In a recent decision, the Singapore Court of Appeal (the “CA“) clarified the interpretation and application of Section 6(a) of the Prevention of Corruption Act (Chapter 241) (the “PCA“) to a charge of corruption and held that an agent who had initiated, masterminded or co-conspired in the payment of a gratification to himself could still be found to have been induced or rewarded in respect of his principal’s affairs.
Leng Kah Poh (“Leng“), the former food and beverage manager of IKANO Pte Ltd (“IKEA Singapore“), had been acquitted by the Singapore High Court following an appeal against his conviction and sentence for 80 charges of corruption under Section 6(a) of the PCA. Leng, together with two others, had devised a plan to supply food to IKEA Singapore through companies (AT35 and FRT) in which he had an interest. He provided insider tips and exercised his influence to approve his companies as exclusive food suppliers of dried goods and chicken wings to IKEA Singapore, thereby profiting from the arrangement. The High Court held that if the nature of the arrangements and scheme were such that Leng was in fact the mastermind or co-conspirator, then it can hardly be said that Leng had been induced or bribed by some third party to commit the allegedly corrupt acts (see our earlier Client Alert, which discusses the Singapore High Court decision and the facts of the case). Pursuant to Section 397 of the Criminal Procedure Code (Chapter 68), the Public Prosecutor referred two questions to the CA for its determination:
- where an agent initiated, masterminded or co-conspired in the payment of a gratification to himself, whether this ipso facto meant that he was not induced or rewarded in respect of his principal’s affairs (the “First Question“); and
- where an agent used his position (vis-à-vis his principal) to create an arrangement for the payment of a gratification that conflicts with the interests of his principal, whether this ipso facto meant that the agent was not, by such arrangement, induced or rewarded for showing favours in respect of his principal’s affairs (the “Second Question“).
The CA observed that the Second Question was substantially the same query as the First Question. The CA therefore took the Second Question to mean whether, in a situation where the agent had some beneficial or legal interest in the third party, the agent’s drawing of his share of the profits obtained by that third party from the benefits conferred could be considered “gratification” for the purposes of Section 6(a) of the PCA.
The CA held as follows:
- just because an agent had initiated, masterminded or co-conspired in the payment of a gratification to himself, it did not mean that he was not induced or rewarded in respect of his principal’s affairs; and
- where an agent had some beneficial or legal interest in the third party, the agent’s drawing of his share of profits obtained by the third party from the benefits conferred could be considered gratification for the purposes of Section 6(a) of the PCA.
Accordingly, the CA overturned Leng’s acquittal and restored the trial judge’s sentence of 98 weeks’ imprisonment and a fine of approximately S$2.3 million (in default, 58 weeks’ imprisonment).
The Paradigm of Corruption
The CA affirmed that the elements required to be proved in order for a charge of corruption to be made out under Section 6(a) of the PCA are as follows:
- the acceptance of gratification;
- as an inducement or reward for the conferment of the benefit;
- an objective corrupt element in the transaction; and
- the agent’s subjective guilty knowledge in accepting the gratification.
Accordingly, a corrupt transaction within the meaning of Section 6(a) of the PCA has to involve at least three parties, namely: the principal, the agent and the third party (i.e. the party giving the gift). This is because, in giving the agent the gift, the purpose of the third party must have been to cause the agent to act in the third party’s interest, against the interest of the principal and in breach of the agent’s duty. The mens rea of the offence consists of both an objective corrupt element and the subjective guilty knowledge on the part of the agent. In a factual inquiry into the agent’s intention in receiving the gratification, one is required to examine whether the agent received the gratification believing that it was given to him as a quid pro quo for conferring a dishonest gain or advantage on the third party in relation to his principal’s affairs. The crux of the matter is therefore the influence that the received gift would have on the agent and on his conduct of his principal’s affairs. In this manner, the characterisation of the gift is intrinsically tied to the third party’s intention in giving it, that is to say, whether the gift was for the purpose of obtaining a benefit conferred by the agent at the expense of the principal’s interest. This in turn informs the presence of an objective corrupt element in the transaction as well as the agent’s subjective guilty knowledge. Accordingly, the cornerstone of a charge under Section 6(a) of the PCA is whether the agent had been influenced or tempted by the gift given or promised by the third party and proceeds to, or intends to, perform his acts corruptly.
