SINGAPORE — The city state is closing Swiss private bank BSI SA’s unit in the city state as criminal proceedings were started against the firm amid global investigations into a troubled Malaysian state fund.
The Monetary Authority of Singapore said it will withdraw BSI Bank Ltd’s licence for breaches of money laundering rules as the Swiss attorney general said it was taking legal action based on information from criminal probes into 1Malaysia Development Bhd, or 1MDB.
EFG International AG is proceeding with the purchase of BSI from Brazil’s Grupo BTG Pactual SA at an undisclosed reduced price.
“BSI Bank is the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector," Ravi Menon, managing director of MAS, said in the statement. “It is a stark reminder to all financial institutions to take their anti-money laundering responsibilities seriously.”
CEO resigns
The actions are part of the global money-laundering and embezzlement investigations surrounding 1MDB. A Malaysian parliamentary committee identified at least $4.2 billion of irregular transactions by the state fund, and recommended the advisory board headed by Prime Minister Najib Razak be disbanded.
BSI’s Group CEO Stefano Coduri resigned as the Swiss regulator said it will seize 95 million Swiss francs ($96 million) from the firm and start enforcement procedures against two former bank employees.
Both 1MDB and Mr Najib have consistently denied wrongdoing. In a statement on Tuesday, the fund said it hasn’t been contacted by any international legal authority on matters relating to the company. “1MDB remains committed to fully cooperating with any foreign lawful authority, subject to advice from the relevant domestic lawful authorities, and in accordance with international protocols governing such matters,” it said.
BSI said on Tuesday that it has cooperated fully with the investigations into 1MDB by the Singapore and Swiss authorities.
BSI, which employed 1,983 people at the end of last year, remains well capitalised, it said on Tuesday. The firm was founded in 1873 and opened its Singapore unit in 2005, where the lobby to its office at Suntec Tower One was orderly and quiet on Tuesday, with no signs of staff moving out.
EFG received approval on Tuesday from the Swiss authorities to take over BSI and still expects the transaction to be completed. Clients of BSI are likely to withdraw money because of the criminal proceedings, said Peter Casanova, a Zurich-based analyst at Kepler Cheuvreux.
BSI managed 84.3 billion Swiss francs of client money on Dec 31, a decline of almost 10 billion francs from a year earlier, according to its annual report.
Singapore’s central bank said it will allow the transfer of the BSI Singapore unit’s assets and liabilities to the local branch of EFG or to the parent entity BSI SA. The MAS will also impose S$13.3 million ($9.6 million) in financial penalties on the BSI unit for 41 breaches, including its failure to conduct due diligence on high-risk accounts and monitor suspicious customer transactions.
Public prosecutor
The Singapore authorities have also referred six senior BSI executives to the public prosecutor, including the private bank’s former chief executive officer in the city state and his deputy. Mr Coduri was not one of the people referred by MAS. The prosecutor will assess if there were any criminal offences.
It’s the first time Singapore has withdrawn a licence from a merchant bank since 1984.
The Swiss attorney general said the criminal proceedings are based on information gathered in the course of its investigation and from Finma, Switzerland’s financial regulator.
BSI “ignored clear warning signals,” about the risk of some of its transactions as it pursued higher-margin returns, Finma CEO Mark Branson told reporters on a conference call Tuesday.
The regulator has investigated other Swiss banks related to 1MDB and started proceedings against some, he said.
The attorney general pointed to “internal deficiencies” at BSI. He said the information suggests that the offences of money laundering and bribery of foreign public officials currently under investigation in the context of the 1MDB case could have been prevented if BSI had been adequately organised.
‘Chilling effect’
“This will send a chilling effect to banks and financial institutions to make sure that they have robust anti-money laundering and countering the financing of terrorism programmes, as their regulatory licences could be at risk," Nizam Ismail, head of banking regulatory practices in Singapore at law firm RHTLaw TaylorWessing, said by e-mail.
“Worse, there is also the real threat of personal criminal liability.”
BSI had introduced 1MDB to a Cayman Islands fund which received a $2.32-billion investment, according to a report from a Malaysian parliamentary hearing. That investment and transactions related to it are the subject of criminal probes, including those conducted in Singapore.
BSI is conducting an internal inquiry into its employees and their dealings related to 1MDB, Bloomberg News reported last week, citing people familiar with the matter.
The probe centres on Kevin Swampillai, who’s been suspended as head of wealth-management services and named as one of the six individuals by the MAS. Mr Swampillai was the manager of Yeo Jiawei, the first banker to be charged in global probes into 1MDB. Mr Swampillai’s lawyer Kenneth Pereira declined to comment.
Mr Yeo, who has been held in remand since April 15, was slapped with two more changes when he appeared in a Singapore court on Tuesday, bringing the total to nine.
The banker is “central” to the activities which lead to the response taken by the MAS against BSI on Tuesday, said Kwek Mean Luck, second solicitor general.
Mr Kwek argued against allowing bail for Mr Yeo. The banker sought to tamper with five witnesses, including telling them to destroy evidence and not make themselves available to authorities, Mr Kwek said.
The bail review was deferred to Thursday. Mr Yeo’s lawyer has said previously that several BSI employees are in a similar position and can answer queries by the authorities.
BTG and BSI’s previous owner, Assicurazioni Generali SpA, are at odds over indemnities for potential losses tied to BSI’s dealings with the Malaysian fund. Generali declined to comment on BSI and the criminal proceedings.
EFG fell as much as 1.6%, to the lowest since April 7, in Zurich trading and the shares were at 5.52 Swiss francs at 12.30pm.