‘Serious breaches’ of AML Compliance
You think you’d learn a lot in 143 years of business, but Swiss bank BSI and its Singapore subsidiary BSI Bank didn’t learn enough to prevent banking’s version of The Death Penalty. They did, however, make a lot of money up to that point.
Switzerland’s banking regulator FINMA recently announced its findings that BSI committed “serious breaches of the statutory due diligence requirements in relation to money laundering and serious violations of the principles of adequate risk management and appropriate organization.” FINMA also announced that EFG International will take over BSI on the condition that “BSI will be integrated and thereafter dissolved.”
In addition to the Swiss investigation and penalties, Singapore’s Monetary Authority of Singapore drew similar conclusions and shut down the BSI branch there.
Both FINMA and Singapore focused on BSI’s business dealings with Malaysia’s 1MDB fund, which itself has raised myriad questions about suspicious transactions and dealings related to Prime Minister Najib Razak.
FINMA’s press release detailing its findings include a long list of bullet points illustrating BSI’s extensive disregard of AML Compliance regulations in its dealings with the highly lucrative 1MDB Fund. The following are some of the points, verbatim:
- In the period from 2011 to April 2015, 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 scrutinized.
- The bank repeatedly, systematically and for an extended period breached its obligation to establish the necessary documentation for transactions with increased risks.
- In one case involving a deposit of 20 million US dollars, for example, the bank was happy to accept the client’s explanation that the funds involved were a “gift.” In another case, an account was credited with more than 98 million US dollars without any effort to clarify its commercial background.
- Transactions were often generically justified on the basis of loan agreements, although the agreements provided no sufficient explanation of the real background to the transaction in question.
- Finally, in many cases there were clear indications of pass-through transactions. In one case, 20 million US dollars were 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. 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 goes on to detail how BSI employees objected to the lack of adherence to Compliance requirements but that these concerns were actively ignored by management: “Management was aware of the situation but gave their support to the client advisor instead of the Compliance department. Consequently, no corrective action was taken and bonuses, for example, were unaffected. In fact, the opposite was the case. The client advisor in question was one of the bank’s top earners.”
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