The Monetary Authority of Singapore (MAS) announced today that it is withdrawing the merchant bank status of Falcon Private Bank Ltd, Singapore Branch (Falcon Bank) for serious failures in anti-money laundering (AML) controls and improper conduct by senior management at the Head Office in Switzerland as well as the Singapore Branch.
This is the second Swiss bank that MAS has closed down this year. Earlier on 24 May, MAS served notice of intention to withdraw its status as a merchant bank in Singapore to BSI Bank Limited (BSI Bank) for serious breaches of anti-money laundering requirements, poor management oversight of the bank’s operations, and gross misconduct by some of the bank’s staff. An intrusive inspection by MAS in 2015 revealed multiple breaches of anti-money laundering regulations and a pervasive pattern of non-compliance. BSI Bank, headquartered in Switzerland is one of the banks implicated in the 1MDB money transfer saga.
Apart from the closure of Falcon bank, MAS is also imposing financial penalties on DBS Bank Ltd (DBS) and UBS AG, Singapore Branch (UBS) for breaches of MAS’ AML requirements.
The actions upon the three banks follow supervisory examinations by MAS into 1MDB-related fund flows that took place through these banks between March 2013 to May 2015.
MAS states that its investigations have benefitted from close cooperation with various overseas regulatory counterparts, in particular the Swiss Financial Market Supervisory Authority (FINMA).
Mr Ravi Menon, Managing Director, MAS, said, “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. MAS will work closely with the industry to ensure that standards are kept high and will take strong deterrent actions against institutions that fall short.”
Withdrawal of Falcon Bank’s merchant bank status
Falcon Bank has been operating as a merchant bank in Singapore since August 2008, offering boutique private banking services. It is headquartered in Switzerland. MAS conducted inspections on Falcon Bank in 2013 and 2015. The 2013 inspection found weaknesses in the bank’s controls for client acceptance and transaction surveillance that led to breaches of MAS’ AML requirements. Falcon Bank paid a composition fine of S$300,000 for these breaches, and MAS instructed the merchant bank to strengthen its AML controls. The 2015 inspection 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.
MAS states that it decided to withdraw Falcon Bank’s status as a merchant bank in Singapore, taking into account the following factors:
- The merchant bank’s 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.
- The former Chairman misled and influenced the Singapore Branch into processing the customer’s unusually large transactions despite multiple red flags.
- The improper conduct of the Singapore Branch Manager and certain senior managers at the Head Office had impaired the effectiveness of the Singapore Branch’s compliance function in discharging its responsibilities. Their interference was wrongful and egregious in nature, and contributed to substantial breaches of AML regulations.
MAS has been informed that the Singapore Branch Manager, Mr Jens Sturzenegger, has been arrested by the Commercial Affairs Department on 5 October 2016.
In view of the various factors and Falcon Bank’s conduct, MAS finds that the bank has demonstrated a persistent and severe lack of understanding of MAS’ AML requirements and expectations. It further assessed that the merchant bank will be unable to comply with these requirements and expectations going forward.
MAS has imposed financial penalties amounting to S$4.3 million upon Falcon Bank for 14 breaches of MAS Notice 1014 – Prevention of Money Laundering and Countering the Financing of Terrorism. The breaches include failures to adequately assess irregularities in activities pertaining to customer accounts, and file suspicious transaction reports.
MAS assures clients and customers of Falcon Bank that 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. MAS states that it is working closely with FINMA, the home regulator of Falcon Private Bank Ltd, to oversee an orderly closure of the merchant bank branch in Singapore.
Financial penalties on DBS and UBS for breaches of regulations
MAS has completed its inspections of DBS and UBS in relation to their 1MDB-related fund flows. The inspections revealed several breaches of AML requirements and control lapses. There were deficiencies in the on-boarding 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.
The control lapses observed in DBS and UBS relate to specific bank officers who failed to carry out their duties effectively. MAS’ inspections did not find pervasive control weaknesses within these banks. MAS has admonished the two banks and instructed their management to investigate the lapses, promptly address the control deficiencies, and take appropriate disciplinary measures against the staff involved.
MAS has imposed financial penalties amounting to S$1 million on DBS for 10 breaches and S$1.3 million on UBS for 13 breaches of MAS Notice 626 – Prevention of Money Laundering and Countering the Financing of Terrorism. MAS has also directed DBS and UBS to appoint an independent party to confirm that rectification measures have been effectively implemented and to report its findings to MAS.
Action pending on other Financial Institutions
The MAS announced earlier on 21 July that its supervisory examinations of financial institutions (FIs) with 1MDB-related fund flows have revealed a complex international web of transactions involving multiple entities and individuals operating in several jurisdictions. Certain FIs in Singapore were among those used as conduits for these transactions. MAS’ supervisory examinations, which began in March 2015, found lapses and weaknesses in anti-money laundering (AML) controls in these Singapore-based FIs. MAS will be taking actions against these FIs.
Apart from Falcon Private Ltd, DBS and UBS, MAS is finalising its assessment of Standard Chartered Bank, Singapore Branch, and will make an announcement in due course. MAS has referred the 1MDB-related transactions processed by Raffles Money Change to the Commercial Affairs Department for their follow-up investigation.