The verdict is out. The punishment for Keppel Offshore & Marine is a record-breaking US$422.2 million fine. However, the fine may not be a big enough deterrent.
By Joelyn Chan
Singapore’s largest oil rig builder, Keppel Offshore & Marine (O&M), was part of a corruption scandal. It was an international corruption saga that affected three countries. In December 2017, Singapore, Brazil and United States’s criminal authorities reached an agreement. According to the US Justice Department, Keppel O&M “knowingly and willfully conspired” to pay bribes as part of a “decade-long scheme” to win 13 contracts with Petrobas and Sete Brasil. The dishonest payments totalled up to US$55 million. The dealings took place between 2001 and 2014. From 2015, a series of allegations and denials ensued. It took more than a year before the company weakened its stance. It later announced its suspicion of possible corruption. After which, it cooperated with the relevant authorities.
Is a penalty of US$422.2 million too little or too much?
When the ruling came out, it was more of a closure. The case has dragged on for more than a year. With each passing day, it will be harder to backtrack and compile evidence.
In the eyes of Singapore’s law, the penalty issued is heavy. The maximum fine under Singapore’s Prevention of Corruption Act is S$100,000 (US$75,540) per charge. Although she feels that Keppel paid a heavy and deserving price, it may not cripple the company.
Keppel O&M’s previous revenue from the illegal contracts will offset more than half of the penalty sum. The company is also penalising its errant staff. That leaves less than half of the original sum for Keppel O&M to bear as losses. The calculation below excludes the US$55 million used to secure the 13 contracts. Growth-wise, Keppel O&M could have expanded faster with those projects. Otherwise, it may not be able to surpass its competitors. It may also be unable to rise as the cash cow of Keppel. Back then, the industry was booming. Keppel O&M could ride on the wave and contribute two-thirds of the group’s revenue. The group today can offset the weakness in its O&M segment with growth from property and investments. For the benefits enjoyed many years back, this penalty is nowhere near unjustifiable.
Keppel O&M has left a dent in Singapore’s clean reputation
Singapore has known for its corruption-free environment. However, this scandal may have tainted the nation’s attractiveness to businessmen. The company received a US$422.2 million fine. It ranks seventh amongst the penalties issued by US Foreign Corrupt Practices Act. Singapore is also the only non-western country on that dishonourable list.
The government has also recognised the negative impact of this scandal. Senior Minister of State for Finance and Law Indranee Rajah said the case hurt Singapore’s reputation. She added that the Government is disappointed in what has occurred. It will take time to rebuild investors’ lost confidence in the nation.
Failure of both corporate governance and audit
After the scandal, there is an enhanced system of compliance and international controls. The company implemented the system is to address and mitigate corruption risks. With stronger controls, Keppel O&M may be able to prevent history from repeating.
A Keppel spokesperson claimed Keppel was not aware of the illegal payments in January 2018. The bribery scheme was not a short once-off affair. It spanned across ten years and should have been noticed by someone. In fact, Jeffrey Shiu Chow, ex-lawyer of KOM’s legal department, did notice. By 2008, he realised Keppel was overpaying the agent up to millions of dollars. These payments are bribes to help Keppel Offshore Marine do business with Petrobras.
If corporate governance was good, this would not have happened. Keppel O&M should have acted on the suspicious dealings with its overseas partner. There were so many possible ways to uncover the corruption. An internal investigation on the partner’s mode of operation would have helped. Nonetheless, Keppel O&M cannot turn back time now. It has to bear the consequences. Keppel has accepted a conditional warning from Singapore’s Corrupt Practices Investigation Bureau.
It is not the end for Keppel O&M
The company has not fallen despite its corruption scandal. There is no big hoo-hah. Former Keppel O&M CEO Chris Ong has joined KrisEnergy board. No one questioned his leadership or possible lapse in management. Keppel’s share price did not dive to the lowest point. It barely dropped in end December 2017. The market appears to be focusing more on the full year earnings, which will be out by end January.
All in all, Keppel O&M appears far from clean. But, like any other scandals, the dust will settle, and people will forget. The hefty fine of U$422.2 million will be a good justification for people to let the matter rest.