Singapore’s Phantom Workers

Abstract

In 2009, the Singapore state prosecuted a string of businesses for listing fictitious local workers on their books in order to stretch their foreign worker entitlement. These “phantom” worker scams, prevalent since the 1980s, appear out of place in Singapore – a country with a strong international reputation for its government’s efficiency and strict legal enforcement. This paper examines the state’s prosecutions of the phantom worker scams in the context of the exceptional economic and political stresses in 2009, when Singapore was most severely affected by the global economic crisis, in order to address the employment regime in Singapore. It argues that the belated efforts to tackle the phantom worker scams reflected the pro-business state’s reluctance to tackle illegalities crucial to facilitating employers’ otherwise unlawful access to wealth and resources in Singapore.

Key Words:

• Phantom workers
• foreign workers
• labour flexibility
• labour scams
• Singapore

Acknowledgements

Special thanks go to Douglas Kammen for his guidance throughout the entire brainstorming, research, writing and publication processes. The author also thanks Michael Montesano, Jeramin Kwan and Kevin Hewison for their invaluable comments on multiple versions of the paper, as well as the interviewees involved in the research. The usual disclaimers apply.

Notes

¹ The “dependency ratio” cited is valid for the period of June 1, 2009 to July 1, 2010.

² Employers who are convicted can be fined up to S$15,000, jailed for a maximum of 12 months, or both. The MOM may also revoke the work permits of their existing foreign workers and bar them from hiring new foreign workers.

³ “R Pass” workers – which include female domestic helpers – earn less than S$1,800 per month (as of December 2011).

⁴ “S Pass” workers possess diploma-level or post-secondary-level education and earn a fixed monthly salary of at least S$2,000 per month (as of December 2011).

⁵ Employers could cancel their foreign workers’ work permits unilaterally via the MOM’s website and their applications would be processed within one working day. The foreign worker must be repatriated within the next seven days once the work permit is revoked (MOM 2013b, n.d.).

⁶ Only workers in the construction sector and foreign domestic workers are permitted to switch employers, and subjected to the approval of the existing employer.

⁷ Chapter 92 of the Employment Agencies Act states that an employment agency may receive from each foreign worker not more than S$5 for each registration, and not more than 10% of the first month’s earnings as commission (Government of Singapore 1959).

⁸ At the point of writing in 2009, Chapter 91A of the Employment of Foreign Manpower Act states that employers who deduct their workers’ salaries unlawfully or receive employment-related kickbacks can be fined up to S$5,000, imprisoned for up to six months, or both. They will also be barred from employing foreign workers in the future. Employment agencies that breach the Employment Agency Licensing Conditions will have their licences revoked and S$20,000 security deposit forfeited (Government of Singapore 1991).

⁹ Subcontracting of foreign workers is legally permissible only within the construction sector in the event of early completion of projects or lulls in businesses. Firms are prohibited from hiring foreign workers for the sole purpose of re-deploying the workers. Under the Employment of Foreign Manpower Act, employers convicted for illegally deploying their foreign workers will be fined up to S$5,000, imprisoned for up to six months, or both. These employers are also barred from employing foreign workers in future. For illegal employment of foreign workers by third-party employers, a first-time offender faces a fine up to S$15,000, imprisonment of up to one year, or both, for each foreign worker hired. They will also have to repay the levy evaded. For subsequent conviction, the penalty will be a mandatory jail sentence of one to 12 months in addition to a fine of up to S$15,000 (MOM 2009c).

¹⁰ Each “man year” is equivalent to a one-year work contract. In 2009, a main contractor awarded a project worth S$600,000 would be allocated 13 MYE.

¹¹ In the same interview, the president of Singapore Contractors Association Limited Andrew Khng also notes that it is not accurate to calculate the MYE based on the value of the construction project awarded, because a project’s value can be influenced by factors including fluctuations in the business cycle and price-fixing among industry players.

¹² The resident employment rate is defined as the proportion of residents (referring to Singapore citizens and permanent residents) aged 25 to 64 years old who are employed (MOM 2008b, A2).

