Asia bankers push out sus­pi­cious ac­counts

Wealth in­dus­try boot­ing out clients in clean-up

Kuwait Times - - BUSINESS -

Thou­sands of clients are be­ing booted out of bank ac­counts in Asia’s wealth man­age­ment in­dus­try, which is clean­ing up af­ter a money laun­der­ing scan­dal in Malaysia, the ‘Panama Pa­pers’ ex­pose, and a global push for tax trans­parency, bankers say. “For some global wealth man­agers, up to 30 per­cent of pri­vate wealth clients in Asia are in the fir­ing line,” said Benjamin Quin­lan, CEO of Hong Kong con­sul­tancy Quin­lan & As­so­ciates. The clean-up is mainly fo­cused on prob­lem­atic clients in the Asian fi­nan­cial hubs of Sin­ga­pore and Hong Kong, which man­age more than $1 tril­lion of man­aged as­sets com­bined.

Bankers ex­pect a new round of con­sol­i­da­tion among small wealth man­agers, as the costs of client due dili­gence and sur­veil­lance be­come un­sus­tain­able. The scru­tiny in Asia be­gan in 2014 as banks moved to com­ply with tougher anti-money laun­der­ing rules, top bankers and com­pli­ance of­fi­cers at nearly a dozen banks in Asia told Reuters. But it has re­ally gath­ered pace this year, they said.

Tax in­for­ma­tion ex­change

The ur­gency in­creased with an­nounce­ments that Switzer­land and Sin­ga­pore were con­duct­ing crim­i­nal in­ves­ti­ga­tions into bil­lions of dol­lars al­legedly mis­ap­pro­pri­ated by Malaysian state in­vest­ment fund 1Malaysia De­vel­op­ment Ber­had. Then came the leaked doc­u­ments in April from Panama law firm Mos­sack Fon­seca on 214,000 off­shore com­pa­nies. They showed Hong Kong was the world’s most ac­tive cen­tre for the cre­ation of shell firms, which can be used to avoid taxes.

Pri­vate banks in Asia have also felt the pres­sure of ag­gres­sive tax amnesty pro­grams in In­done­sia and In­dia aimed at bring­ing off­shore wealth back home and fear reg­u­la­tors may im­pose big fines on banks who breach the rules.

Next year a global tax trans­parency cam­paign starts to bite: Sin­ga­pore, Switzer­land and Hong Kong will be among 101 ju­ris­dic­tions to be­gin col­lect­ing tax in­for­ma­tion that they will share to com­bat tax eva­sion.

All of this has “sparked a ma­jor re­view and fil­ter­ing process,” Quin­lan said, “with one global pri­vate bank we spoke to look­ing to off­board roughly 3,000 wealth man­age­ment clients in Asia in 2017”. Com­pli­ance and reg­u­la­tory costs af­fect­ing the bank­ing in­dus­try have soared since the 2008 global fi­nan­cial cri­sis. Con­sul­tants Lex­isNexis Risk So­lu­tions said anti-money laun­der­ing ef­forts are cost­ing banks $1.5 bil­lion an­nu­ally in Asia Pa­cific and ris­ing. Banks glob­ally are ex­pected to spend $12 bil­lion on anti-money laun­der­ing com­pli­ance in 2016, says Quin­lan & As­so­ciates.

No warn­ing

Ac­count and trans­ac­tion sur­veil­lance is ex­pen­sive, so it is of­ten cheaper for banks to kick out tricky clients, bankers say. For some, there is no warn­ing: they know their ac­counts have been closed when they sud­denly are un­able to ac­cess them on­line or get an un­ex­pected cheque in the post, six peo­ple work­ing at law firms, funds and ser­vice providers said. They said sev­eral funds in­cor­po­rated in the Cay­man and Bri­tish Vir­gin Is­lands but op­er­at­ing in Hong Kong, were among those who found their bank ac­counts abruptly closed. “We had one client whose ac­count was just frozen, and they couldn’t get the money out,” said one Hong Kong fund ad­min­is­tra­tor. One cor­po­rate ac­count at a global bank in Hong Kong was shut due to the client’s in­abil­ity to pro­vide de­tailed iden­ti­ties of in­vestors in his com­pany, a di­rect source told Reuters.

Decades of trans­ac­tions

New stan­dards adopted two years ago in Asia re­quire banks to clearly iden­tify a client, the client’s busi­ness and cru­cially - the ori­gin of the money de­posited. The banks also need to check the clients have paid all due taxes back home. In some cases, com­pli­ance staff at large older banks sit glued to old main­frame style com­put­ers tucked away in re­mote parts of the bank. For hours on end, they click through and man­u­ally scan decades of trans­ac­tions, peo­ple who con­duct these searches told Reuters. Ac­cord­ing to the head of a ma­jor cor­po­rate in­ves­ti­ga­tion firm, some banks in Hong Kong and Sin­ga­pore have even used pri­vate eyes to per­form due dili­gence on cer­tain cus­tomers. Nearly 40 per­cent of wealth firms in the Asia-Pa­cific re­gion have cited com­pli­ance as their main strate­gic bud­get fo­cus next year, EY said in its Global Wealth Re­port. — Reuters

SIN­GA­PORE: Peo­ple walk past the Stan­dard Char­tered build­ing yes­ter­day in Sin­ga­pore. Sin­ga­pore reg­u­la­tors an­nounced yes­ter­day fines amount­ing to over $5.3 mil­lion for two banks that were found to have breached money laun­der­ing rules in deal­ings with an in­debted Malaysian state fund. — AP

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