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In this Explainer, find out...
Why does Singapore need the Significant Investments Review Act (SIRA)?
How do SIRA’s key provisions help to strengthen Singapore’s national security?
Is SIRA effective, and what are some criticisms of SIRA?
Introduction
In popular television series like Suits, Billions or Silicon Valley we often see this game of financial chess happening in the “world of money”. These series depict heroes and villains using their huge wealth in creative (and often unethical) ways to manoeuvre and outmanoeuvre each other in order to buy over control of one another’s companies. However, this is not just fiction; we see it happening all around us, best seen in 1999 when LVMH attempted a takeover of Gucci by purchasing large amounts of Gucci shares. The brand Gucci as we know it today would likely not have existed had this attempt at financial warfare been successful.
But why is this relevant to Singapore, and why should we care? Imagine, similar to the case above, where a foreign entity decided they wanted to take over companies in Singapore’s critical industries, and used their control of these companies to grind our lives to a halt. Does Singapore want to be beholden to these villains? And if the answer is “no”, what should Singapore do to prevent this from happening?
Among other defensive strategies, the Significant Investments Review Act (SIRA) is one such means to protect critical Singaporean industries and companies. SIRA came into force in March 2024, seeking to firstly identify significant entities vital to Singapore’s national security, and secondly lay out a set of rules by which they can be operated to protect Singapore’s national security interests.
The Need for SIRA
Critical Industries, and Why They Matter
Before beginning a discussion about security, the crucial question is always — what or who is being protected? In this case, SIRA seeks to protect Singaporean companies that promote economic and military defence, key pillars of Singapore’s Total Defence. Comprising the petrochemical and defence sectors, these critical industries are fundamental to the operations of the Singaporean state.
The sheer importance of critical industries stems from the trickle-down effects arising from a potential disruption. Take for example the defence sector — any disruptions in the production of crucial military equipment may increase Singapore’s vulnerability to attack, or make Singapore less prepared when conflicts occur. Hence, it is of vital concern that these sectors remain protected to ensure the well-being of Singaporeans.
The Fine Line Between Attracting and Securitising Foreign Direct Investments
Besides protecting critical companies, Singapore aims to attract support from overseas partners to fund local publicly-listed companies. This support comes in the form of Foreign Direct Investments (FDI), where overseas companies or governments purchase an interest or a share in a local company. The more shares this entity has, the more control it can have in the form of votes during board meetings. This determines, among other things, the strategic direction for companies and the composition of a board of directors who makes these decisions.
On the surface, having high amounts of FDI is good because it helps provide local companies with both the financial capital to operate on a larger scale and crucial know-how for operating in the international arena.
The main problem that makes this whole issue complex is the key idea that FDI is a double-edged sword that can benefit or harm local companies. FDI entails giving over more control of a local company to a foreign entity which may not have the best interests of the local company or Singapore at heart. Potential threats include:
i. Denial or Manipulation of Access: After taking substantial control over a local company, the foreign investor may order the company to stop producing a crucial good necessary for Singapore’s survival;
ii. Leakage of Sensitive Material: Companies often have access to important or sensitive information that could threaten national security if leaked. This could be in the form of technologies behind defence capabilities which, if leaked, may enable foreign militaries to design counter-strategies; and
iii. Infiltration, Espionage, Disruption: If foreign investors take over local companies, they may run the local companies in a way that makes them easier to penetrate in the future. For instance, the new owners may be more relaxed about security measures, thus increasing the likelihood of information breaches.
With all these possible challenges from unregulated FDI and the risk posed by foreign actors wishing to influence local affairs, there is an increased need for the Government to implement measures to ensure FDI is kept in check.
Current Challenges within Singapore’s Regulatory Landscape
Before SIRA, Singapore’s FDI regulations consisted largely of standalone regimes. Historically, 230 commodities and services, ranging from financial services to power, were protected from foreign competition through import restrictions and quotas. Notably, the Banking Act 1970 and Telecommunications Act 1999 mandate affected firms to seek approval in two key commercial decisions: purchase of shares above 12 per cent and appointment of key personnel.
