The decision on May 24 by the Monetary Authority of Singapore to force the closure of BSI Bank Ltd – the first merchant bank to be closed in Singapore in 32 years – means that after months of last-ditch defense in Malaysia, the scandal over the state-backed 1Malaysia Development Bhd is finally starting to unravel in legal jurisdictions across the world.
The implications may well go beyond 1MDB, according to sources in Kuala Lumpur, who say businessmen and politicians have been rattled by the charges. In addition to 1MDB, they say, BSI also handled a large volume of banking business for other Malaysian VIPs wanting access to a Swiss account.
The MAS also fined the bank S$13.3 million for 41 cases of breaches of money laundering and other laws. MAS Managing Director Ravi Menon called BSI Bank “the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector.”
The monetary authority also said it is investigating “several other financial institutions and bank accounts through which suspicious and unusual transactions have taken place.”
They are likely to include a variety of institutions connected to the flamboyant Malaysian Chinese financier Jho Taek Low including an entity called Good Star Ltd and other Swiss institutions such as Falcon Bank, which was involved in transactions around a mysterious US$681 million “donation” to Najib’s personal accounts. The money was deposited in Najib’s Ambank account in Kuala Lumpur in March 2013 and just as mysteriously transferred out a few months later to a Swiss intermediary in Singapore before it simply disappeared.
Seven countries probing irregularities
The MAS action takes place against the backdrop of investigations into 1MDB’s affairs by seven jurisdictions including the United States, Abu Dhabi, Luxembourg and Hong Kong. On the same day of the Singapore action, the office of the Swiss Attorney General announced it would open criminal proceedings against the parent BSI SA over what authorities called “links to corruption allegations against Malaysia’s 1MDB fund.”
The Swiss attorney general’s office said it had information suggesting "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" by BSI.
In a separate statement, BSI Switzerland, which has since been sold to EFG International, a bank authorized by the Swiss financial authority and headquartered in Switzerland, said it would cooperate with the investigation and described the case as involving "legacy issues and removing uncertainty for clients and staff in relation to 1MDB." BSI Singapore's assets and liabilities are to be transferred to the Singapore branch of EFG.
The Swiss authorities also said they would seize SFR95 million from BSI SA and begin enforcement procedures against two former BSI staff. BSI group chief executive Stefano Coduri has quit.
Six members of senior management and staff in Singapore have been referred to the public prosecutor for possible prosecution. They are Hans Peter Brunner, former CEO, Raj Sriram, the former Deputy CEO, Kevin Michael Swampillai, Head of Wealth Management Services, Yak Yew Chee, former Senior Private Banker, Yeo Jiawei, former Wealth Planner; and Seah Yew Foong Yvonne, former Senior Private Banker. Swampillai has been suspended by the bank and Yeo Jiawei has already been arrested.
Numerous acts of gross misconduct
The deeply-detailed 1,032-word statement by the MAS accuses the bank of “widespread control failures which led to numerous serious breaches of various anti-money laundering regulations, poor and ineffective oversight by the senior management of BSI Bank, an unacceptable risk culture, with blatant disregard for compliance and control requirements as well as MAS’ regulations and numerous acts of gross misconduct by certain staff.”
But what is never mentioned in the statement is that BSI, the Singapore unit of the Swiss parent BSI Bank, was inextricably involved with 1MBD’s operations. 1MBD’s chief economic adviser and the man tasked with signing off all major financial decisions was Prime Minister Najib Razak. 1MDB is now being wound up, with its assets being sold off in the midst of unfunded liabilities estimated to be as high as RM42 billion. It is arguably the biggest financial scandal in Malaysian history.
Despite that, the story got scant treatment in Malaysia, with the New Straits Times carrying a Reuters story that didn’t mention 1MDB. The Star story only mentioned a “Malaysian state fund” without naming 1MDB. Only the online news portal Malaysiakini gave the story full treatment.
Najib is said to be furious at the Singaporean authorities for taking action. However, according to sources in Kuala Lumpur, the Singapore authorities are playing a delicate geopolitical game. By naming BSI, they have an opportunity to show the country is a global financial center that doesn’t brook any nonsense.
But, a source told Asia Sentinel, “by ignoring 1MDB in their statement, they are still refusing to link the fund officially to this massive scandal. They are still trying to help, but they can’t go on ignoring these guys in their own backyard.”
The MAS report is nonetheless a stinging indictment of outlaw practices. The authority at least three times inspected BSI and found policy lapses, shortcomings in due diligence checks and weaknesses in its control regime. “A more intrusive third inspection by MAS in 2015 revealed multiple breaches of anti-money laundering regulations and a pervasive pattern of non-compliance,” the MAS statement said.
Specific regulatory lapses include the processing of multiple unusual transactions “which were essentially pass-through trades often without economic substance. Approvals of such transactions were based purely on faith of client representations despite deficient documentation and concerns raised by the bank’s compliance officers.”
The Singapore authorities found “considerable evidence of gross dereliction of duty and failure to discharge oversight responsibilities on the part of BSI Bank’s senior management. Their ineffective governance led to a poor risk culture, which prioritized questionable customer demands ahead of compliance with anti-money laundering regulations and the bank’s own internal controls.”
Hiding from the auditors
The bank’s managers materially misrepresented the situation to auditors, abetted improper valuations of assets and took instructions “persons other than customers’ authorized representatives on matters relating to customers’ accounts.”
It is a stark reminder to all financial institutions to take their anti-money laundering responsibilities seriously. Controls need to be robust, surveillance vigilant, and the management culture must emphasize professional integrity and risk consciousness.”
An MAS spokesman said: "MAS' regulatory actions... arose from serious lapses by (BSI Bank) in connection with suspicious transactions and relationships, including with 1MDB-related entities, and broader failings in management oversight."