Thursday, 26 May 2016

Singapore orders Swiss BSI bank unit shut as 1MDB probe widens

1MDB probe: BSI Bank told to stop operations in Singapore
MAS cites poor management oversight and orders first bank shutdown in 32 years
By Grace Leong, The Straits Times, 25 May 2016

The Monetary Authority of Singapore (MAS) has ordered the closure of BSI Bank's operations here over anti-money laundering rule violations, as the bank's Swiss parent faces criminal proceedings in Europe in a deepening probe into scandal-hit Malaysian state fund 1Malaysia Development Berhad (1MDB).

"BSI Bank is the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector," MAS managing director Ravi Menon said yesterday.

The MAS condemned poor management oversight and gross misconduct by some bank staff as it effected the first such shutdown of a merchant bank here in 32 years.

The closure is also the most dramatic development in the 1MDB probe, which now spans at least seven jurisdictions, including Singapore, the United States and Hong Kong.

The MAS has also referred six individuals from BSI to the public prosecutor to evaluate if they have committed criminal offences.

The Office of the Attorney-General of Switzerland said it has opened criminal proceedings against BSI SA Bank, BSI Bank's Swiss parent, over suspected deficiencies resulting in it being "unable to prevent the commission of offences", including suspected money laundering.

The Swiss moves are based on information from criminal probes into 1MDB - and a decision issued on Monday by the Swiss Financial Market Supervisory Authority (Finma).

Finma said the bank was happy to accept the client's explanation in one case that US$20 million (S$28 million) of new funds were a "gift", while in another instance an account was credited with over US$98 million without any effort to clarify the money's commercial background.

"Through business relationships and transactions linked to the corruption scandals surrounding... 1MDB, BSI SA committed serious breaches of money-laundering regulations and 'fit and proper' requirements."

At least US$4.2 billion of irregular 1MDB transactions have been identified by a Malaysian parliamentary committee, which recommended an advisory board headed by Prime Minister Najib Razak be disbanded.

The Swiss authorities said they will seize 95 million Swiss francs (S$132 million) from BSI SA and begin enforcement procedures against two former BSI staff. BSI group chief executive Stefano Coduri has quit.

An MAS spokesman said: "MAS' regulatory actions... arose from serious lapses by (BSI Bank) in connection with suspicious transactions and relationships, including with 1MDB-related entities, and broader failings in management oversight."

BSI Bank wasfined $13.3 million for 41 regulatory breaches, including failure to monitor suspicious customer transactions. It said it has cooperated fully with the probe into 1MDB.

EFG International said the Swiss authorities yesterday approved its takeover of BSI. The MAS said it will allow the transfer of the BSI Singapore unit's assets and liabilities to the Singapore branch of EFG.


MAS action 'signals zero tolerance for financial system abuse'
By Rachael Boon, The Straits Times, 25 May 2016

Observers say swift, tough action by the Monetary Authority of Singapore (MAS) to shut down BSI Bank here sends a strong signal to the banking industry - and wider international community - that Singapore has zero tolerance for any abuse of its financial system.

The MAS yesterday withdrew Swiss-based BSI Bank's status as a merchant bank in Singapore, citing "serious breaches of anti-money laundering requirements" among other things.

BSI's Singapore branch has been operating since November 2005, offering private banking services.

Ms Foo Mee Har, a member of the Government Parliamentary Committee for Finance and Trade and Industry, said: "This strong action taken by MAS clearly demonstrates the authorities' commitment to ensuring that Singapore, as an international financial centre, is determined, transparent and ready to act decisively against breaches of anti-money laundering regulations."

Mr Chrisol Correia, director of international anti-money laundering compliance at LexisNexis Risk Solutions, said the regulator is countering the threat posed to the financial system here by economic crime and corruption, by making a priority of tackling money laundering.

Although rules have been tightened considerably, leading to increasing costs, Ms Tan Su Shan, co-chair of the MAS' private banking industry group, reminded industry players that "standards are lifted across the board".

When The Straits Times visited BSI's main office on the 31st floor of Suntec Tower One, security was tight and no visitors were allowed without an appointment.

The police were present at the building but did not comment.

The bank's premises seemed quiet. The 31st level was empty except for a receptionist and, occasionally, an employee who paced the corridors. Staff at the bank reception redirected queries to the bank's Swiss headquarters, while those who left the office after work either denied they were employees or refused to comment.

