Singapore, home to Asia’s largest institutional and interbank FX markets, enjoys a worldwide reputation for good ethics and a highly sophisticated and well ordered financial markets economy.
With an approximate average daily turnover of approximately US$381 billion in 2013 according to the Bank for International Settlements, Singapore is relatively free from purpetrators of less than proper activity. Indeed, the Monetary Authority of Singapore (MAS) has only concerned itself once during the last two years with censuring any market participants, whereby 133 bank traders were reprimanded last year for interfering with bank FX benchmarks following a detailed year-long surveillance exercise.
It is therefore somewhat unusual when an individual case of FX fraud eminates from Singapore, however today, Wee Sing Guan, Chief Financial Officer of Sembcorp Marine (SMM:SP), one of Asia’s largest marine engineering and ship repair companies, has commenced a 39 month jail sentence for falsifying accounts which resulted in a $303 million foreign exchange loss.
Some seven years after Wee Sing Guan executed fraudulent transactions were discovered by Sembcorp Marine’s management as the company prepared its financials for the third quarter of 2007 results due on November 1, 2007, Singaporean officials have taken the decision to send Mr. Guan to jail in order to send what Deputy Chief District Judge Jennifer Marie considered to be a strong message to all.
Back in 1997, Merrill Lynch analyst Choo Tse Wei reported to his firm on October 23 that year that Mr. Guan, who has been at Sembcorp Marine since 1974, had entered into a series of unauthorised FX transactions. The company’s shares plummeted from an all time high of $5.60 at close of business the previous Friday, meaning that by Tuesday the following week, as a result of the substantial losses generated by the FX transactions, the company had lost 17.5% of its overall value.
Lan Luh Luh of the National Univeristy of Singapore’s Business School explained on October 29, 2007 that questions were being asked as to how such a breach could happen within such a prudent, blue-chip company which was part owned by the Singaporean government alongside private investment giant Temasek Holdings.
So drastic was the effect on the FX fraud that by October 22, Sembcorp Marine called for a halt in trading of its corporate stock, leading to a call being made to many traders that a block of Cosco Corporation shares was up for sale. Chinese ship repairer Cosco considers Sembcorp Marine to be a major shareholder.
After midnight on October 22, 2007, just three hours after announcing the FX loss, Sembcorp Marine stated that it had sold 39 million shares in Cosco, representing 1.7% of the entire company, for a gain of $230 million, leaving Sembcorp Marine with a 4.98% stake in Cosco.
Choo Tse Wei of Merrill Lynch explained at the time that “We believe this to be an attempt by the group to mitigate the full brunt of the foreign exchange transactions.” The FX losses amounted to $365 million by the time all costs were taken into account, which would have completely eradicated any revenues made during the 2007 financial year for Sembcorp Marine, which analysts had forecast whuld stand at $331.7 million. The losses had been marked to market immediately, and included a sum of $122 million (Singapore Dollars) which was already paid to a bank before the transactions were discovered.
According to a report today by Bloomberg, prosecutors had sought a jail term of four and a half years. Wee’s actions weren’t for personal gain, but to recover the company’s losses, his lawyer Julian Tay said.
“The web of lies spun by the accused led to one of the largest derivatives losses in Singapore’s corporate history,” prosecutor Ang Feng Qian said. It “inflicted substantial damage to the finances and reputation of one of Singapore’s largest listed companies,” she said.
Sembcorp Marine reached agreements with nine of the 11 banks involved to close out the transactions in U.S. dollars and euros, the company said in February 2008. Its net income in the fourth quarter of 2007 plunged 99 percent, the most in five years, because of the transactions.
Chart courtesy of Bloomberg