¹³ A June 2009 survey conducted by the government feedback unit, REACH (for “Reaching Everyone for Active Citizenry@Home”), with 1,558 Singaporeans, revealed that one in four respondents were dissatisfied with the government’s foreign manpower employment policy; and one in three respondents were dissatisfied with the affordability of housing, healthcare and public transport (The Straits Times, August 7, 2009, A3; Today, August 7, 2009, 10).

¹⁴ Despite the economic recession, public housing units’ resale price index soared to 140.2 in the second quarter of 2009, reaching the highest level since 1990 (The Business Times, July 25, 2009, 31).

¹⁵ In 2008, the state’s decision to convert an unused school in Serangoon Gardens, a private residential estate populated largely by middle-to-upper class Singaporeans and expatriates, into a dormitory for 1,000 foreign workers caused uproar among the residents. More than 1,400 petition signatures were collected from the households in the vicinity of the dormitory’s proposed location (My Paper, December 7, 2009, A2).

¹⁶ The state further uncovered a case in 2009 where one employer claimed salaries paid to his phantom local workers as tax deductibles and under-declared the firm’s income by S$3.4 million. The employer was prosecuted only for under-declaring his firm’s tax liabilities from 2000 to 2005, and not for inflating his foreign worker entitlement through phantom worker scams (Inland Revenue Authority of Singapore 2009).

¹⁷ In July 2013, I interviewed a male hospital ward cleaner from China who, as it turned out, had been a victim of the phantom worker scam. My respondent and his wife arrived in Singapore in 2008 to work for a cleaning company. Nine months into the job, the company director was prosecuted and convicted for phantom worker scams and the company ceased operations. While the MOM had provided for the 780 China workers’ accommodation and helped them recover salaries owed, the workers could not secure alternative employment as most cleaning companies or subcontractors did not meet the requirements to hire such large numbers of migrant workers. The MOM began to repatriate the workers in batches and my respondent’s wife was sent home before she could earn enough to recover the costs incurred for her overseas job placement. As my respondent waited to be repatriated, the Chinese embassy managed to convince one of the largest local cleaning companies to hire the remaining workers – just 20, including my respondent (Interview, Wang Feng, July 11, 2013).

¹⁸ MOM prosecuted Tipper Corp. in March 2009 for phantom worker scams, salary arrears and illegally deploying its workers to other companies. Its subcontractors were also prosecuted for salary arrears, failure to provide acceptable accommodation and for employing Tipper Corp.’s workers illegally.

¹⁹ The “shell companies” were concentrated in manufacturing because firms in the manufacturing (and service) sector need not furnish evidence of existing business projects when applying to hire foreign workers, unlike those in the construction and marine sectors. Employers and labour agents are also able to bring in female foreign workers through these shell establishments in the manufacturing (and service) sector, which they could not do so in the male-dominated construction and marine sectors. It is also easier to hire foreign workers in the manufacturing sector compared to the service sector since the latter is governed by the most stringent dependency ratio.

²⁰ Thirty-eight individuals and three companies were convicted for phantom worker scams in 2010, while 38 individuals and one company were convicted in 2011 (MOM 2011, 2012). No official data are available for 2012 and 2013.

²¹ In addition to labour input, Singapore’s economic growth can be attributed to capital input – which includes information and communication technology (ICT), and total factor productivity (TFP) – referring to technological progress and intangible socio-economic improvement.

²² In 2012, the parliament approved amendments to the Employment of Foreign Manpower Act and the reasons articulated by the MOM are telling of the impact of attempts to tighten the influx of foreign workers on phantom worker scams and other illegalities: “[A]s we further tighten the policies on the hiring and retention of foreign manpower, we can expect errant employers to try harder to get around the rules. This is where we are not lacking in creativity” (MOM 2012). Key amendments to the Act include the establishment of an administrative penalty regime to deal with “administrative infringements” like phantom worker scams and recovering employment costs illegally from foreign workers, to ensure errant employers “disgorge their ill-gotten gains” by imposing high financial penalties – at S$20,000 per infringement – and debarring bosses from applying for and renewing existing foreign work passes. See MOM (2013a) for more details.

²³ A local company went to the extent of recruiting phantom permanent residents to inflate its foreign worker quota blatantly on an internet forum (Temasek Times, February 19, 2012).