The MAS also referred six members of BSI's senior management and staff, including former wealth planner Yeo Jiawei, who has been charged in court, to the Public Prosecutor to evaluate any criminal wrongdoing.

Mr Tham Soon Kit, Asia-Pacific risk practice director at information services company Wolters Kluwer, noted that the consequences of such incidents suggest growing emphasis on personal accountability.

He said: "In such situations, senior management who may not have sufficient information to prove they took reasonable steps to prevent operational failure cannot use these reasons as an excuse to absolve themselves from fines or prosecution.

"Operational control policy implemented with a systematic approach helps banks to institute appropriate controls, and demonstrates to employees, international customers and regulators that strong governance is in place to support Singapore's pivotal role as a global financial centre."

Additional reporting by Tan Fong Han

BSI ordered to stop operations: Bank has history of breaches going back years
Some led to MAS warnings but bank apparently did little to fix faults, resulting in loss of licence
By Grace Leong, The Straits Times, 25 May 2016

Investigations by the Monetary Authority of Singapore (MAS) uncovered a history of money-laundering breaches and weak financial controls at BSI Bank that go back several years.

Some of these breaches prompted warnings from the MAS, but it appears the bank did little to rectify the faults, culminating in the MAS decision to yank the bank's licence to operate in Singapore.

In 2011, the MAS found policy and process lapses at the front office, as well as weak enforcement. The lapses were rectified, but inspections three years later uncovered serious shortcomings in the due diligence checks on assets underlying the investment funds that were structured for the bank's customers.

The MAS told the BSI Bank management to increase scrutiny of its risk management processes and internal controls. Another inspection last year revealed multiple breaches of anti-money laundering regulations and a pervasive pattern of non-compliance.

The MAS said that in rescinding the bank's licence, it took into account the repetitive lapses as well as last year's findings. It found "poor and ineffective oversight by the senior management of BSI Bank and (an) unacceptable risk culture, with blatant disregard for compliance and control requirements as well as MAS' regulations".

Specific lapses included "processing of multiple unusual transactions, which were essentially pass- through trades often without economic substance", it added.

Pass-through trades involve cash moving from one account to others, often as part of a money-laundering operation.

The Swiss Financial Market Supervisory Authority (Finma) stated on Monday that it found many cases of "clear indications of pass- through transactions".

"In one case, US$20 million (S$27.7 million) was routed through a variety of accounts within the bank on the same day before eventually being transferred to another bank. Transactions of this kind are often a clear indication of money laundering," it said.

"Nevertheless, the bank failed to properly document or carry out plausibility checks on these transactions, or was happy to accept the explanation that the beneficial owner of all the accounts was the same person, or that the transactions were being executed for 'accounting purposes'."

Finma also found serious shortcomings in identifying transactions that involved increased risk.

"These failures related in particular to business relationships with politically exposed persons, the origin of whose assets was not sufficiently clarified, and whose dubious transactions involving hundreds of millions of US dollars were not satisfactorily scrutinised," it said.

Finma also noted that, in the context of the probe into Malaysian state fund 1Malaysia Development Berhad, the bank had business relationships with a range of sovereign wealth funds whose accounts were booked in both Singapore and Switzerland.

"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," Finma said.

Swiss banks devising transfer plan for closure of BSI Singapore
By Grace Leong, The Straits Times, 26 May 2016

Swiss private banks BSI and EFG International are working to devise a transfer plan that will allow them to effect an orderly closure of BSI's unit in Singapore.

The move involves Zurich-based private bank EFG taking over BSI, a deal that has been approved by Swiss and Singapore regulators and is expected to be completed by the fourth quarter.

The Monetary Authority of Singapore (MAS) will allow the transfer of the Singapore subsidiary's assets and liabilities to EFG in Singapore, or to BSI in Switzerland.

"Both BSI and EFG are currently working on a transfer plan to be submitted to MAS," it told The Straits Times.

EFG is also helping address staff morale in the wake of BSI's closure notice, an EFG spokesman said, but she declined to comment on the firm's plans for BSI's staff.

An MAS spokesman said: "Customers are however assured that BSI Bank would not be closing down immediately.

"The bank remains solvent and has the full support from its parent bank in Switzerland."

