 12, it applies to “all individuals, whether resident in Singapore or not and whether citizens of Singapore or not” (a), as well as to “all bodies corporate or unincorporate, whether incorporated, formed, established, or carrying on business in Singapore or not” (b). This means that the SIRA is not to be considered as an FDI screening mechanism in the narrow sense, but instead establishes an overall investment control, which also involves elements of extraterritoriality. According to Minister Gan, this approach “takes into account that threats may emanate from various sources or channelled through various entities, and we will need sufficient flexibility to exercise our legislative levers.”[16]

 

2. Regulatory approach

The SIRB/SIRA provides for two means of controlling investment activities in order to protect Singapore’s national security interests: a designation mechanism with subsequent obligations (designation tool), and the possibility to issue directions if national security interests are affected (intervention tool).

Section 17(1) empowers the Minister[17] to designate

• “any entity incorporated, formed or established in Singapore (a), any entity that carries out any activity in Singapore (b), or any entity that provides any goods or services to any person in Singapore (c),
• if the Minister considers that the designation is necessary in the interest of Singapore’s national security”.

According to Minister Gan, various factors will be taken into account in deciding which entities should be considered for designation, including “whether the entity provides a critical function in relation to Singapore’s national security interests, such as a key provider of security-related functions, especially where there are few or no alternatives; and whether it is adequately covered by existing sectoral legislation”.[18] Before designation, the Minister has to notify the entity concerned, which will then have 14 days after the date of the notice to make written representations on the proposed designation (section 17 subsection (2)). Once a designation is made, the Minister has to inform the designated entity and any other person who ought to have notice of the designation (section 17 subsection (3)). The Minister may cancel a designation at any time (section 17 subsection (4)).

There is no definition of the term “national security”, which was criticized during the parliamentary debate. Minister Gan responded to this criticism as follows: “Having discussed and deliberated extensively – internally and with our advisors and various parties – and taking into account legislation introduced by other jurisdictions, I came to the conclusion that sometimes, less is more. Especially in today’s world where the global landscape changes very quickly, I would like to assure Members that we will be very judicious in implementing our Bill but we need the flexibility to respond very quickly to changes in the global landscape. National security considerations will evolve over time, and we need to keep the scope wide to allow us sufficient flexibility to respond to unanticipated circumstances in good time. Providing a specific definition of ‘national security’ or specific examples of such threats would not only constrain our ability to act quickly to address new risks that may emerge over time, but also expose Singapore’s vulnerabilities. Having said that, broadly speaking, in the context of the Bill, ‘national security’ would cover areas critical to Singapore’s sovereignty and security, including our economic security and the continued delivery of our essential services. As I have mentioned in my Second Reading speech, an example would be if an entity is a key provider of security-related functions, especially where there are few or no alternatives, then this entity will be a critical entity.”[19]

A designation gives rise to a number of obligations, ranging from notification and approval requirements to restrictions on winding-up, and also establishes official powers of intervention:  First of all, the SIRB/SIRA requires approval of the Minister in relation to ownership and control changes. For this purpose, the SIRB/SIRA establishes different thresholds in section 16, where it differentiates between a “Level A controller”, “Level B controller”, “Level C controller”, “Level D controller”, “Level Y controller” or “Level Z controller”. Each category refers to a fixed percentage of the total equity interests or voting power held or controlled by a person alone or together with “associated” persons (5%, 12%, 50% or 75%).[20] A person that becomes on or after the designation date a Level A controller (5% or more, but less than 12%) has to notify this fact within 7 days (section 18). Transactions that make a person a Level B, C or D controller, or by which a person ceases to be a Level Y or Z controller, must be approved by the Minister (section 19 subsection (1)(a) and (b)). The same applies to forms of indirect control and the acquisition of parts of the business or undertaking of the designated entity (section 19 subsections (3) and (4)).

The Minister “may” approve the application if the Minister is satisfied that

• the person is “fit and proper”[21] (except for cases in which a person ceases to be a Level Y or Z controller),
• the designated entity will continue to carry on its business or undertaking and,
• if it is not against the national security interests of Singapore (section 19 subsections (5), (6) and (7)).

 

An approval may be granted subject to any conditions that the Minister considers to be appropriate (section 19 subsection (8)). In case of a contravention, the respective transaction is void (section 21). However, in special situations the Minister may issue a validation notice (section 21 subsections (3) to (6)). In addition, the SIRB/SIRA establishes a number of possible “remedial directions” which allow the Minister to intervene in cases of non-compliance, misleading information or a change of circumstances (e.g. a person ceases to be “fit and proper” or the designated entity is no longer likely to continue to carry on its business or undertaking) (sections 22 to 25).

