- Spending to curb money laundering forecast to reach record
- Singaporean regulator ordered BSI unit to close on May 24
Singapore’s move to shut down scandal-plagued BSI Bank Ltd.’s operations in the country is reverberating through private banks facing surging costs to combat money laundering and protracted screening of new clients.
Financial-industry costs to curb money laundering were already forecast by LexisNexis Risk Solutions to reach a record $1.5 billion in Asia this year. Catering to Asia’s swelling ranks of wealthy individuals is one of the industry’s fastest-growing sectors, and banks such as Credit Suisse Group AG are investing more in that business.
Singapore’s clampdown on BSI over its ties to a Malaysian state investment fund -- its most stringent action in three decades -- underscores how regulators are increasingly determined to root out money laundering. For Asia’s $1.5 trillion private-banking industry, that probably means more spending to vet prospective clients and keep watch for illicit flows, according to LexisNexis.
The Monetary Authority of Singapore on May 24 ordered BSI’s local unit to shut and imposed financial penalties of about $10 million for breaches of money-laundering rules. The central bank also referred six senior BSI executives to the city’s public prosecutor in a broad sanction that came as Swiss authorities took action against the bank related to money flows from 1Malaysia Development Bhd.
“Scrutiny on anti-money laundering, counter-terrorist financing, anti-bribery and corruption as well as tax transparency will endure and intensify in Asia,” said Thomas C. Brown, LexisNexis’s senior vice president of global market development and U.S. commercial markets. “The MAS move last week may cause banks to increase their compliance spend pace even further.”
Asian financial firms with more than $100 billion in assets spend an average of $15.8 million on anti-money laundering compliance each year, according to a LexisNexis survey published in April. Some 82 percent of respondents expected those costs to rise this year, with a third projecting an increase of at least 20 percent, the Georgia-based provider of technology and data for risk management said.
Personnel costs account for more than 80 percent of AML spending in Asia, with the rest in technology, LexisNexis said. Its survey covered 210 respondents from financial firms in Hong Kong, China, Singapore, Malaysia, Indonesia and Thailand.
BSI’s penalties in Singapore are linked to 1MDB, the Malaysian state investment company at the center of money laundering and embezzlement investigations around the world. BSI introduced 1MDB to a Cayman Islands fund that received a $2.32 billion investment, according to a report from a Malaysian parliamentary hearing. That investment and transactions related to it are the subject of criminal probes, including those conducted in Singapore.
Malaysia’s government and 1MDB have repeatedly denied any wrongdoing. BSI has said it cooperated fully with the 1MDB investigations by the Singapore and Swiss authorities.
Scrutiny of private banks goes beyond BSI: Barclays Plc was fined more than $100 million in November for failing to fully investigate a group of “politically exposed” clients tied to a 1.9 billion-pound transaction. Meanwhile, Geneva prosecutors have widened a probe into Credit Suisse and one of its ex-wealth managers in a case looking into unauthorized trades on the accounts of rich eastern Europeans, according to people familiar with the investigation.
Tighter regulatory oversight means the banks may spend more time vetting individuals before accepting them as customers. Fifty-seven percent of respondents in the LexisNexis survey said it took more than four hours on average to complete due diligence on private banking or wealth-management customers.
MAS’s actions against BSI far exceeded previous punishments handed down in recent years for money laundering and financing terrorism. In 2014, the regulator imposed financial penalties on six financial institutions ranging from S$1,000 ($725) to S$700,000, it said in a report last July, without naming the firms. In 2013, five institutions were fined between S$12,000 and S$450,000.
What’s more, the direct referral of BSI executives to prosecutors indicates that bank officers in the region will have to be personally accountable for failures in anti-money laundering policies and procedures, said Henry Balani, global head of strategic affairs at technology provider Accuity.
“There is a clear message from the MAS that the industry needs to pay attention to ensuring the soundness of their AML compliance framework,” said Radish Singh, who leads Deloitte & Touche Financial Advisory Services’s Southeast Asia anti-money laundering and forensic team in Singapore.
Singapore was the only Asian country among the 10 least-corrupt nations as measured by Transparency International’s 2015 Corruption Perceptions Index. Its No. 8 ranking compares with neighboring Malaysia and Indonesia’s 54th and 88th, respectively, among the 168 countries tracked by the organization. Malaysia was 50th in 2014.
Lugano-based BSI set up shop in Singapore in 2005, a decade after its Hong Kong debut, joining the flood of private banks and asset managers seeking a slice of Asia’s fast-growing wealth industry. Client assets managed by the region’s 20 largest private banks have jumped 23 percent since 2012 to reach $1.47 trillion last year, according to data from Asian Private Banker.
Even amid rising compliance costs and tighter regulations, Asian wealth firms benefit from the “positive” business momentum created by economic growth, according to Tan Su Shan, co-chair of MAS’s private-banking industry group. The body comprises of senior executives in the industry working to develop private banking in Singapore.
“Rules surrounding tax reporting and AML have been tightened significantly,” said Tan, who also oversees DBS Group Holdings Ltd.’s wealth business. “While this has resulted in increased costs in compliance and surveillance, it is better for all industry players in the long term as standards are lifted across the board.”