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FINMA concludes 'final' 1MDB proceedings

Chris Hamblin, Editor, London, 25 July 2018


The Swiss financial regulator has found Rothschild Bank and its subsidiary Rothschild Trust (Schweiz) to be in serious breach of Switzerland's money laundering rules in the context of Malaysian state fund 1Malaysia Development Berhad, otherwise known as 1MDB. It is confident that this case is the last.

The regulator says that the two institutions were not 'duly diligent,' did not send the right reports to the Money Laundering Reporting Office Switzerland (MROS) and did not have the right documents. FINMA will appoint an audit agent to review their progress as they struggle to reform their operations and improve their compliance with the Alpine state's anti-money-laundering rules. This concludes the last of FINMA's seven enforcement proceedings in relation to 1MDB.

Rothschild Bank AG and Rothschild Trust's misdeeds relate to business relationships and to transactions in relation to the alleged corruption scandal that surrounds 1MDB. Both bodies, says FINMA, failed to 'clarify' the origin of assets in a significant business relationship to a satisfactory degree. Although there were early indications that the client in question could be involved in money laundering, the institutions decided nevertheless to strike up the relationship and expanded it considerably at a later stage. FINMA believes that they were extremely tardy in reporting their suspicions about money laundering to the MROS. On top of this, it says, Rothschild Bank failed to keep adequate documents about some highly risky transactions.

The institutions involved have already taken steps on their own initiative to overhaul their compliance operations. FINMA's audit agent will decide whether these measures - and the internal control system for combating money laundering - are appropriate and effective.

At the end of June last year, FINMA concluded enforcement proceedings against JP Morgan (Switzerland) Ltd. The bank contravened AML regulations by not doing enough to screen transactions and business relationships that were associated with 1MDB (and one of its business partners) and booked in Switzerland. In January of the same year, FINMA concluded enforcement proceedings that it had been running since the beginning of 2016 against Coutts & Co, forcing it to disgorge ill-gotten profits of SFr 6.5 million (€5.6 million). In October 2016 the regulator ordered Falcon Private Bank Ltd to disgorge illegally generated profits amounting to SFr2.5 million (€2.15 million) and banned it from striking up business relationships with foreign "politically exposed persons" for a period of three years. Its proceedings against BSI, which began in 2015, ended in May the next year when FINMA forced the bank to pay SFr 95 million (€81.7 million) in illegally generated profits. It said at the time that the bank executed numerous large transactions with unclear purpose over a period of several years and, despite the clearly suspicious circumstances in which it did so, did not 'clarify' the background to these transactions.

Earlier this month the authorities in Singapore arrested Najib Razak, Malaysia's beleaguered ex-premier who lost his position after an upset defeat at the polls in May. Mahathir Mohamad, the new prime minister, immediately reopened the stalled probe into 1MDB. Police said that they had found almost US$275 millions' worth of assets at properties 'linked to' Najib, including 12,000 pieces of jewellery, 500 or so Hermès handbags, 400 or so Rolex watches, 200 or so designer sunglasses and nearly $30 million in cash.

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