Singapore passes new law to manage investments on national security grounds

The Singapore Significant Investments Review Bill ("SIRB") was passed into law on 9 January 2024. The commencement date for the Singapore Significant Investments Review Act 2023 has yet to be published. Once commenced, relevant transactions will be caught under this regime.

The SIRB is a new investment management regime aimed at safeguarding Singapore's national security interests. It does so by regulating significant investments in, and control of, critical entities, by both local and foreign investors.

The SIRB has also introduced over-arching call-in powers against actors who have acted against the national security interests of Singapore.

A dedicated office will be set up within the Ministry of Trade and Industry ("MTI") to administer the SIRB regime.

Key features of the SIRB

"National security" not defined

The term "national security" has not been defined in the SIRB. In response to parliamentary questions, Mr. Gan Kim Yong, Minister for Trade and Industry (the "Minister") has said that this was deliberate in order to retain flexibility and so as not expose Singapore's "vulnerabilities". This broad approach towards "national security" isn't uncommon globally with regard to other foreign investment regimes including in the United States, Europe and China.

Designated Entities

Only entities that are deemed critical to Singapore's national security interests will be designated under this regime ("Designated Entities") and regulated accordingly. Whilst Designated Entities have not been identified in the SIRB, we understand that entities that are being considered for designation under this category have already been contacted.

• MTI has adopted a targeted, entity-based approach to designate only specific entities, as opposed to a broader sectoral approach.
• In deciding which entities should be considered for designation, a number of factors will be taken into account including: whether the entity provides a critical function in relation to Singapore's national security interests; whether the entity undertakes business activities in sectors where there are few or no alternatives; and whether national security interests are already adequately covered by existing sectoral legislation.
• Conversely, a Designated Entity that ceases to meet the criteria above may be removed from the list of Designated Entities.
• All designations or cancellations of designations will be notified in the Gazette in the interests of transparency and certainty to businesses and potential investors.

Over-arching call-in powers

Over and above those involving Designated Entities, the Minister has broad cross-sector powers to review transactions involving entities that have acted against the national security interests of Singapore. The right of review applies for a two year period after the relevant transaction.

Key provisions applicable to Designated Entities

Thresholds

The SIRB thresholds are set out below. If the thresholds are met, either a notification or approval must be sought from the Minister.

Control thresholds

• A new 5% controller of a Designated Entity must notify the Minister.
• A new 12%, 25% or 50% controller (along with an indirect controller or acquirer of the business or undertaking) must seek the Minister's approval.
• An existing controller must seek approval when ceasing to be a 50% or 75% controller.
• A Designated Entity must notify the Minister of the above changes in ownership and control after becoming aware of such events.

Given the above, the responsibility to notify or seek approval rests not only on prospective controllers but also existing controllers and the Designated Entity itself.

Substantive tests

• A new 12%, 25% or 50% controller or indirect controller and their associates are required to fulfil the fit and proper criteria under the relevant guidelines.
• In addition, the Minister must also be satisfied that the Designated Entity will continue to carry on its business or undertaking and that it is not against the national security interests of Singapore to do so.

Appointment of key officers

• Designated Entities are required to seek the Minister's approval for appointments of key officers such as chief executive officers, directors and chairpersons of the board of directors.

Consequences of not seeking approvals

• Transactions that occur without the necessary approvals will be rendered void (but materially affected parties can apply for validation notices).
• Remedial directions may be issued by the Minister in certain circumstances. For example, a party may be ordered to transfer or dispose of equity interests held in the designated entities, if conditions of approval have not been complied with.
• These requirements will only apply to changes in ownership or control after an entity has been designated, and do not apply retroactively.
• Appointments into office without the requisite approvals are subject to directions from the Minister for removal from that office.

Provisions to ensure the security and reliability of critical functions

• Designated Entities cannot be voluntarily wound up or dissolved without the Minister's consent.
• Enforcement of court orders or security against the Designated Entities will also require advance notice to the Minister.
• The Minister may also issue administration orders in the interests of national security and/or security and reliability of the carrying on of the business of a Designated Entity to:

- direct the assumption of control of a Designated Entity's affairs, business and property;

- immediately take or cease any action; and/or

- appoint a person to advise a Designated Entity in the proper conduct of its business or undertaking.

Concluding remarks

The screening of investments on national security grounds is an increasingly common trend across the globe, with the Minister citing that at least 37 countries have introduced such regulatory frameworks. The SIRB introduces an interesting dynamic in Singapore, particularly with regard to the call-in powers referenced above.

This new regime introduces additional notification/approval requirements for transactions involving Designated Entities, alongside merger control and other regulatory filings in Singapore.

Authors: Michelle Phang, Partner; Angie Ng, Partner; Glenn Tan, Senior Associate