Given the interconnectedness of today’s economy, the absence of an economy-wide investment screening regime represents a vulnerability within Singapore’s national security mandate. Furthermore, Singapore lagged behind our peers: advanced open economies such as Japan, the United States and the European Union have all implemented screening mechanisms for incoming investments.
Introducing SIRA
Enter SIRA, which revamps Singapore’s toolkit to achieve economic and military resilience amidst today’s geopolitical headwinds. Rather than replace existing sectoral legislations, SIRA plays a complementary role in strengthening safeguards against risks to national security without handicapping investment attractiveness.
These sentiments were echoed by Minister of Trade and Industry Gan Kim Yong at the Second Reading of SIRA in Parliament on 9 January 2024. While acknowledging the importance of investment inflows to the continued growth of Singapore’s open economy, Minister Gan warned that ownership and control of significant businesses may be wielded by malicious actors to undermine domestic stability. Minister Gan further assured that the Ministry of Trade and Industry (MTI) will ensure “measured and calibrated” administration of SIRA’s provisions to minimise unintended consequences on stakeholders.
SIRA’s Provisions
SIRA contains a range of provisions intended to aid Singapore in protecting critical companies from malicious foreign actors. These provisions are applied and enforced by the newly formed Office of Significant Investments Review (OSIR) that is housed within MTI.
Screening and Support
Firstly, SIRA empowers MTI to determine what local companies need to be protected under the Act. MTI will apply the title of “Designated Entity” to such companies, with this list of Designated Entities being made known publicly. While MTI has not revealed the exact criteria for identifying Designated Entities, some of the larger businesses in particular industries have been designated. These include defence companies like ST Engineering and petrochemical companies like Shell and the Singapore Refining Company Private Limited.
Control Over Overall Operations
Secondly, Designated Entities must seek approval from MTI for various aspects of its operations. This covers four main areas:
i. Significant Investments into Designated Entity: Individuals who wish to have at least 12 per cent or more of shares in a company must be approved by MTI. This prevents individuals from gaining too much voting power and using it to direct the Designated Entity to engage in actions that go against Singapore’s interests.
ii. Key Decision-Makers of Designated Entities: Key decision-makers of a company such as the Chief Executive Officer (CEO), directors, managers, or Chair of the Board of Directors have major control over how a company operates. Hence, SIRA mandates the reporting of intended changes of these key decision makers. This is to ensure that any new leadership of Designated Entities do not compromise Singapore’s national security.
iii. Overall Ownership of Designated Entity: Any planned mergers and acquisitions involving a Designated Entity must be reported to and approved by MTI. Mergers and acquisitions may bring companies under the umbrella of other foreign companies that do not have Singaporean interests at heart, hence the need to ensure these transactions are monitored.
iv. Existence of Designated Entity: Proposals to shut down a Designated Entity must also be reported to MTI 14 days in advance, and MTI reserves the right to approve or reject this proposal. This ensures that Designated Entities that serve crucial national security purposes are not shut down without other companies that can fulfil this crucial role.
“Call-In” Powers
With all the measures listed above, there seems to be one key weakness. What if companies that are not Designated Entities engage in actions that threaten national security? This is where broader “Call-in Powers” established under SIRA are relevant, as these apply to all companies, not just Designated Entities.
“Call-in” powers (officially referred to as Special Administrative Orders within SIRA) can be activated by MTI either before or within a two-year timeframe after any transaction has been made by any company, provided the transaction is deemed to have violated national security in some way.
This “call-in” power is used during extreme circumstances, and MTI can force the investigated party to “direct the transfer or disposal (whether generally or to a specified person) of all or any of the equity interests in the entity”. This allows MTI to force those deemed as threats to let go of their influence on the designated entity, thus preventing them from harming Singapore through the Entities.
For instance, a foreign entity can buy over a significant stake in a telecommunications company and vote to shut down its cell phone towers. This compromises crucial communications infrastructure in Singapore. MTI can then reverse or nullify these transactions to protect Singaporean interests.
Altogether, SIRA ensures that companies vital to Singapore's military and economic defence are protected from foreign control that could compromise national security.
Does SIRA work?
National Security — Who’s to Say?
Despite SIRA’s intended function as a stalwart of “national security”, that itself remains a nebulous concept. Neither SIRA nor any piece of Singapore legislation explicitly defines “national security” and the specific critical industries that are linked to it.
