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BSI bank status to be removed in connection with Malaysia 1MDB probe

Thursday, 26 May, 2016

Switzerland's Financial Market Supervisory Authority (FINMA) and the Monetary Authority of Singapore (MAS) have found that Swiss bank BSI Bank Limited committed serious breaches of money laundering regulations and fit and proper requirements. FINMA stated that its action is 'linked to the corruption scandals surrounding the Malaysian sovereign wealth fund 1MDB'. As a result FINMA ordered the bank's takeover by EFG International and MAS announced it has served the bank a 'notice of intention to withdraw its status as a merchant bank in Singapore'. The two authorities cooperated 'intensively'.

FINMA findings

This week, Switzerland's FINMA announced it had discovered 'serious breaches of money laundering regulations and "fit and proper" requirements' in BSI's relationship with 1MDB. The bank executed 'numerous large transactions with unclear purpose over a period of several years and, despite clearly suspicious indications, did not clarify the background to these transactions', said FINMA.

In the period from 2011 to April 2015, said FINMA, there were 'serious shortcomings in identifying transactions involving increased risk. These failures related in particular to business relationships with politically exposed persons (PEPs), the origin of whose assets was not sufficiently clarified, and whose dubious transactions involving hundreds of millions of US dollars were not satisfactorily scrutinised.'

BSI had business relationships with a range of sovereign wealth funds whose accounts were booked in both Singapore and Switzerland, says FINMA – '[I]t executed substantial transactions for the foreign sovereign wealth funds, in some cases involving hundreds of millions of US dollars, without adequately clarifying the background to them.' The fees charged were above average and out of line with normal market rates. Senior management at the bank did not question why the sovereign wealth funds should use a private bank to provide institutional services and pay excessive out-of-market fees for doing so, according to FINMA. In one case involving a deposit of USD20 million, the bank accepted the client's explanation that the funds involved were a 'gift'. The bank executed transactions involving similar amounts even though in some cases the explanations and contractual documents obtained contradicted the purpose of the account as stated when it was opened.

In many cases there were clear indications of pass-through transactions which FINMA says are often a clear indication of money laundering, but the bank did not carry out plausibility checks.

Consequences

The Swiss Office of the Attorney General will conduct the criminal proceedings against BSI. Meanwhile the bank's CHF95 million profits from the 1MDB deal have been 'disgorged' (confiscated) and two senior managers also face prosecution.

MAS has announced its intention to withdraw the bank's status as a merchant bank in Singapore and has referred to the Public Prosecutor the names of six members of the bank's senior management and staff to evaluate whether they have committed criminal offences. The bank will also be fined USD13.3 million by the Singapore authorities.

BSI is now to be taken over by EFG International, on the condition that it is 'fully integrated and dissolved' within 12 months.

MAS has assured the bank's clients, however, that 'the bank is solvent and has assets in excess of its liabilities and commitments'.

  • BSI was penalised by FINMA last year for its 'misconduct' in the Petrobras scandal concerning corruption at the Brazilian state oil company.

Sources