SINGAPORE - Singapore has passed a Bill that will allow it to screen investments in “a handful of entities” deemed critical to national security interests.

It will apply to local and foreign investments, therefore ensuring a level playing field for all investors.

Trade and Industry Minister Gan Kim Yong said on Jan 9 that the Government has already reached out to all the entities that are being considered for designation under the Significant Investments Review Bill.

“That means if you have not been approached, you are not currently being considered,” he added.

The list of designated entities will be published in the Government Gazette after the law comes into force, which is expected to be in a few months’ time.

Speaking in Parliament, Mr Gan said that the legislation has become necessary as the world has become increasingly complex, and the economic environment more uncertain and challenging.

He cited challenges such as military conflicts that have disrupted critical supplies of energy and food, and rising protectionism amid geopolitical tensions.

“As an open economy, we can be vulnerable to actors that may seek to undermine our national security interests through ownership and control of critical business entities,” said the minister.

“We must constantly review and update our regulatory regime, to keep pace with the changes in the global economic landscape and to strengthen the resilience of our economy in the face of new threats.”

He added that the Bill had been “carefully calibrated” to balance between having adequate oversight over the ownership and control of these critical entities, while ensuring that Singapore’s economy remains open and business- and investor-friendly.

Many of the 12 MPs who spoke on the Bill asked for greater clarity on the definition of national security interests, including Ms Foo Mee Har (West Coast GRC) and Mr Yip Hon Weng (Yio Chu Kang) of the People’s Action Party, Nominated MP Neil Parekh and Workers’ Party MP Louis Chua (Sengkang GRC).

Mr Gan said national security in the context of the Bill broadly covers areas critical to the Republic’s sovereignty and security, including its economic security and resilience; and the continued delivery of essential services.

The broad definition was intended to give Singapore the flexibility to respond to unanticipated circumstances promptly as national security issues will evolve over time.

“Providing a specific definition of national security or specific examples of such threats will not only constrain our ability to act quickly to address new risks that may emerge over time, but also expose Singapore’s vulnerabilities,” Mr Gan added.

An example of an entity that could be designated under the Bill would be a provider of security-related services, especially where there are few or no alternatives, he said.

The list of critical entities will be reviewed, Mr Gan said, adding that he does not expect to have a significantly expanded list of entities in the near future.

Entities that subsequently believe they no longer meet the designation criteria can contact the Office of Significant Investments Review, which will be set up under the Ministry of Trade and Industry, to request to have their status reviewed.

Singapore already has sectoral legislation that imposes ownership and control restrictions in critical sectors, including telecommunications, banking and utilities. The new law will complement these.

The minister noted that at least 37 countries have introduced regulatory frameworks for screening of investments on national security grounds since the 1990s.

Countries like Australia, China, Japan, Ireland, the United Kingdom and the United States have introduced or enhanced their investment management regimes more recently, and more are planning to do so, he said.

He said the Bill’s provisions are largely similar to those in overseas and sectoral legislation, and are consistent with Singapore’s international trade obligations.

Designated entities here will have to abide by some requirements, including seeking approval for change in ownership and control. For instance, buyers have to notify the minister for trade and industry after they take a 5 per cent stake in a critical entity.

Among other provisions, the entities will also need approval for the appointment of key officers and cannot be voluntarily wound up or dissolved without the minister’s consent.

Any entity, even if it has not been designated, can have its ownership or control transactions reviewed if it has acted against Singapore’s national security interests, and if the transaction occurred within the two years prior to the action.

Mr Liang Eng Hwa (Bukit Panjang) and Mr Shawn Huang (Jurong GRC) were among MPs who raised the need for checks and balances to ensure there is transparency and accountability in applying the new law.

Mr Gan said there will be clear processes for affected parties that wish to request that the minister reconsider his decisions.

They can also appeal to an independent reviewing tribunal that will include a Supreme Court judge as chairperson.

The other members of the tribunal will be selected based on their areas of expertise and standing in the industry.

Once they are appointed by the president, the Bill states, the minister cannot alter the remuneration and terms of service of these individuals to their disadvantage.

This will ensure independent decision-making by the members of the reviewing tribunal, Mr Gan said.

MPs also raised various concerns over the impact on businesses and the practicalities of enforcement.

Nominated MP Raj Joshua Thomas asked how the Government will alleviate any adverse effect on the share price of listed companies put on the list, to avoid unduly affecting retail investors in these companies.

Mr Yip and Ms Foo expressed similar worries over the impact on minority shareholders.

“In some cases, the government intervention might lead to liquidity concerns, especially if it involves critical sectors where investment options are limited,” Ms Foo noted. She also asked if minority shareholders will receive fair compensation for their shares if the intervention “leads to expropriation or nationalisation”.

Mr Gan said the Government would be mindful of all shareholders and be judicious in the exercise of powers, while ensuring the reliability of critical functions the entities provide, as well as Singapore’s national security interest.

“For example, for a special administration order involving the transfer of property rights and liabilities from the designated entity to a prescribed transferee, a payment scheme will also be established to determine the amount of payment to be made,” he said.

Mr Yip also called for the Government to minimise the compliance costs of the law.

“We must ensure that the burden placed on designated entities is proportionate to the identified risks, lest we inadvertently stifle the very growth that we seek to protect,” he said.

Meanwhile, Mr Chua asked about the rationale for imposing notification obligations on 5 per cent controllers of the entity.

Mr Gan responded that the threshold is similar to that of a substantial shareholder as defined in other legislation, such as the Companies Act and the Securities and Futures Act.

Progress Singapore Party Non-Constituency MP Leong Mun Wai suggested that ensuring the resilience of critical entities should also include having a talent pipeline of Singaporeans who are able to operate, manage and maintain key systems such as data centres and other IT infrastructure within the critical entities.