Swiss and Singapore financial regulators have cracked down on BSI over alleged money-laundering failings related to 1MDB. Both have imposed fines on it.
BSI has been ordered by the Singapore authorities to shut down its Singapore operations and it is under criminal investigation in its home country.
The Monetary Authority of Singapore has referred six past and present BSI executives to the public prosecutor to determine whether they had committed criminal offences. That probe may uncover more worms. Singapore has already charged one of the six in connection with the case.
The Swiss authorities are continuing with the probe into BSI and 1MDB.
Finma, the country’s financial supervisor, said in a statement yesterday: “In its proceedings against BSI, Finma found serious shortcomings in the bank’s anti-money laundering processes resulting from inadequate risk management and the failure of the internal control system.
“In the case of 1MDB, the bank (BSI) executed numerous large transactions with unclear purpose over a period of several years and, despite clearly suspicious indications, did not clarify the background to these transactions.
“In the context of the 1MDB case, the bank failed to adequately monitor relationships with a client group with around 100 accounts at the bank. Transactions were executed within the client group and with third parties without the bank adequately clarifying their commercial justification.”
Finma said BSI had failed to scrutinise hundreds of millions of US dollars in transactions linked to 1MDB. In one case involving a deposit of USD20 million, for example, the bank was happy to accept the client’s explanation that the funds involved were a “gift”. In another case, an account was credited with more than USD98 million without any effort to clarify its commercial background.
The Royal Bank of Scotland Group has said that Swiss authorities were probing wealth manager Coutts, which is part of the group.
According to a report in the Financial Times a number of other financial institutions are said to be involved in the web of 1MDB transactions that have spanned the US, Europe and Asia since the fund was set up in 2009.
Finma is investigating more than 20 banks in connection with the 1MDB affair and another scandal involving Brazil’s Petrobras.
The FT report said: “The BSI action seems unlikely to be the last regulatory sanction over the 1MDB case.”
It said BSI appeared to have had a deep transcontinental involvement in 1MDB-related businesses. BSI counted as its clients not only the 1MDB parent fund but also its subsidiaries and related parties, the report said.
One was Brazen Sky, a 1MDB subsidiary through which USD2.3 billion was processed – not necessarily all through BSI – to buy investments in the Cayman Islands. 1MDB insists all this money is accounted for, but the fund’s critics say it has yet to show evidence of this.
“BSI received the proceeds of a USD3 billion bond arranged by Goldman Sachs in 2013, a relatively unusual move as state funds usually deal with larger commercial banks. Goldman has denied any wrongdoing.”
The FT report said Swiss authorities had approved BSI’s previously proposed takeover by Zurich-based EFG International, after which BSI would be dissolved.