The Monetary Authority of Singapore has withdrawn its licence for Switzerland's Falcon Private Bank to act as a merchant bank because of bad anti-money laundering controls and improper conduct by senior managers at the Head Office in Switzerland as well as the Singapore Branch.

The MAS is also imposing financial penalties on DBS Bank Ltd and the Singapore branch of UBS for breaking its AML rules.

These disciplinary measures stem from the regulator's scrutiny of fund flows related to the 1Malaysia Development Berhad or 1MDB scandal (covered extensively elsewhere on Compliance Matters) that took place through these banks between March 2013 and May 2015. The MAS’s investigations benefited from close co-operation with various overseas regulators, in particular the Swiss Financial Market Supervisory Authority (FINMA).

Falcon Bank

Falcon Bank has been operating as a merchant bank in Singapore since August 2008, offering boutique private banking services. Its headquarters are in Switzerland. In 2013 an MAS inspection found weaknesses in the bank’s controls for client acceptance and transaction surveillance that led to AML deficiencies for which Falcon Bank had to pay a S$300,000 fine. Another inspection in 2015 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.

The MAS alleges that Falcon Bank’s Swiss 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, who misled the Singapore branch and convinced it to process the customer’s unusually large transactions, despite the appearence of many 'red flags.'

It also castigates the Singapore branch manager, Mr Jens Sturzenegger,  and certain senior managers at Head Office for 'improper conduct' that impaired the Singapore branch’s compliance/AML efforts. Sturzenegger has been arrested by the Commercial Affairs Department.

More generally, the regulator accuses Falcon Bank of totally failing to understanding its AML rules "and expectations" - a phrase that suggests that it often goes ultra vires in its dealings with firms.

The authority has consequently fined Falcon Bank S$4.3 million (US$3.1 million) for 14 breaches of MAS Notice 1014, which is entitled "Prevention of Money Laundering and Countering the Financing of Terrorism." This covers failures to assess irregularities in activities pertaining to customer accounts adequately, and failures to send the authorities the right suspicious transaction reports.

The merchant bank, which is a branch of Falcon Private Bank Ltd in Switzerland, has the full support of its head office which is financially sound. An orderly closure is guaranteed.

DBS and UBS

MAS has finished inspecting DBS and UBS in relation to their 1MDB-related fund flows. These banks, too, broke its AML rules and their controls failed. There were deficiencies in the on-boarding of new accounts, weaknesses in the corroboration of the sources of various funds, the  scrutiny of customers’ transactions and activities, and the duty to send off STRs on time.
 
The lapses in control were restricted to a few people and were not endemic. The MAS has ordered those bank to investigate further and take disciplinary action.

MAS has fined DBS S$1 million (US$725,200) for 10 breaches and UBS S$1.3 million (US$942,800) for 13 breaches of MAS Notice 626, also on the subject of money-laundering. It has told them to appoint an independent party to tell it that rectification has occurred.

Other financial institutions

The MAS is deciding how to punish the Singapore branch of Standard Chartered Bank for its part in the 1MDB scandal and will make an announcement in due course. It has referred the 1MDB-related transactions processed by Raffles Money Change to the Commercial Affairs Department for a follow-up investigation.

Other people

This regulatory action follows hard on the heels of the indictment this  week of two former employees of BSI Singapore, also linked to the 1MDB scandal.

Yak Yew Chee, 57, formerly of BSI, and his former subordinate and senior private banker Yvonne Seah Yew Foong, 45, stand accused of failing to pinpoint suspicious transactions that involved their customer Jho Low, an associate of Malaysian premier Najib Razak's. Yak should have sent STRs off when confronted by Low's desire to transfer $110 million. The pair are also accused of forgery, with Yak allegedly signing letters 'fraudulently.'

For the kind of forgery that Yak might have committed, the maximum sentence is four years' imprisonment. For failing to report a suspicious transaction he can be fined a maximum of S$20,000 ($14,522).

In July the US Department of Justice made civil (but no criminal) complaints seeking the forfeiture and recovery of more than $1 billion in assets associated with funds misappropriated from 1MDB.