Singapore tightens rules for directors with jail now likely for those who fail to oversee firms
Businesses using nominee directors in Singapore face stricter legal risks after the High Court ruled that jail, not fines, will now be the default punishment for directors who fail to oversee company activities.
The ruling came after the prosecution successfully appealed against a S$8,500 fine given to Zheng Jia, a chartered accountant who acted as a local resident director for 384 companies, most of them set up for foreign clients. He was sentenced to 10 months in jail instead.
Zheng’s business offered incorporation and bank account setup services for overseas clients (mainly Chinese) charging S$1,000-S$1,400 per year. He and his associate Er Beng Hwa acted as “silent” directors, with no involvement in the companies’ operations.
In 2020, scam proceeds totaling over US$2.4 million were laundered through accounts of firms linked to Zheng and Er. One case involved $64,630 from an American victim, transferred through a company Zheng had incorporated.
The High Court ruled that such directors “knowingly abdicate their duties” and are not comparable to ordinary negligent directors. Their conduct poses serious risks to Singapore’s financial system, the judges said.
Under the new guidelines, sentences will be based on aggravating factors such as duration of offending, whether the directorship was part of a business model, lack of monitoring or diligence, harm caused (e.g., facilitating scams) or transnational elements.
Penalties range as follows:
- 1-3 factors: Up to 4 months’ jail
- 4-5 factors: 5-8 months’ jail
- 6+ factors: 9-12 months’ jail
Judges may adjust the sentence depending on cooperation, remorse or past offenses.
Foreign-owned businesses should keep in mind that using nominee directors purely to meet legal requirements without real oversight is no longer tolerated. Companies must ensure their local directors are active and responsible or risk exposing both the directors and the business to prosecution.
