BSI Sin­ga­pore shut­down a wake-up call for pri­vate banks

The Pak Banker - - FRONT PAGE -

Sin­ga­pore's dras­tic move to shut Swiss bank BSI's op­er­a­tions in the city-state over its deal­ings with scan­dal-hit Malaysian fund 1MDB is a wake-up call for wealth man­agers in Asia, which had been spared the large fines and sanc­tions seen in the West.

The pri­vate bank is the first ca­su­alty of money-laun­der­ing probes in at least six ju­ris­dic­tions into state in­vestor 1Malaysia De­vel­op­ment Bhd, whose ad­vi­sory board was chaired by Malaysian Prime Min­is­ter Na­jib Razak.

The Mon­e­tary Author­ity of Sin­ga­pore (MAS) did not name 1MDB in a state­ment on Tues­day an­nounc­ing it was shut­ting down of BSI's busi­ness for "se­ri­ous breaches of anti-money laun­der­ing re­quire­ments" and "gross mis­con­duct" by some staff. But de­tails from a Swiss probe into 1MDB ac­cuse BSI of rou­tinely fail­ing to carry out re­quired back­ground checks on large sums de­posited.

In one case, ac­cord­ing to the Swiss banking watch­dog, BSI was happy to take $20 mil­lion af­ter be­ing told by a client the sum was "a gift". In an­other, it ac­cepted $98 mil­lion with­out any ef­fort to clar­ify the ori­gin of the funds.

While West­ern coun­tries, in par­tic­u­lar the United States, have cen­sured banks in­clud­ing UBS (UBSG.S), Credit Suisse (CSGN.S), BNP Paribas (BNPP.PA) and Stan­dard Char­tered (STAN.L) for lapses on tax eva­sion or in­ter­na­tional sanc­tions, Asian reg­u­la­tors had been slow to bare their teeth. The MAS move against BSI, how­ever, sig­nals a will­ing­ness to act to pro­tect the rep­u­ta­tion of key fi­nan­cial cen­ters in the re­gion, lawyers and bankers said.

"Asian reg­u­la­tors can­not sit on the side­lines and deal with the is­sues qui­etly be­cause of the in­creas­ing global na­ture of these probes," said James Comber, a part­ner with law firm Ashurst in Hong Kong. "No one reg­u­la­tor wants to be seen as fail­ing to take ac­tion on its turf."

Be­sides or­der­ing the clo­sure of the bank, Sin­ga­pore au­thor­i­ties said they were eval­u­at­ing whether five for­mer BSI ex­ec­u­tives com­mit­ted crim­i­nal of­fences.

Bankers and lawyers ex­pect more reg­u­la­tory ac­tion and be­lieve smaller banks will come un­der mas­sive cost pres­sure to en­sure they im­ple­ment ad­e­quate com­pli­ance.

"This will send a chill­ing ef­fect to banks and fi­nan­cial in­sti­tu­tions," said Nizam Is­mail, part­ner at RHTLaw Tay­lor Wess­ing LLP in Sin­ga­pore. "Their li­cense could be at risk. Worse, there is also the real threat of per­sonal crim­i­nal li­a­bil­ity." While the United States, and other ju­ris­dic­tions, started to look closely at money flows in the af­ter­math of the Sept. 11 at­tacks in 2001, Asia has at times lagged be­hind.

In its last an­nual re­port, MAS said it is­sued nine warn­ings and rep­ri­mands to fi­nan­cial in­sti­tu­tions in 2014 and im­posed fi­nan­cial penal­ties on six rang­ing from S$1,000 to S$700,000 ($507,320), a far cry from the bil­lions of dol­lars in fines the United States has im­posed on global banks for mis­be­hav­ing.

Hong Kong strength­ened its anti-money laun­der­ing law in 2012. Be­fore that date, the reg­u­la­tor did not have the power to im­pose fines, lawyers said. In Sin­ga­pore, rules were tough­ened fur­ther in 2013 and then again last year.

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