Switzerland, Singapore Target UBS, Falcon Bank in 1MDB CrackdownBy , , and
Attorney-general mulls criminal proceedings against Falcon
UBS is subject of Finma enforcement proceedings; no time frame
Switzerland and Singapore are bearing down on the banks linked to a corruption scandal at 1Malaysia Development Bhd., with the Swiss financial regulator saying enforcement proceedings are underway against UBS Group AG, one of six banks targeted, and the Asian city-state ordering one institution to cease operations and fining others.
Switzerland’s top prosecutor is also considering whether to open a criminal case against the lender that was told to shut down in Singapore, Falcon Private Bank. The Monetary Authority of Singapore fined Falcon S$4.3 million ($3.12 million), UBS S$1.3 million and DBS Group Holdings Ltd. S$1 million for anti-money laundering lapses related to 1MDB.
Malaysian state investment company 1MDB is at the center of several international investigations into alleged corruption and money laundering by public officials. Prosecutors in Singapore, Switzerland and the U.S. and other jurisdictions are looking into a sweeping multiyear scheme in which more than $3.5 billion was allegedly diverted from the investment vehicle.
“Regulators are increasingly willing to investigate and punish banks that don’t properly vet their clients or where their money comes from,” said Patrick Emmenegger, a professor at the University of St. Gallen in Switzerland who specializes in financial secrecy and the international exchange of bank account information. “Singapore and Switzerland have made real inroads against the banks.”
Samuel Brandner, a spokesman for UBS in Zurich, declined to comment on the FINMA proceedings. In response to the Singaporean sanctions, UBS and DBS said in separate statements they will strengthen controls and take actions against employees responsible for the lapses.
“Falcon was abused and was a little naive on occasion,” the bank’s chief executive officer Walter Berchtold told journalists in Zurich on Tuesday. “We will take care to wind down the Singapore branch in an orderly fashion.”
FINMA is targeting the Zurich-based UBS, rather than individuals at the bank, said Vinzenz Mathys, a spokesman for the Bern-based regulator. He added that he couldn’t say when the proceedings might be concluded. The MAS said it had found control lapses at UBS by specific bank officers.
Swiss Attorney-General Michael Lauber warned in a speech last week of “serious suspicion” of the role of Swiss banks in the 1MDB affair. He urged the Malaysians to do more to help with his investigation.
Tuesday’s most significant action was against Falcon Bank, one of dozens of Swiss institutions that specialize in discreet banking for wealthy international clients and have come under increasing pressure amid an international crackdown on banking privacy. Falcon, founded in 1965, was bought in 2009 by Aabar Investments PJSC, a unit of Abu-Dhabi’s sovereign fund International Petroleum Investment Co. IPIC had guaranteed some 1MDB debt and the two are now locked in arbitration over a 2015 agreement.
Falcon’s role was highlighted in court filings by U.S. prosecutors in July, who are seeking to seize more than $1 billion worth of assets they say went through U.S. banks from 1MDB. They detailed an alleged scheme of international money laundering and misappropriation stretching from 2009 to 2015. That includes more than $907 million in bond-sale proceeds transferred in 2012 to Falcon, of which nearly $577 million was wired roughly a day later to an account at BSI Bank in Lugano. That account was maintained by Aabar-BVI, which wasn’t a legitimate subsidiary of Aabar Investments or IPIC, according to the filings.
Singapore said in May that it would close BSI’s unit in the country, and FINMA seized 95 million Swiss francs in profit from the bank.
Falcon failed to adequately investigate the background of so-called pass-through transactions totaling $681 million and the repayment six months later of $620 million according to a statement by FINMA. That’s the amount that appeared in Malaysian Prime Minister Najib Razak’s accounts in 2013 and most was later returned, the country’s attorney general said earlier this year. The Swiss regulator didn’t mention Najib.
1MDB has consistently denied wrongdoing and Malaysia’s government has said it will cooperate with lawful investigations of local companies or its citizens in relation to the fund.
Lauber’s office said Tuesday that it’s considering opening criminal proceedings against Falcon after FINMA fined the lender 2.8 million Swiss francs ($2.8 million) for failing to adequately vet bank transactions. FINMA warned the Lugano-based bank it would lose its Swiss banking license if it repeated such offenses.
Swiss prosecutors will study the terms of FINMA’s enforcement proceedings against Falcon before deciding whether to open a case, a spokesman for the attorney-general’s office said today.
"Wealthy clients typically get very nervous when they read about their bank being the target of an anti-money laundering investigation,” said Jonas Floriani, a banks analyst at Keefe, Bruyette & Woods in London. “When a regulator goes as far as to shut down part of the business there’s every chance some clients will run for the hills.”
Falcon had less than $900 million in client assets in Singapore, out of 18.2 billion Swiss francs globally, Berchtold said. Aabar, the bank’s parent company, is not going to sell the Swiss lender, he said.
The MAS’s withdrawal of the firm’s merchant-bank status brings to an end a boutique private-banking operation that began in the city in August 2008. The regulator had fined Falcon S$300,000 for anti-money laundering lapses after an inspection in 2013, and uncovered “an even larger number” of breaches as well as “serious failings” by senior management at the bank’s head office and by the Singapore branch manager, the MAS said.
The MAS said the firm’s local branch manager has been arrested and Switzerland’s FINMA has started enforcement proceedings against two of Falcon’s former executives. FINMA linked the private bank to $3.8 billion of 1MDB fund flows and said it “has seriously breached money laundering regulations” in failing to carry out adequate background checks into 1MDB-linked transactions.
Falcon had a relationship with a “young Malaysian businessman” with ties to that country’s government, the Swiss regulator said. The man, who it didn’t identify, had been able to acquire $135 million of assets in a short period of time and transferred a total of $1.2 billion to his accounts at a later date. The bank did not verify how he was able to do so, even though the transaction was “clearly” inconsistent with the information he gave when opening the account.
— With assistance by Vogeli Voegeli, Niluksi Koswanage, David Roman, Pooja Thakur Mahrotri, Giles Broom, David Yong, and Shamim Adam