The Monetary Authority of Singapore (MAS) has withdrawn BSI Bank status as a merchant bank following accusations of breaching anti-money laundering (AML) regulation and corruption. This is the first time in over 30 years that the Singapore regulators have revoked a banking licence.
The MAS has also imposed a US$13.3mn fine on the bank for 41 breaches of the regulation about prevention of money laundering and countering the financing of terrorism. According to the MAS, an investigation into the bank’s practices revealed failure to conduct appropriate due diligence on multiple transactions, particularly in its dealings with the 1Malaysia Development Berhad fund (1MDB), as well as “poor management oversight of the bank’s operations”, an “unacceptable risk culture”, and “gross misconduct by some of the bank’s staff”, six of whom may be facing criminal charges.
BSI had received a number of warnings from the authorities, but apparently failed to make the necessary changes. The MAS’ decisive action in the case signals a change of attitude towards punishing regulatory breaches. “Singapore has tended to manage issues through supervision but this action seems to represent a step change in its attitude to enforcement,” says Joanna Pearson, partner at law firm Simmons & Simmons.
“To date, the message from the MAS has been one of ‘get your house in order’. The BSI Bank action is a clear signal that the MAS’s patience is running out. I would not be surprised to see further enforcement action taken if firms fail to comply,” she tells GTR.
BSI Bank is the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector. Ravi Menon, MAS
As a major international financial and business centre, Singapore is aware of the risk of being used as a hub for illicit transactions, and needs to remain vigilant and ensure the most rigorous processes to avoid money flowing into the wrong pockets. “BSI Bank is the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector. It is a stark reminder to all financial institutions to take their AML responsibilities seriously. Controls need to be robust, surveillance vigilant, and the management culture must emphasise professional integrity and risk consciousness,” says Ravi Menon, MAS managing director.
According to Pearson, banks should implement the detailed requirements, as high-profile regulatory action such the BSI case will add to the pressure on other regulators in the region to take swift action. The Hong Kong Monetary Authority also recently announced it will crack down on trade-based money laundering. Particular focus should be placed on areas such as updating policies and procedures, record keeping, compliance enforcement, monitoring of processes – especially from senior management. “Most banks are already doing this, although our impression is that resources are stretched,” she says.
BSI Bank had been operating in Singapore since 2005, offering private banking services. It is a wholly-owned subsidiary of BSI SA, a bank founded in 1873 and headquartered in Switzerland.
The Swiss financial regulators have also opened a criminal investigation probing corruption allegations related to the bank’s connection to Malaysia’s 1MDB. The authorities have ordered the bank to pay back US$96mn in profit. BSI chief executive Stefano Coduri has resigned with immediate effect.
1MDB is a development fund set up by Malaysian Prime Minister Najib Razak in 2009 to develop the country as a financial hub. It is entangled in a corruption scandal that has shaken the country, following a Wall Street Journal investigation into a paper trail tracing US$700 from the fund to the prime minister’s personal account.
In January, the Malaysian attorney general controversially cleared the prime minister of corruption, saying the money was a personal donation from the Saudi royal family. The fund still defaulted on US$11bn of payments to banks and bondholders, and several jurisdictions, including the US, Switzerland, Hong Kong and Singapore, are now investigating it on various allegations of money-laundering and corruption.