Swiss Fine Coutts Unit Over 1MDB Money-Laundering BreachesBy and
Bank ordered to pay back 6.5 million francs in unlawful profit
Swiss prosecutors reviewing whether criminal probe is merited
Switzerland’s financial regulator fined Coutts & Co. Ltd. for violating money-laundering rules and illegally profiting from transactions associated with 1Malaysia Development Bhd, prompting Swiss prosecutors to review the decision to see if the bank should face a criminal investigation.
Coutts, owned by Royal Bank of Scotland Group Plc, allowed a total of $2.4 billion worth of assets related to the Malaysian development fund to flow through accounts in Switzerland even though it had good reason to be suspicious of the transactions, Finma said.
The Swiss Financial Market Supervisory Authority, known as Finma, ordered the bank to pay back 6.5 million Swiss francs ($6.57 million) in unlawfully generated profits from the transactions, saying Coutts had “seriously breached money-laundering regulations by failing to carry out adequate background checks into business relationships and transactions” associated with 1MDB.
The bank also ignored internal warnings from some of its employees, Finma said. In December, the Monetary Authority of Singapore imposed a 2.4 million Singapore dollar ($1.7 million) fine on Coutts for anti-money-laundering breaches at its branch there.
Finma said it was also considering enforcement proceedings against those Coutts employees responsible for the bank’s actions. A young Malaysian businessman opened an account in the summer of 2009 with the expectation that $10 million would be transferred to it from the holder’s family assets. Instead, about $700 million was moved to the account late that year from 1MDB. A Finma spokesman declined to name the businessman.
‘Person of Interest’
Among the people at the heart of the 1MDB affair is a Malaysian financier named Low Taek Jho. Low, who is known for partying with celebrities like Paris Hilton, has been characterized by U.S. officials as the controller of a scheme that improperly drained billions of dollars from 1MDB. Low was also identified as a “key person of interest” in a Singaporean money-laundering probe in November. Low has said that his consulting work for 1MDB didn’t break any laws.
Several Coutts employees raised concerns with the bank’s compliance department about its dealing with the businessman, Finma said. In the case of the $700 million transfer, the names of the sender and recipient were transposed, a compliance officer noted, according to the regulator’s statement. Coutts’s legal department even raised the risk of “a total fabrication” with the transaction, according to Finma.
The wealth fund, which has consistently denied wrongdoing, is at the center of several international investigations into alleged corruption and money laundering by public officials. Prosecutors in Singapore, Switzerland, 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 fund.
“We regret any historic failings in our AML processes,” RBS said in an e-mailed statement, referring to anti-money-laundering. “Coutts & Co. Ltd. has progressively and substantially strengthened its AML policies and controls. We are in the process of winding-down this Swiss-incorporated business, following the sale of the majority of the assets last year.”
RBS sold the Coutts International private-banking unit to Union Bancaire Privee last year. UBP declined to comment on the Finma announcement and said that since it had bought only the assets of Coutts, it didn’t inherit any legal liability.
The Swiss attorney-general’s office said Thursday that it had asked Finma for a copy of the enforcement decision to help evaluate whether Coutts’s behavior met the test for corporate criminal liability. Finma said it has also flagged the case to the U.K. Financial Conduct Authority. A spokesman for the FCA declined to comment.
Coutts & Co. Ltd. is not the first Swiss bank to be sanctioned for its 1MDB dealings. Falcon Private Bank and BSI, both based in Lugano, were ordered to shut down their Singapore banking units as punishment for facilitating illicit payments, and BSI was fined 95 million Swiss francs last year for ignoring clear warning signals, according to Finma CEO Mark Branson.
— With assistance by Richard Partington, Mara Bernath, Alan Katz, and Dylan Griffiths