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Singapore Central Bank Fines Three Banks In 1MDB Investigation

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Singapore Central Bank Fines Three Banks In 1MDB Investigation

By Pathay Singh on 10/12/16

SINGAPORE—Singapore’s central bank said on Tuesday it would withdraw the license of a Swiss private bank operating in the city-state and fine two large banks, the latest in a wave of coordinated moves by global regulators to close in on fund flows related to alleged corruption at Malaysian state fund 1Malaysia Development Bhd., or 1MDB.

The Monetary Authority of Singapore said it would fine DBS Bank Ltd. and UBS Group AG’s Singapore branch 1 million Singapore dollars (US$726,126) and S$1.3 million, respectively, for failures in anti-money-laundering controls relating to their handling of 1MDB fund flows.

The central bank said it would also withdraw the merchant-banking license of Falcon Private Bank Ltd.’s Singapore branch for what it called “persistent and severe lack of understanding” of its regulations, and fined it S$4.3 million. The Monetary Authority said it understands that the branch manager, Jens Sturzenegger, was arrested by Singapore police earlier this month in connection with the 1MDB matter. Mr. Sturzenegger couldn’t be reached for comment and it wasn’t clear whether he is represented by a lawyer.

The latest regulatory actions from Singapore highlight the extent to which the city state, a global financial center, has been seeking to repair its reputation after banks under its supervision were implicated in alleged illicit money flows related to 1MDB.

After decades prioritizing banking secrecy, Singapore has cracked down on banks that it once courted to expand a banking sector that, along with Hong Kong, dominates the Asian market for private wealth.

Swiss regulators said in a separate statement on Tuesday that they would disgorge Falcon of 2.5 million Swiss francs (US$2.54 million) in illegal profits and ban it from dealing with foreign, politically exposed people for three years.

Falcon bank said it welcomed the completion of regulators’ reports and has initiated new control measures to “prevent future issues.” A UBS Singapore representative said the bank was disappointed that it didn’t do more to detect and report this earlier, while DBS said it should have taken more-rigorous action but noted that the findings indicate that the bank’s control weaknesses aren’t pervasive.

The actions by these authorities are the latest in a series of global regulatory moves against individuals and institutions that dealt with 1MDB. Authorities in at least four other countries including Switzerland and the U.S. are investigating 1MDB, which was founded in 2009 by Malaysian Prime Minister Najib Razak. Swiss regulators said they believe as much as US$4 billion had been misappropriated from the fund.

Malaysia, by contrast, has found no wrongdoing on the part of its own banking institutions relating to 1MDB, nor on the part of Mr. Najib, who The Wall Street Journal reported had received as much as US$1 billion in his personal accounts originating from 1MDB. Around US$700 million of that came through Falcon bank and was deposited into his accounts ahead of a close election, the Journal reported.

The prime minister has denied wrongdoing or taking money for personal gain. Mr. Najib and Malaysia’s attorney general have said the money in his bank accounts was a legal gift from the Saudi royal family. The attorney general cleared Mr. Najib of wrongdoing and said most of the money was returned, while Saudi Arabia’s foreign ministry acknowledged a donation to Malaysia but declined to comment further.

On all matters related to alleged misappropriation, 1MDB has denied any wrongdoing and said it would cooperate with any lawful investigation.

Malaysia’s insistence that no wrongdoing occurred at 1MDB clashes with the accounts of regulators around the world, who have closed in on related institutions in recent months. In July, U.S. prosecutors linked Mr. Najib, a key American ally in Asia, to hundreds of millions of dollars allegedly siphoned from 1MDB, according to a civil lawsuit seeking the seizure of more than $1 billion of assets from people connected to him that prosecutors believed to be related to misappropriated funds from 1MDB. The suit didn’t directly name Mr. Najib, though a person with direct knowledge of the investigation said the documents referred to him by the moniker “Malaysian Official 1.”

Last week, Swiss authorities said they had uncovered an alleged “Ponzi scheme” at 1MDB and requested assistance from Malaysia on multiple occasions but said they had not received it. Malaysia’s attorney general said on Thursday that it had not received an additional request for assistance from Switzerland. It didn’t mention an earlier request from January, which Swiss officials say is pending.

On Tuesday, Singapore’s regulators said that they hadn’t found pervasive anti-money-laundering control weaknesses in DBS and UBS, as they had at Falcon, but had identified specific lapses by officers of the banks that had led to 10 and 13 breaches of regulations by DBS and UBS, respectively.

The central bank said it is finalizing a related assessment of the Singapore branch of Standard Chartered Bank and would make an announcement in due course. Standard Chartered said it would be inappropriate for the bank to comment at this time. The Monetary Authority has referred currency-exchange company Raffles Money Change to a police department for investigation. Raffles Money Change declined to comment.

The further crackdown on institutions and individuals in Singapore that dealt with the Malaysian fund highlights an unprecedented series of steps the country has taken in recent months to shore up its reputation. Ravi Menon, the managing director of the central bank, said in July that the 1MDB case had dented Singapore’s reputation as a clean and trusted financial center.

Those moves have been undermined in recent weeks by a critical evaluation of Singapore’s anti money-laundering controls by the Financial Action Task Force and by an Indonesian tax amnesty which saw $10.5 billion of newly declared funds repatriated to Jakarta, most of which came from Singapore.

In May, the Monetary Authority revoked another banking license, belonging to the local branch of Swiss private bank BSI SA and fined the bank 13.3 million Singapore dollars for what it described as 41 breaches of money-laundering rules.

It also asked prosecutors to investigate six of BSI Singapore’s senior employees for possible criminal violations, two of whom were charged on Tuesday by prosecutors for forgery and other alleged criminal offenses. Their lawyers said they would review the charges before deciding on a course of action. A third former BSI banker already faces 11 charges ranging from cheating to attempting to pervert the course of justice. His lawyer says the banker intends to fight the charges at a trial scheduled to begin at the end of October.

BSI said it has cooperated fully with authorities in Switzerland and Singapore, adding that it “has been continuously improving its risks and compliance culture.”

“Keeping Singapore a clean and trusted financial center is a shared responsibility,” Mr. Menon said in a statement on Tuesday. He said senior management at banks “must set the tone from the top—that profits don't come before right conduct.”

Source: The Wall Street Journal