The moves come after MAS ordered the closure of BSI's Singapore unit over anti-money laundering rule violations while its Swiss parent faces criminal proceedings amid a deepening probe into troubled Malaysian state fund 1Malaysia Development Berhad (1MDB).

The MAS condemned poor management oversight and gross misconduct by some bank staff as it effected the first such shutdown of a merchant bank here in 32 years.

Although no deadline has been mentioned on the timing of the closure, Switzerland's Financial Market Supervisory Authority (Finma) approved the takeover of BSI by EFG on condition that BSI be completely integrated and dissolved within 12 months.

In addition, none of BSI's top management associated with its misconduct can take leadership positions in EFG. BSI Singapore said it is "operating normally" and working to ensure a smooth and quick integration with EFG.

BSI said in a statement yesterday: "The decision by MAS to withdraw the bank's status as a merchant bank will take place only at a future time given that MAS 'will allow the transfer of the Singapore subsidiary's assets and liabilities to the Singapore branch of EFG or the parent entity, BSI SA'."

The bank here is not affected by the financial penalties levied by MAS and Finma as they will be paid from BSI's general reserves.

Mr Renato Cohn, acting chief executive and a member of BSI's group executive board, is managing the Singapore operations in the transition.

EFG is controlled by the Greek Latsis family. Its purchase of BSI from Brazil's BTG Pactual will create Switzerland's fifth-largest private bank. BSI, which began in 1983, had net client outflows of 9.3 billion Swiss francs (S$13 billion) last year and its global assets under management declined 16 per cent to 87.7 billion Swiss francs. It has 1,900 employees worldwide, including over 200 here, while EFG International has a headcount of 2,200 worldwide, with 354 here.

* MAS: No bank here received US$3b in 1MDB funds
By Grace Leong, The Straits Times, 9 Jun 2016

No bank in Singapore received US$3 billion (S$4 billion) from a Goldman Sachs-arranged bond issue for scandal-hit Malaysian state fund 1Malaysia Development Berhad (1MDB), the Monetary Authority of Singapore has found.

MAS was refuting a Wall Street Journal (WSJ) report alleging Goldman Sachs had wired the US$3 billion from the bond issue arranged in 2013 to a 1MDB-controlled account at the Singapore branch of small Swiss private bank BSI.

The WSJ report said Mr Kevin Wong, Goldman's lawyer and a partner with law firm Linklaters in Singapore, had sent a note to Goldman bankers alerting them the money was to be sent to a private bank. The report, citing unnamed sources, said Goldman had checked the credentials of BSI SA and found no reason not to send money there.

However, the WSJ yesterday issued a correction, stating the US$3 billion went to 1MDB's account with BSI in Switzerland rather than the Singapore branch.

An MAS spokesman said yesterday that "no bank in Singapore received the US$3 billion wire transfer from Goldman Sachs in relation to the bond issuance for 1MDB".

Goldman Sachs, BSI and Mr Wong all declined comment.

On May 24, MAS moved to shut down BSI Bank's operations here over anti-money laundering rule violations, as its Swiss parent faces criminal proceedings in Europe over money flows from 1MDB.

The US authorities are probing Goldman Sachs to see if it violated anti-money laundering laws for failing to flag a suspicious transaction as funds of that size would typically go to a large global bank, the WSJ said. Half the sale proceeds allegedly transferred by Goldman Sachs to the Swiss bank account disappeared, with some ending up in Malaysian Prime Minister Najib Razak's bank account, the WSJ said.

But Datuk Seri Najib's press secretary disputed the report, saying WSJ's "false allegations against Malaysia have been proven to be lies yet again, this time by" MAS. "Despite the gravity of their allegations, the WSJ gave no evidence at all to support their claims," Datuk Seri Tengku Sariffuddin Tengku Ahmad said.

The US Federal Bureau of Investigation and Justice Department, as part of a broader probe into 1MDB, are looking into the role of Goldman Sachs. The investment bank made about US$593 million from three bond sales in 2012 and 2013 that raised US$6.5 billion for 1MDB, according to media reports. That's above what banks typically make from government deals.

Meanwhile, 1MDB defended its liquidity position, saying it is "strong", after Moody's Investors Service on Tuesday withdrew the rating on 1MDB Energy's 5.99 per cent US$1.75 billion debt "for its own business reasons".

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