Other forms of supervision include approval requirements and obligations to actively involve the Minister in the context of a voluntary winding-up or insolvency situation (section 26), as well as an oversight over the appointment of key personnel of the designated entities (section 27). The Minister may also remove individuals from their position if it is necessary in the interest of Singapore’s national security (section 28). Sections 29 and 30 empower the Minister to make special administration orders. These allow for a fiduciary order and accompanying decisions, if this is in the interest of the safety and reliability of the carrying on of the business or undertaking or activities of the designated entity (a) or in the interest of Singapore’s national security (b). Finally, as a last resort, section 31 provides for forms of expropriation for which compensation must be determined at the same time.

All measures mentioned so far are only permissible if the company concerned is a “designated entity”. In addition to this designation mechanism and subsequent control, section 32 authorizes an investigation into transactions or any other business conduct if the entity has breached Singapore’s national security interests in the preceding 2 years. Upon publication of the notice of investigation, the Minister is empowered to issue various orders to the entity or a person concerned, which need only be “appropriate”.

All these powers are supplemented by extensive information rights (sections 34 and 35) and means of enforcement (sections 47 to 50).

 

3. Reconsideration, appeals and judicial review

All substantial decisions of the Minister can be challenged by the addressees and other “aggrieved” persons.[22] Appellants have to apply to the Minister for reconsideration, who then must cancel, substitute or affirm the decision (section 38 subsections (1) and (3)). The application itself, however, has no influence on the operation of that decision and does not prevent any action during the reconsideration (subsection (7)). If the decision gets confirmed, the appellant may appeal to a “Reviewing Tribunal” consisting of 3 panel members, each of whom is appointed by the President on the advice of the Cabinet (sections 39 to 45). Section 46 makes it clear that any decision by the Reviewing Tribunal or the Minister is final and cannot be challenged in any court, except with regard to questions relating to compliance with procedural requirements.

 

II. What Europe can learn from the Singaporean approach

 

The Singaporean approach combines a targeted selection of “significant investments” with comprehensive monitoring. It represents an interesting regulatory approach that attempts to reconcile the necessary protection of national security interests with the goal of maintaining the greatest possible openness for FDI. Some elements of the SIRB/SIRA are worth considering, in particular in the context of the upcoming reform of investment control law in Europe. Singapore may be in a special role as a city-state, but the basic concepts of the SIRA can also be considered in a different context.

A special feature of the Singaporean approach is the concept of a designated entity. As has already been emphasized by Minister Gan, the designation tool “is quite unique to Singapore, as most overseas jurisdictions generally scope the designation broadly to cover all entities based on either activities they carry out or the sectors they operate in.”[23] According to the Minister, this concept aims to reduce the regulatory burden, because “[o]therwise, every entity that falls within certain sectors or provide certain activities would all be included, regardless of whether the entity itself is critical to our national security interests; this would not only be administratively tedious but also impact Singapore’s position as a business and investment hub.”[24]

It is true that the designation approach leads to a more targeted control and thus avoids the legal uncertainty caused by a large list of sensitive sectors, whose scope of application is open to interpretation. In Germany, for example, this has led to a large number of notifications that do not require in-depth examination, but only cause unnecessary administrative effort and costs.[25] However, the Singaporean approach also leads to uncertainty, as it is not foreseeable for businesses which entity could be designated. The Minister considers this problem to be negligible as he expects only a limited number of designated entities due to the already existing sectoral regulations.[26] Note that the new Digital Markets Act of the EU also contains a designation approach for “gatekeeper” (articles 2(1) and 3 of the DMA).

Another interesting feature concerns the handling of investment-related risks. The SIRA makes no difference between foreign and domestic investment activities, but focuses on risks stemming from different levels of ownership and control. The EU Commission’s new reform proposal also covers “investment within the Union with foreign control” in order to close a gap identified by the ECJ in Xella.[27] Apart from this, it still focuses on “foreign direct investment”. The Singaporean approach, however, makes it clear that this limitation runs the risk of individual constellations not being covered. It also defines key terms such as “direct and indirect control” (section 13 subsection (1)) as well as “associate” (section 15) which is missing in the Commission’s proposal.

A further aspect worth mentioning is the establishment of a Reviewing Tribunal to replace judicial review by the ordinary courts. On the one hand, its composition could be problematic from the point of view of judicial independence. On the other hand, for reasons of national security, investment control could require a body specialized in this very political area of law. In addition, a special court could enable faster proceedings.

All in all, it is worth taking a closer look at the regulatory approach of the coming investment control law in Singapore. This applies in particular due to the necessary balance between openness for FDI and the protection of national security interests. Europe should be open to alternative approaches in this respect.

