In a massive revelation, the Swiss financial market supervisory authority FINMA has conclusively linked troubled bank BSI AG and its Singapore branch, to the global scandal surrounding Malaysian sovereign wealth fund 1MDB.
FINMA said through business relationships and transactions linked to the corruption scandals surrounding 1MDB, BSI AG committed serious breaches of money laundering regulations.
It said in the case of 1MDB, there were deliberate management decisions made by the bank that led FINMA to reach its conclusions of corruption and money laundering accusations.
Transactions involving 1MDB were executed within the client group and with THIRD PARTIES without the bank adequately clarifying their commercial justification.
FINMA said the bank executed substantial transactions for the foreign sovereign wealth funds, in some cases involving hundreds of millions of US dollars, without adequately clarifying the background to them.
The sovereign wealth funds’ assets were typically invested through specially created intermediate structures. BSI supported the development of these structures with the aim of achieving a higher level of confidentiality for the investment activities. Ultimately, however, BSI was therefore unable to determine how these assets were invested.
1MDB: deliberate management decision
In the context of 1MDB, misconduct on the part of BSI was particularly serious.
On numerous occasions, business relationships relating to 1MDB were discussed at top management level.
This was particularly the case when at the end of 2013 FINMA highlighted to the bank the many serious risks inherent in the client relationships and pressed the bank for further clarification.
Nevertheless, the bank’s Board of Directors and Executive Board knowingly and repeatedly expressed their intention to continue with these financially lucrative client relationships without adequately clarifying the numerous clear risk indicators or controlling the said risks.
Here are the major takeaways from a lengthy press release from FINMA:
1. BSI is involved in serious money laundering breach in transactions , according to probes related to 1MDB.
2. Top level management of BSI discussed transactions linked to 1MDB. Somehow FINMA has been led to conclude corruption was involved.
3. FINMA says BSI executed transactions worth millions of dollars for the sovereign fund without adequately clarifying the background to FINMA .
4. The sovereign wealth fund’s assets were typically invested through specially created intermediate structures and hundreds of accounts.
5. BSI ‘s involvement in these assets development ensured a high level of secrecy -confidentiality for investment activities, without the bank knowing how these assets were invested.
6. In the context of 1MDB, misconduct on the part of BSI was particularly serious. On numerous occasions, business relationships relating to 1MDB were discussed at top management level.
7. In the case of 1MDB, the bank executed numerous large transactions with unclear purpose over a period of several years and, despite clearly suspicious indications, did not clarify the background to these transactions, said FINMA in a statement.
8. With regards to 1MDB, FINMA said the fact that this was BSI’s largest and most profitable client group was reflected in the remuneration paid to the bank employees involved.
The fees charged were above average and out of line with normal market rates.
10. In the context of the 1MDB case, the bank failed to adequately monitor relationships with a client group with around 100 accounts at the bank.
11. Transactions involving 1MDB were executed within the client group and with third parties without the bank adequately clarifying their commercial justification.
12. In one case involving a deposit of 20 million US dollars, for example, the bank was happy to accept the client’s explanation that the funds involved were a “gift”.
13. In another case, an account was credited with more than 98 million US dollars without any effort to clarify its commercial background.
14. The client advisor responsible for these relationships was repeatedly notably uncooperative in terms of compliance, particularly in dealing with the inadequate clarification of transactions.
15. Management was aware of the situation but gave their support to the client advisor instead of the Compliance department.
Read the full FINMA statement here: