SINGAPORE/ZURICH (Reuters) - Singapore’s central bank on Tuesday shut down a second Swiss bank in the city-state and fined banks DBS and UBS in its biggest crackdown on alleged money-laundering activities connected with Malaysia’s scandal-tainted 1MDB fund.
The Monetary Authority of Singapore (MAS) said in a statement it had ordered Zurich-based Falcon Private Bank’s Singapore branch to cease operating because of “a persistent and severe lack of understanding” of Singapore’s money-laundering controls. It also accused Falcon’s senior management in Switzerland and Singapore of “improper conduct”.
Falcon was fined S$4.3 million ($3.12 million) for 14 breaches of the money laundering prevention law, including not filing suspicious transaction reports and failure to inform authorities of irregular activities in their customers’ accounts.
Falcon is the second bank to lose its licence in connection with Singapore’s probe into 1MDB, in which authorities have frozen millions of dollars in bank accounts, fined banks and charged several private bankers.
In May, Swiss-based BSI Bank’s Singapore branch was ordered to be closed for failing to control money-laundering activities connected with 1MDB. That was the first time in 32 years Singapore had shut down a bank.
DBS was fined S$1 million ($728,067) and UBS S$1.3 million on Tuesday for breaches in Singapore’s anti-money laundering law. The two banks said in separate statements they would take action against staff responsible for the lapses.
In Zurich, the Financial Market Supervisory Authority (FINMA), ordered Falcon to turn over 2.5 million Swiss francs ($2.56 million) in what the watchdog said were illegal profits.
A FINMA spokesman said the watchdog still has an ongoing investigation into UBS, Switzerland’s biggest bank, in connection with 1MDB.
FINMA also said it has opened enforcement proceedings against two former Falcon executives, without citing them by name.
Singapore authorities arrested the Singapore branch manager of Falcon Private Bank, Jens Sturzenegger, on Oct 6, MAS said.
The MAS said it is also finalising its assessment of the Singapore branch of Standard Chartered Bank and would make an announcement in due course.
Standard Chartered said it “would be inappropriate to comment” while the assessment is taking place.
Falcon described the MAS decision as “regrettable and disappointing”, but said it would now focus on growing in “core locations” in Switzerland, Middle East and London.
The bank expects to close the branch, which as around 35 employees, in the next few months, a Falcon spokesman said.
Malaysia’s 1MDB, once a pet project of Prime Minister Najib Razak who chaired its advisory board, is the subject of money-laundering investigations in at least six countries, including Switzerland, Singapore and the United States.
The U.S. Department of Justice filed lawsuits in July seeking to seize dozens of properties tied to 1MDB, saying that over $3.5 billion was misappropriated from the fund.
The lawsuits do not name Najib but say around $700 million of misappropriated funds flowed into the accounts of “Malaysian Official 1”, who U.S. and Malaysian officials have identified as Najib.
The Wall Street Journal reported last year that investigators had traced nearly $700 million that was sent in from an account at Falcon in Singapore in 2013 to accounts in Malaysia they believed belonged to the Malaysian prime minister.
Both Najib and 1MDB have denied any wrongdoing.
In January, Malaysia’s Attorney General Mohamed Apandi Ali said Saudi Arabia’s royal family gave Najib a $681 million gift, of which Apandi said about $600 million was later returned.
FINMA said its review of Falcon had identified around $3.8 billion associated with the 1MDB Group that was transferred to accounts at Falcon between 2012 and mid-2015.
“The business relationships and transactions booked in Switzerland and at Falcon’s Singapore and Hong Kong branches were unusual and involved a high level of risk for the bank both through their nature and the amounts transacted,” it said.
It said Falcon had a number of business relationships with 1MDB group companies and executed transactions amounting to around $2.5 billion via accounts of two offshore companies.
Falcon also had a client relationship with a young Malaysian businessman with links to individuals in Malaysian government circles, it said without naming him.
“The bank did not verify how this individual had been able to acquire assets of $135 million in an extremely short period of time or why a total of $1.2 billion was transferred to his accounts at a later date - a transaction which was clearly at variance with the information he had provided when opening the account,” it said.
Internal warnings from bank staff were ignored, it found.
FINMA banned Falcon from entering new business relationships with foreign politically exposed persons for three years and said Falcon would lose its licence if there is any repetition of the offence.
Falcon had $900 million in assets in Singapore, the bank’s Chief Executive Walter Berchtold told a media briefing. The 1MDB case has not prevented the bank from attracting news assets, he added.
Falcon’s owner, a subsidiary of Abu Dhabi’s sovereign fund International Petroleum Investment Company, said it views Falcon as a strategic investment “and has no current intention” to sell it.
Ravi Menon, managing director of Singapore’s central bank said in the MAS statement the board and senior management of financial institutions play a pivotal role in keeping Singapore a clean and trusted financial centre.
“They must put in place robust mechanisms to detect suspicious activities, promote strong risk awareness among their staff, and empower their compliance and risk management people,” said Menon. “Most of all, they must set the tone from the top – that profits do not come before right conduct.”
The crackdown also sends a message that banks have to adopt a compliance culture and the need for compliance staff “to be able to take decisions independent of management,” said Nizam Ismail, partner at RHTLaw Taylor Wessing LLP, where he advises clients on financial services regulation.
Reporting by Anshuman Daga in Singapore and Joshua Franklin in Zurich.; Additional reporting by Saeed Azhar and Marius Zaharia in Singapore.; Editing by Bill Tarrant