Surprisingly, this omission is part of MTI’s deliberate design. “Less is more” was the succinct explanation provided by Minister Gan during SIRA’s readings in Parliament. An ambiguous definition enables an adaptive approach towards unforeseen circumstances and evolving economic security risks.
However, critics have raised concerns about the predictability in implementing SIRA’s control provisions. Member of Parliament (MP) Louis Chua, opposed the lack of transparency on two counts: how MTI interprets the nebulous contours of national security, and how MTI deploys its wide-ranging “call-in” power.
Without a clear operative definition of “national security”, the unknown scope of SIRA’s applications may create legal uncertainties. In this regard, SIRA lacks the same transparency that similar overseas legislations proffer; a case in point is how the United Kingdom clarifies 17 sensitive sectors covered under their National Security and Investment Act. Still, given SIRA’s passage into law in March 2024, it is too early to say whether this latest regulatory development has rattled investor confidence.
A Balancing Act
Industry watchdogs view SIRA as a landmark legislation that epitomises Singapore’s increasingly “measured approach” to both investment openness and regulatory stringency. Specifically, even as SIRA addresses MPs’ concerns over how commercial decisions may be wielded by “malicious actors” to compromise the operation of critical industries in Singapore, it does so in a manner that is, according to Minister Gan, not “overly stringent.” In fact, SIRA’s provisions are aligned with OECD recommendations for investment policies relating to national security, thus representing an attempt to balance Singapore’s pro-business agenda against economic and national security.
In fact, recent sectoral legislation further reflects Singapore’s balanced and careful approach towards safeguarding economic resilience. Take the Transport Sector (Critical Firms) Act passed on May 8 2024, which similarly introduced ownership, management and operations controls for key “Designated Entities” in Singapore’s air, sea and land transport sectors.
Why Not Just Nationalise Our Critical Industries?
SIRA was introduced as a tool to better manage risks of hostile takeovers in critical industries that may threaten and potentially cripple our society. One might wonder if nationalisation, in which privately owned companies are transferred to state control, is a possible solution to safeguard Singapore’s national security. After all, nationalisation would entirely deprive foreign malicious actors of direct influence in Singapore’s critical industries.
However, nationalisation is prone to drawbacks at the company and industry levels. In past parliamentary debates, then-Acting Minister for Transport Chee Hong Tat warned that nationalised transport systems lack competitive pressures and worsen consumer outcomes.
Furthermore, nationalisation may signal a rollback on Singapore’s business-friendly regulatory posture. In his parliamentary address, Minister Gan reiterated that openness to foreign investments is the backbone of a Singaporean economy constrained by limited domestic investment capital.
Ultimately, nationalisation may be too extreme a regulatory overhaul that triggers immediate and rippling economic ramifications. SIRA then marks the Government’s attempt at achieving a delicate balance, in which companies are allowed to operate freely and independently insofar as their actions do not undermine national security or public interest.
Conclusion
Protecting companies vital to national security is a delicate balance that needs to be maintained. On one hand, the Government cannot afford to be overly protectionist and make it difficult for FDIs to flow in and stimulate the growth of local companies. On the other hand, the Government cannot afford to be too hands-off with managing these companies for fear that FDIs are weaponised to influence local companies to act against the interest of Singaporeans. SIRA aims to achieve just that middle ground, where only a specific group of companies are regulated on a case-by-case basis.
In those television series discussed in the introduction, one mistake in the game of corporate warfare would often cost the heroes hundreds of thousands of dollars, risk them losing their jobs, or get them thrown into prison in extreme cases. In Singapore’s case, billions of dollars and the very way of life for Singaporeans stand in the balance, so regulation must be fine-tuned to avoid the ups and downs of a television drama plot.
This Policy Explainer was written by members of MAJU. MAJU is an independent, youth-led organisation that focuses on engaging Singaporean youths in a long-term research process to guide them in jointly formulating policy ideas of their own.
By sharing our unique youth perspectives, MAJU hopes to contribute to the policymaking discourse and future of Singapore.
The citations to our Policy Explainers can be found in the PDF appended to this webpage.
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