Following the demise of the thousand year-long tradition of Swiss banking secrecy, crushed virtually overnight by Barack Obama’s demands to make the central European nation’s banking industry transparent, one of the major consequences was the shift in money laundering from Geneva and Zurich to the latest and greatest “anonymous” banking and tax evasion hub located halfway around the world, namely Singapore. And overnight, we got the first shot across the bow of the city state’s “Swiss banking model”, when Singapore ordered the closure of Swiss private bank BSI SA’s unit as criminal proceedings were started against the firm as part of global investigations into a the troubled Malaysian 1MDB state fund.
As Bloomberg reports, in an unprecedented until now move, the Monetary Authority of Singapore said it will withdraw BSI Bank’s status as a merchant bank for breaches of money laundering rules as the Swiss Attorney General said it was taking legal action based on information from criminal probes into 1Malaysia Development Bhd, or 1MDB. EFG International AG said it received approval on Tuesday from the Swiss authorities to take over BSI and still expects the transaction to be completed, although at a reduced price.
Over one year after the collapse of 1MDB, aided and abetted by none other than Goldman Sachs, officials have finally started to piece together the fund flows, and BSI was the first casualty: “BSI Bank is the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector,” Ravi Menon, managing director of MAS, said in the statement. “It is a stark reminder to all financial institutions to take their anti-money laundering responsibilities seriously.”
But why when the US NAR has an explicit exemption from AML responsibilities courtesy of the US government just to make money laundering in US real estate that much easier. Oh wait, now we get it…
The crackdown is part of the global money laundering and embezzlement investigations surrounding 1MDB. As reported before, a Malaysian parliamentary committee identified at least $4.2 billion of irregular transactions by the state fund, and recommended the advisory board headed by Prime Minister Najib Razak be disbanded. BSI’s Group CEO Stefano Coduri resigned as the Swiss regulator said it will seize 95 million Swiss francs ($96 million) from the firm and start enforcement procedures against two former bank employees.
1MDB didn’t immediately reply to a request for comment on its links to BSI. Both 1MDB and Najib have consistently denied wrongdoing. BSI said Tuesday that it has cooperated fully with the investigations into 1MDB by the Singapore and Swiss authorities. BSI remains well capitalized, it said.
As Bloomberg adds, Singapore’s central bank said it will allow the transfer of the BSI Singapore unit’s assets and liabilities to the Singapore branch of EFG or to the parent entity BSI SA. The MAS will also impose S$13.3 million ($9.6 million) in financial penalties on the BSI unit for 41 breaches, including its failure to conduct due diligence on high-risk accounts and monitor suspicious customer transactions.
What is more troubling, if only to the local bankers, is that someone may actually go to prison over this latest tax evasion: the central bank has referred six senior BSI executives to the public prosecutor, including the Swiss private bank’s former Singapore chief executive officer and his deputy. The prosecutor will assess if there were any criminal offenses. It’s the first time Singapore has withdrawn a license from a merchant bank since 1984.
Meanwhile, the Swiss Attorney General said the criminal proceedings are based on information gathered in the course of its investigation and from Finma, Switzerland’s financial regulator. BSI “ignored clear warning signals,” about the risk of some of its transactions as it pursued higher-margin returns, Finma CEO Mark Branson told reporters on a conference call Tuesday. The regulator has investigated other Swiss banks related to 1MDB and started proceedings against some, he said.
Maybe Finma can take a look at some other, more prominent banks who have done all that and much worse in their pursuit of “higher margin returns.” But then again, “developed nations” central bankers may frown upon such an exercise.
Will the historic crackdown on BSI impact local tax evasion? It is doubtful, unless someone actually does go to jail. Others are less pessimistic.
“This will send a chilling effect to banks and financial institutions to make sure that they have robust anti-money laundering and countering the financing of terrorism programs, as their regulatory licenses could be at risk,” Nizam Ismail, head of banking regulatory practices in Singapore at law firm RHTLaw TaylorWessing, said by e-mail. “Worse, there is also the real threat of personal criminal liability.”
As regards BSI specific violations, Bloomberg reports that the private bank had introduced 1MDB to a Cayman Islands fund which received a $2.32 billion investment, according to a report from a Malaysian parliamentary hearing. That investment and transactions related to it are the subject of criminal probes, including those conducted in Singapore.
However, one thing is almost certain: someone will go to jail, if only for the bank’s heads to avoid prison time: there has to be a scapegoat.
BSI is conducting an internal inquiry into its employees and their dealings related to 1MDB, Bloomberg News reported last week, citing people familiar with the matter. The probe centers on Kevin Swampillai, who’s been suspended as head of wealth-management services and named as one of the six individuals by the MAS. Swampillai was the manager of Yeo Jiawei, the first banker to be charged in global probes into 1MDB. Swampillai’s lawyer Kenneth Pereira declined to comment.
Yeo, who has been held on remand since April 15, is scheduled to return to a Singapore court today. His lawyer has said several BSI employees are in a similar position and can answer queries by the authorities.
That was Singapore. As for Europe, we look at the stock of Deutsche Bank which is modestly up today following headlines such as:
- DB Downgraded by moodys
- Reopened SEC investigation
- Latam CEO leaves
- Libor lawsuits are back
In other words, all is well in the world, aside from one soon to be corrected glitch.