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Tracking 1MDB as second private Swiss Bank shuts down in Singapore

Fall of the Falcon!


Source: Gulf Business
Source: Gulf Business

Source: Gulf Business

Falcon Private Bank was ordered to cease operations in Singapore by the Monetary Authority of Singapore (MAS) earlier this month on account of serious failures in Anti Money Laundering Controls (AML) and improper conduct by senior management.

Following that, the bank released a press statement calling “the withdrawal of the Singapore banking license as regrettable and disappointing” but adding that the MAS’ decision “will not impact the strategic development of the Bank”.

However it was clear that Falcon Private Bank was wading in murky waters as Falcon Bank's Singapore branch manager, Mr Jens Sturzenegger, was arrested by the Commercial Affairs Department (CAD) on 5 October.

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In tandem with the MAS’ ruling, the Swiss Financial Market Supervisory Authority (FINMA) also announced sanctions against Falcon Private Bank for serious breaches of money laundering regulations over its handling of some US$3.8 billion (S$5.24 billion) in assets linked to the Malaysian state investment fund 1MDB.

It ordered Falcon, which is owned by Abu Dhabi's sovereign wealth fund International Petroleum Investment Company (IPIC), to surrender 2.5 million Swiss francs (S$3.5 million) in illegally generated profits and warned that the bank's licence would be withdrawn in the event of a further breach. 

MAS’ ruling had come in the wake of irregularities found in inspections conducted on the bank in 2013 and 2015. The 2013 inspection had found weaknesses in the bank’s controls related to client relationships and transactional checks that had led to breaches of AML requirements.

Falcon Bank paid a composition fine of S$300,000 for these breaches and was warned by MAS to strengthen its AML controls.

However, the 2015 inspection revealed an even larger number of regulatory breaches, as well as serious failings on the part of its head office senior management and the Singapore branch manager.

MAS found "serious shortcomings in Falcon's risk management" in relation to US$3.8 billion (S$5.2 billion) of 1MDB-related funds that found their way into Falcon between 2012 and mid-2015. An MAS' spokesperson commented: “These funds were generally moved on quickly. 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."

These breaches were grave enough for the regulator to revoke the license of the merchant bank which was in its 9th year of operation in Singapore (operating since August 2008). Falcon Bank thus became the second private Swiss bank to lose its license in Singapore this year over fund flows linked to Malaysia's 1MDB after BSI Bank. BSI’s local unit was shut down in May on account of financial irregularities and its officers were charged in connection with the probe.

 

Demystifying 1MDB


Source: Malaysia Chronicle
Source: Malaysia Chronicle

Source: Malaysia Chronicle

The 1MDB saga, which is now emerging as one of the most twisted political-financial scams of recent times, had a very humble beginning. Started in 2009 as a Government backed Investment Fund, 1MDB’s (1 Malaysia Development Berhad) intended purpose was to raise foreign funds for wide-scale infrastructure development in Malaysia.

However, seven years later, investigations are unearthing huge sums of money flowing illegally into personal accounts in Malaysia and into dubious offshore accounts. Along with allegations on Malaysian Prime Minister Najib Razak, who has consistently denied any wrong doing; several banks and investment companies across the globe have also come under the scanner.

There are probes related to 1MDB, investigating embezzlement and money laundering, in at least ten countries, including the US, Switzerland, Saudi Arabia and closer home in Singapore and Malaysia. A Malaysian Parliamentary Committee probing the IMDB scam; has estimated irregular transactions to be worth a whopping S$4.2 billion.

In the United States, a lawsuit has been filed by the US Justice Department’s (DoJ) to seize assets worth more than US$1billion, linked to 1MDB.  

A July 2016 DoJ’s statement alleged, “The stolen funds were laundered into the United States and used by the co-conspirators to acquire and invest in various assets. These assets allegedly included high-end real estate and hotel properties, works of art…. and the production of the 2013 film The Wolf of Wall Street.”

In Singapore, besides the revocation of license of Swiss banks, two of the biggest banks DBS Bank and UBS have also been penalised for control lapses related to 1MDB fund flow.

MAS said that the control lapses observed at the two banks "relate to specific bank officers who failed to carry out their duties effectively". It also mentioned that "MAS inspections did not find pervasive control weaknesses within these banks”. However, the two banks have been told "to investigate the lapses, promptly address the control deficiencies and take appropriate disciplinary measures against the staff involved". 

As fresh facts about financial insobriety in relation to 1MDB emerge, the spotlight will be on the pace at which investigations are carried on and action taken against those involved in laundering funds intended for development purposes.

(By Puja Chandra Nanda)

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