Falcon Bank of Switzerland has had its Singapore banking licence removed for money laundering activity connected to the 1MDB scandal.
The Monetary Authority of Singapore (MAS) ordered Falcon Bank, a private bank, to close its Singaporean operations over 14 breaches of the city state’s money laundering prevention law. It has also been fined just over US$3mn.
Falcon becomes the second bank to have its Singaporean license revoked as a result of 1MDB, with BSI having undergone the same fate in May.
It has also been fined US$4.3mn for 14 breaches, including “failures to adequately assess irregularities in activities pertaining to customer accounts, and file suspicious transaction reports”.
MAS found breaches during inspections in both 2013 and 2015, with Falcon Bank failing to strengthen its AML controls, despite being ordered to do so. It has withdrawn Falcon’s merchant banking licence for “persistent and severe lack of understanding of MAS’ AML requirements and expectations”.
The authority also imposed financial penalties on DBS and UBS, two commercial banks, for breaches of anti-money laundering (AML) requirements. DBS was fined US$1mn for 10 breaches, with UBS fined US$1.3mn for 13 breaches of AML law.
These banks were found to have lapses in controls, including “deficiencies in the onboarding 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”.
These were connected to individuals within the banks, rather than faults in the compliance systems. In a statement, the authority said: “MAS’ inspections did not find pervasive control weaknesses within these banks.”
Nonetheless, the events provide further warnings to trade banks operating in Singapore, which has been leading the charge against money laundering in the region. MAS confirms that Standard Chartered is also under assessment and that it will make an announcement on its findings soon.
“I can tell you right now that DBS and UBS will be motivated and embarrassed by what’s happened,” Sean Norris, Accuity
AML expert Sean Norris, Asia Pacific director at risk management software company Accuity, claims that the penalties will be an embarrassment to DBS and UBS, both of which are heavily engaged in stopping breaches of AML procedures.
He tells GTR: “I know these banks. Falcon, BSI: deliberate action and the right judgement has been passed, an immediate revoking of their licence. But with DBS and UBS, they are doing their damnedest to try and deal with AML, sanctions and bad behaviour. The attitude of people I work with in these banks is not to circumvent these.
“I can tell you right now that DBS and UBS will be motivated and embarrassed by what’s happened because they’re working night and day to try and stop all of this. In a world of ever-changing compliance and ever-changing cleverness by the bad guys to push money through, it’s a tough gig.”
Many of MAS’ actions stem from Malaysia’s 1MDB scandal, which has drawn in authorities around the world.
1MDB is Malaysia’s state-owned development fund. The country’s Prime Minister Najib Tun Razak is accused of channelling around US$700mn from the fund to his own personal bank account. Many top-ranking officials have been dragged into the scandal, with regulators around the world launching investigations and seizing assets that are potentially related to it.
The Singaporean authorities have since launched a dedicated unit to fight money laundering. Singapore’s is fast becoming viewed as Asia’s most rigorously policed AML regime.
Banks such as Falcon and BSI, which cater for private individuals, are expected to conduct deeper and more thorough investigations into their customers, since they have fewer of them and the deal size is usually higher.
For trade banks, which conduct vastly more transactions involving many and disparate counterparties, the obligation is to adhere to the universal sanctions list. In appropriately risky jurisdictions, they may check the politically-exposed persons (PEP) list, which collates those with prominent public functions and their relatives.
The time may come when authorities require even more due diligence of trade banks, however, which would come at a huge operational cost.
“Look at a trade bank, you’re dealing with hundreds of different people on transactions. That level of due diligence can increase operational costs dramatically,” Norris says.
He adds: “Typically, you’re looking at sanctions because it’s a universal 40-50,000 names. If you expand that to include PEPs or enhanced due diligence you increase your costs exponentially, which would stop you being able to do business. You can’t have 5,000 protocols in a transaction.”
Commenting on the recent AML breaches, MAS managing director Ravi Menon says: “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.”