The law’s flexible, entity-based designation mechanism is noteworthy, but the scope of its call-in power and “national security” remains ambiguous.
This March, the Significant Investments Review Act (SIRA), Singapore’s first national security-related investment screening mechanism, entered into force. The act screens investments into “designated entities” deemed critical to national security and reviews transactions that contravene “national security interests.” The SIRA complements Singapore’s preexisting sector-specific legislation that mitigates risks in sectors like telecommunications, media, financial services, and utilities, although the new law is unique for its principal focus on national security.
After gaining independence from Britain in 1959, Singapore—then a small island with a lower per-capita gross domestic product (GDP) than Jamaica’s—produced mosquito coils, joss paper, and mothballs. Quantitative and import licensing restrictions protected some 230 commodities from foreign competition. After the island adopted an export-oriented development strategy, foreign investment surged, and Singapore’s GDP grew over 8 percent per year during the next three decades. But now a rich Singapore is returning to some of the controls it once used to protect its domestic industries. The law underscores Singapore’s acknowledgment of the vulnerabilities posed by unfettered foreign investment and reveals important lessons about best practices for designing screening mechanisms to mitigate such risks.
Investment screening is not new and today has become the most common way to manage security risks posed by foreign investments. Since 1995, over 48 countries have implemented investment screening measures to manage security risks from foreign direct investment (FDI). Many of these countries are advanced, traditionally open economies like Australia, Canada, the European Union, Japan, and the United States. While no international consensus exists yet on the best way for screening mechanisms to balance national security and economic openness, 43 countries—including many of the world’s top FDI destinations—have agreed to a set of best practices. In 2009, the Organization for Economic Co-operation and Development (OECD) adopted the Recommendation on Guidelines for Recipient Country Investment Policies relating to National Security, which articulates principles such as nondiscrimination, transparency and predictability, accountability, and regulatory proportionality.
That Singapore has adopted an investment screening mechanism is not particularly unique, but its design is.
How Singapore’s Significant Investments Review Act Works
The Significant Investments Review Act, which applies to both domestic and foreign investors, bestows Singapore’s Ministry of Trade and Industry (MTI) with two main powers: a narrow “entity” designation mechanism and a broad call-in power. The law also establishes the Office of Significant Investments Review (OSIR), which will administer and enforce the SIRA.
First, the government can designate entities deemed to provide a “critical function in relation to Singapore’s national security interests,” subjecting them to certain ownership and control restrictions. Section 18 of the act requires investors to provide written notification to the government before acquiring a 5 percent stake, and Section 19 obliges those obtaining any stake over 12 percent in these entities to receive prior approval. Existing investors with shares over 50 percent in these entities must also receive approval before divesting their stakes. Under Section 27, the government must approve key personnel of designated entities like the chief executive and board members and can remove them at any time “in the interest of national security.” Section 29 empowers authorities to issue a “special administration order” to a designated entity, through which the government can effectively control the company during the period that the order is in force, including “to immediately take any action or to do or not do any act.” As of May 2024, the OSIR has designated nine entities, mostly related to defense and energy, including subsidiaries of Singapore Technologies Engineering, ExxonMobil, and Shell.
Under Section 32, the government can require any entity that has “acted against Singapore’s national security interests” to transfer or divest equity interests and voting powers or to restrict disclosure of information to a particular person. This call-in power applies to any company—both designated and not designated—that is based in Singapore, “carries out any activity in Singapore,” or “provides any goods and services to any person in Singapore.” The government can invoke this power within a limit of two years after a transaction is completed, a reasonable time period in comparison with many Western countries. Australian authorities can review certain transactions within 10 years, and no time restriction limits the powers of the Committee on Foreign Investment in the United States (CFIUS) in the United States.
The SIRA builds on Singapore’s preexisting sector-specific laws. For example, the requirement that investors provide prior notification before obtaining 5 percent stock in a designated entity draws from the “substantial shareholder” definition in previous legislation such as the Companies Act 1967. The SIRA’s requirement of prior approval before an investor acquires a 12 percent share in a designated entity reflects similar provisions in the Banking Act 1970 and Telecommunications Act 1999.
Parliamentary transcripts show widespread support from Singaporean lawmakers during debates on the bill. In his introduction of the new legislation, Trade Minister Gan Kim Yong argued that “as an open economy, [Singapore] can be vulnerable to actors that may seek to undermine our national security interests through ownership and control of critical business entities.” While several members of Parliament raised concerns about aspects of its technical and procedural design, few questioned the legitimacy of its objectives. According to the transcripts, lawmakers argued that the SIRA would strengthen investor confidence in Singapore’s regulatory environment and bolster its reputation as a “stable, trusted and well-connected global business and investment hub.” Many warned about the risk posed by “malicious actors” and “undue influence,” although none referenced a specific country. It does not seem that a particular foreign investment transaction sparked the decision to adopt this new law but, rather, that Singapore has followed the broader, worldwide trend of embracing investment screening as a policy tool to safeguard critical infrastructure and supply chains.
A “CFIUS Model” for Investment Screening?
Some scholars have described CFIUS as the “gold standard” for investment screening mechanisms. The U.S. Treasury Department, which chairs CFIUS, actively coordinates screening policies with other countries, including the European Union, Mexico, and the Philippines. During the Trump administration, the Treasury Department discussed the importance of screening national security risks with nearly 60 countries. In 2022, Secretary of State Antony Blinken said that America aims to “make sure that countries have the tools to look at those [foreign] investments and decide whether this is something they want to go forward or not.”