The Agent as the Mastermind or Co-Conspirator
In relation to the First Question, the CA held that it was unnecessary, in establishing the “gratification”, to prove as a matter of fact that there was an act of inducement by the third party upon the agent as such a finding may not arise in all cases and would be largely dependent on the facts before the court. In the CA’s view, the High Court had misinterpreted the meaning of “inducement” in Section 6(a) of the PCA and thus erred in finding that Leng, as the mastermind or co-conspirator in the scheme, was incapable of being induced to act in the way he did. Whether or not an objective corrupt element existed could not be dependent on who initiated the promise of a gift. Otherwise, the law would be rendered potentially ineffective in certain situations and could lead to absurd outcomes, particularly where the agent was the one actively soliciting the gift. This would undermine the entire object of the PCA. On the contrary, the correct approach was to ask whether there was a gratification by inducement or reward to the agent that led to a dishonest or improper gain or advantage being conferred by the agent on the third party. This was because inducement, as an example of a gratification within the meaning of Section 6(a) of the PCA, should not be conflated with inducement as an act of persuasion when this latter meaning was clearly not intended based on a literal reading of Section 6(a) of the PCA. Thus, the initiation of the transaction by a third party does not necessarily have to be found as a fact in all cases in order to establish “gratification” under Section 6(a) of the PCA. The existing case law to date had also permitted for a breadth of factual matrices where either party (i.e. the agent or the third party) could initiate the procurement of a gift for a benefit to be conferred when establishing the objective corrupt element of the transaction. In this vein, the focus has been and should continue to be on the nature of the gift and the influence it has on the agent and his subsequent actions. To determine “gratification” based on the act of inducement of the agent by the third party would be incorrect. As such, the mere fact that the agent had not been induced by the third party into entering the scheme would not be fatal in establishing the gratification in the transaction.
The Conferment of a Benefit Upon Oneself
In relation to the Second Question, the CA held that where the agent had a beneficial interest or ownership in a legal entity, it did not mean that the entity was incapable of amounting to a third party for the purposes of Section 6(a) of the PCA. In the CA’s view, the High Court had erred in finding that Leng had essentially benefitted himself (qua his beneficial interest in AT35 and FRT), which meant that there was no third party upon whom the agent had conferred a benefit, and accordingly that the secret profits received by Leng (qua agent) could not amount to gratification for the purpose of Section 6(a) of the PCA. The CA observed that the doctrine of separate legal personality should apply to AT35 and FRT, notwithstanding their status as unincorporated entities. Thus, just because Leng had a beneficial interest in AT35 and FRT did not automatically mean that Leng and those entities were synonymous. It was also incorrect to assume that just because Leng obtained his share of the profits by virtue of his beneficial interest in AT35 and FRT that a corrupt transaction could not have taken place (i.e. that such profits could not be said to have been a “gratification”). An inquiry into all the circumstances of the case was required, otherwise it would be too simple for an agent to devise inventive schemes to escape the sanction of Section 6(a) of the PCA. These circumstances included, inter alia, the workings of the scheme, how the secret profits were derived, the setting up of the third party, the duration and purpose of the third party, fair competition against other entities and the agent’s actions vis-à-vis the principal and the third party in making the profit. Depending on the circumstances, the scheme may be considered to have an objectively corrupt element despite the agent’s beneficial interest in the monies received by the third party. On the whole, an agent seeking to obtain a gift under a cleverly disguised scheme may find himself guilty of corruption as the court will not hesitate to look beyond the pretext or the guise to determine the presence of an objective corrupt element in the transaction, as well as the true nature of the arrangement.
The present case demonstrates that Section 6(a) of the PCA is not merely limited to cases where an agent is prompted by a third party to act against the interest of his principal. Corruption may equally be made out in relation to agents who conspire with others to receive secret profits. The cornerstone of a charge of corruption is whether the agent had been influenced or tempted by the gratification and proceeds to perform his acts corruptly by conferring a dishonest or improper advantage on the third party. The court will not hesitate to look beyond the pretext or guise of a cleverly devised scheme to uncover the true nature of the arrangement in order to determine the presence of an objective corrupt element in the transaction. However, a potential issue that remains unresolved is whether the agent and third party must necessarily be separate legal personalities for the purpose of construing a charge under Section 6(a) of the PCA. In explaining its answer to the Second Question, the CA highlighted that there could be situations where the line between agent and third party may be blurred, particularly where the third party was a sole proprietorship with the agent being the proprietor, or where the third party was an incorporated company with the agent being the sole shareholder. Whilst the agent and the third party could be considered one and the same, the CA left the proverbial door open by highlighting that it was reserving judgment on the issue for another day. By Andy Leck, Weiyi Tan and Clarence Ding (Baker & McKenzie Singapore)