NAJIB & CO’S 1MDB THIEVERY TRIGGERS BANKING EARTHQUAKE IN SINGAPORE: FALCON SHUT DOWN, UBS, DBS FINED WHILE STANDCHART AWAITS DECISION
SINGAPORE – The Monetary Authority of Singapore (MAS) announced on Tuesday (Oct 11) that it is withdrawing the merchant bank status of Falcon Private Bank Ltd, Singapore Branch (Falcon Bank), for serious failures in anti-money laundering (AML) controls and improper conduct by senior management at the head office in Switzerland as well as the Singapore branch.
MAS said Falcon Bank’s Singapore branch manager, Mr Jens Sturzenegger, was arrested by the Commercial Affairs Department (CAD) on Oct 5.
Falcon Bank is the second financial institution after BSI Singapore to be forced to cease operations here in the Republic’s 1MDB probe. Before BSI, the last time MAS shut down a financial institution was in 1984 when it ordered the closure of Jardine Fleming (Singapore) Pte Ltd for serious lapses in its advisory work.
MAS is also imposing financial penalties amounting to S$1 million on DBS for 10 breaches and S$1.3 million on UBS for 13 breaches of MAS Notice 626 – Prevention of Money Laundering and Countering the Financing of Terrorism. The two banks must also appoint an independent party to confirm that rectification measure have been “effectively implemented” and report their findings to MAS.
Singapore’s central bank said the actions on the three banks follow supervisory examinations into 1MDB-related fund flows that took place through these banks from March 2013 to May 2015.
MAS’ actions also come a day after two more former bankers at BSI Singapore were charged in court with 1MDB-related offences.
Said MAS managing director Ravi Menon in the statement on Tuesday: “Keeping Singapore a clean and trusted financial centre is a shared responsibility. The board and senior management of each financial institution play a pivotal role. 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. Most of all, they must set the tone from the top – that profits do not come before right conduct.
“MAS will work closely with the industry to ensure that standards are kept high and will take strong deterrent actions against institutions that fall short.”
MAS said it has imposed on Falcon Bank financial penalties amounting to S$4.3 million for 14 breaches of MAS Notice 1014 – Prevention of Money Laundering and Countering the Financing of Terrorism. The breaches include failures to adequately assess irregularities in activities pertaining to customer accounts, and file suspicious transaction reports.
MAS said its investigations benefited from close cooperation with various overseas regulatory counterparts, in particular the Swiss Financial Market Supervisory Authority (FINMA).
It said clients and customers of Falcon Bank are assured that the merchant bank here has the full support of its head office which is financially sound. MAS is also working closely with FINMA to oversee an orderly closure of the merchant bank branch in Singapore.
Falcon Bank has been operating as a merchant bank in Singapore since August 2008. MAS conducted inspections on Falcon Bank in 2013 and 2015. The 2013 inspection found weaknesses in the bank’s controls for client acceptance and transaction surveillance that led to breaches of AML requirements, said MAS. Falcon Bank paid a composition fine of S$300,000 for these breaches, and MAS instructed the merchant bank to strengthen its AML controls.
But the 2015 inspection uncovered an even larger number of regulatory breaches as well as serious failings on the part of head office senior management and the Singapore branch manager.
Detailing the lapses, MAS said:
– The merchant bank’s head office failed to guard against conflicts of interest when managing the account of a customer who was associated with the bank’s former board chairman Mohamed Ahmed Badawy Al-Husseiny. The former chairman misled and influenced the Singapore branch into processing the customer’s unusually large transactions despite multiple red flags
– The improper conduct of the Singapore branch manager and certain senior managers at the head office had impaired the effectiveness of the Singapore branch’s compliance function in discharging its responsibilities. Their interference was wrongful and egregious in nature, and contributed to substantial breaches of AML regulations.
– Falcon Bank has demonstrated a persistent and severe lack of understanding of MAS’ AML requirements and expectations. Taking into account the totality of Falcon Bank’s conduct, MAS’ assessment is that the merchant bank will be unable to comply with these requirements and expectations going forward.
On DBS and UBS Singapore branch, MAS said it has completed its inspections of the two banks in relation to their 1MDB-related fund flows and found no pervasive control weaknesses. Instead, the control lapses “relate to specific bank officers who failed to carry out their duties effectively”, said MAS.
There were deficiencies in the on-boarding of new accounts, weaknesses in corroborating the source of funds, inadequate scrutiny of customers’ transactions and activities, and failure to file timely suspicious transaction reports, MAS added.
In its Tuesday statement, MAS also said it is finalising its assessment of Standard Chartered Bank, Singapore Branch, and will make an announcement in due course.
It has also referred the 1MDB-related transactions processed by Raffles Money Change to CAD for their follow-up investigation.