But whether a “CFIUS model” can serve as a replicable template for other countries remains an open question. The SIRA’s sophisticated bureaucratic procedures resemble those of CFIUS, while the act also employs a less common, “entity-specific” design, distinct from the “cross-sectoral” approach—which screens investments across all sectors—that has proliferated worldwide, led by the United States.
Parliamentary transcripts underscore the influence of CFIUS’s procedural designs on the SIRA, including the time limit on Singapore’s call-in power and the establishment of the OSIR as a specialized office to serve as a resource for stakeholders. During debates on the bill, lawmakers also raised concerns about differences between the SIRA and CFIUS, highlighting the absence of a public annual report and its potential implications on transparency for investors.
But the SIRA’s entity-based design differs from that of CFIUS. By evaluating entities on a case-by-case basis—rather than screening every foreign investment into certain sectors—Singapore’s regime is arguably less obstructive and more flexible. A 2019 United Nations report described this narrowly tailored, entity-based approach as the least restrictive type of foreign investment screening mechanism in use, present in just four other countries, including Poland and Lithuania. A potential drawback of Singapore’s entity-based design is heightened uncertainty for prospective investors about what entities could be designated in the future, and the law’s criteria for designation provide ample room for interpretation by domestic authorities.
Over half of global FDI enters countries with cross-sectoral reviews, including CFIUS in the United States. Many countries use sector-specific mechanisms that target activities considered sensitive to national security. Britain scrutinizes investments in 17 “sensitive areas” such as quantum technologies, and Japan requires prior notification for any investment over 1 percent in “core designated business sectors,” including nuclear fuels.
The complex design of the “CFIUS model” also potentially limits its replicability in other jurisdictions. The resources of national investment screening authorities vary widely. While CFIUS boasts an annual budget of over $20 million and hundreds of staff across 16 U.S. agencies, Croatia employs three officials in its Foreign Direct Investment Verification Department. It is natural for domestic resources dedicated to investment screening to differ, because countries manage different caseloads, depending on the levels of inbound FDI. The extent of the OSIR’s budgetary and personnel resources is unclear, but parliamentary transcripts indicate that Singaporean lawmakers understand the importance of ensuring that the OSIR is adequately staffed and funded.
Recommendations
The lack of clarification around the law’s wide-ranging call-in power and the term “national security” risks heightening uncertainty for prospective investors. Screening mechanisms in other countries provide guidance on the criteria for assessing whether to invoke such a call-in power or impose restrictions on its scope. In May 2024, the United Kingdom clarified the three “risk factors”—target risk, acquirer risk, and control risk—which the government considers in deciding whether to invoke its call-in powers. In the United States, CFIUS cannot exercise its call-in power against all entities. Rather, its jurisdiction is limited to transactions that could result in foreign control of a U.S. business, noncontrolling investments in businesses involved in critical technologies, infrastructure or sensitive personal data (“TID U.S. businesses”), and real estate transactions.
Amplifying the ambiguity of Singapore’s call-in power is the fact that the SIRA neither defines nor clarifies the meaning of “national security,” which appears in the law nearly 50 times. Trade Minister Yong said that providing a definition would constrain the government’s ability to address evolving risks and that “sometimes, less is more.” However, other countries specify the factors under consideration in national security reviews. New Zealand considers factors including investments in businesses with “significant market share,” “unique assets,” or “sensitive areas” like dual-use technology and health infrastructure. In 2022, the Biden administration issued Executive Order 14083, articulating factors such as cybersecurity and access to sensitive data of American citizens that CFIUS will assess in its reviews.
Such steps to increase transparency will be particularly important because Singapore does not intend to publish an annual report about the implementation of its mechanism, as done by the European Union, Canada, the U.S., and the U.K. Explaining what constitutes national security has also become more essential as countries continue to expand the term’s traditional boundaries. For example, Canada considers the impact of foreign investment on the nation’s “net benefit”—which includes the investment’s compatibility with “national industrial, economic and cultural policies”—and South Korea accounts for whether it offends “Korean morals and customs.”
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Countries are becoming more cautious of foreign investment and “weaponized interdependence.” FDI inflows declined in more than two-thirds of OECD economies last year, and China recently reported its smallest annual foreign direct investment since the 1990s. Three decades since the free-flowing investment boom of the 1990s—after rising outbound investments from state-owned enterprises and sovereign wealth funds, China’s geopolitical ascent into one of the world’s largest exporters of capital, and the global financial crisis and the coronavirus pandemic—policymakers in advanced economies like Singapore recognize the risks posed by an “increasingly complex” and “uncertain” economic environment.
While there may not be a one-size-fits-all approach to screening, there is a one-size-fits-all objective. The overarching aim of countries’ investment screening mechanisms should be to “achieve national security goals with the smallest possible impact on investment flows,” as the OECD established in 2009. Designing and implementing an effective screening regime requires time and openness to learning from other countries’ best practices. Other economies should closely follow the results of Singapore’s experience with a case-by-case designation. At the same time, Singapore should draw lessons from other countries in clarifying the scope of its call-in powers in the new law. But ultimately, the Significant Investments Review Act is a reminder that the world has changed, and mechanisms to screen investments for national security risks will only proliferate in the future.
– William Yuen Yee is a research assistant with the Columbia-Harvard China and the World Program and an incoming J.D. candidate at Harvard Law School. His writing has appeared in Foreign Policy, the Diplomat, Rest of World, Jamestown China Brief, and other publications. Published courtesy of Lawfare.