 

[1] See e.g. U.S. Department of State, 2023 Investment Climate Statements: Singapore, https://www.state.gov/reports/2023-investment-climate-statements/singapore/.

[2] Ministry of Trade and Industry Singapore, Economic Survey of Singapore 2023, February 2024, p. 46.

[3] European Commission, Proposal for a REGULATION OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL on the screening of foreign investments in the Union and repealing Regulation (EU) 2019/452 of the European Parliament and of the Council, COM(2024) 23 final.

[4] European Commission, WHITE PAPER on Outbound Investments, COM(2024) 24 final.

[5] See Jonas Fechter, Evaluation Report on Amendments to the German Investment Screening Mechanism, CELIS Blog, 19 October 2023, https://www.celis.institute/celis-blog/evaluation-report-on-amendments-to-the-german-investment-screening-mechanism/.

[6] A „Bill“ is only a draft law which becomes an Act of Parliament after it has been passed by Parliament and received the President’s assent.

[7] Significant Investments Review Bill, Bill No. 38/2023. It is accessible under https://www.parliament.gov.sg/docs/default-source/default-document-library/significant-investments-review-bill-38-2023.pdf.

[8] Elysia Tan, Potential ‘designated entities’ under Singapore’s Significant Investments Review law have been contacted, Business Times, 9 January 2024, https://www.businesstimes.com.sg/singapore/potential-designated-entities-under-singapores-significant-investments-review-law-have. See also Speech by Minister Gan Kim Yong during the Second Reading of the Significant Investments Review Bill, 9 January 2024, https://www.mti.gov.sg/Newsroom/Speeches/2024/01/Speech-by-Minister-Gan-Kim-Yong-during-the-Second-Reading, paras. 53 and 54.

[9] See Broadcasting Act 1994; Newspaper and Printing Presses Act 1974; Banking Act 1970; Financial Services and Markets Act 2022; Telecommunications Act 1999; Electricity Act 2001; Gas Act 2001.

[10] Elysia Tan, Singapore exploring new tools to manage significant investments in critical entities, The Business Times, 28 August 2023, https://www.businesstimes.com.sg/singapore/economy-policy/singapore-exploring-new-tools-manage-significant-investments-critical.

[11] ibid.

[12] Ministry for Trade and Industry, Introduction of the Significant Investments Review Bill, 3 November 2023, https://www.mti.gov.sg/Newsroom/Press-Releases/2023/10/Introduction-of-the-Significant-Investments-Review-Bill.

[13] Tang See Kit and Abigail Ng, Singapore passes law to manage significant investments into critical entities: What you need to know, CNA, 9 January 2024, https://www.channelnewsasia.com/singapore/singapore-passes-law-manage-significant-investments-critical-entities-4034771.

[14] Speech by Minister Gan Kim Yong during the Second Reading of the Significant Investments Review Bill, 9 January 2024, para. 4.

[15] ibid, paras. 23–25.

[16] ibid, para. 111.

[17] The Minister is empowered to act under the SIRA. According to section 4 subsection (1), however, the Minister may appoint a public officer, or a body established or constituted by or under any public Act to perform a public function, to be the competent authority for the purposes of the SIRA. The competent authority is responsible for the administration and may perform such duties as are imposed, and may exercise such powers as a re conferred, subject to any general or special directions of the Minister. Powers may also be transferred to another Minster and/or may be delegated (see sections 5 to 11).

[18] Speech by Minister Gan Kim Yong during the Second Reading of the Significant Investments Review Bill, 9 January 2024, paras. 50 and 51.

[19] ibid, paras. 18–23.

[20] According to section 16 subsection (3), the Minister may adapt the percentages if necessary in the interest of Singapore’s national security.

[21] This is defined by the „Guidelines on Fit and Proper Criteria”, see section 54.

[22] See the definition of “appealable decisions” and “appellants” in section 37

[23] Speech by Minister Gan Kim Yong during the Second Reading of the Significant Investments Review Bill, 9 January 2024, para. 43.

[24] ibid, para. 48.

[25] See Jonas Fechter, Evaluation Report on Amendments to the German Investment Screening Mechanism, CELIS Blog, 19 October 2023.

[26] Speech by Minister Gan Kim Yong during the Round-Up Speech for the Significant Investments Review Bill, 9 January 2024, https://www.mti.gov.sg/Newsroom/Speeches/2024/01/Speech-by-Minister-Gan-Kim-Yong-during-the-Round-Up-Speech, paras. 39-43.

[27] See article 2(3) of the proposal.