Compliance
Regulator Blasts Swiss Bank For AML Failings Amid Venezuela, FIFA Cases

Corruption involving a large Venezuelan oil firm and global soccer organization FIFA are at the centre of AML failings at Swiss private bank Julius Baer. The Swiss national regulator has banned it from making large and complex acquisitions until it is fully compliant with the law.
Julius Baer
“fell significantly short” of fighting money laundering in a
nine-year period, Switzerland’s main financial regulator said
today. The failings were linked to alleged corruption cases
involving Venezuelan state-owned oil group PDVSA and scandal-hit
global soccer body FIFA.
The bank has also been banned from large and complex acquisitions
until it fully complies with the law. The Swiss Financial Market
and Supervisory Authority, or FINMA, said in a statement that
its enforcement proceedings on Zurich-listed Julius Baer have
ended.
“The proceedings, now concluded, found that Julius Baer was in
breach of obligations to combat money laundering and its duty to
put in place an appropriate risk management policy, representing
a serious infringement of financial market law,” FINMA said. The
offences weren’t confined to a single advisor.
“FINMA has instructed Julius Baer to undertake effective measures
to comply with its legal obligations in combating money
laundering and rapidly finalize the measures it has already
started putting in place. Moreover, Julius Baer must change the
way it recruits and manages client advisors as well as adjusting
remuneration and disciplinary policies. The Board of Directors
must also give greater attention to its AML responsibilities,” it
said.
The regulator will appoint an independent auditor to monitor how
the bank puts these measures into practice.
Venezuela has nationalized its oil industry and is now in the
grip of a major political and economic crisis. FIFA has been at
the center of major corruption claims after some of its former
officials took bribes to influence where tournaments were held.
(More on the FIFA saga
here.) Ironically, claims about FIFA were made for years but
it was only when the US – not typically regarded as a major
soccer power – got involved in following dollar-based flows that
people in the organization were brought to book. (See a story
about a probe of banks aligned to
Venezuela's corruption issues here.)
“We accept FINMA’s findings and regret the shortcomings
identified in our business with Latin American clients. This is
not compatible with the risk culture that we are striving to
achieve. Julius Baer has invested substantially over the past few
years in strengthening our compliance and risk management
processes to make them fit for the challenges of the future and,
as part of our new strategy, we will continue to invest
forcefully in these areas,” Romeo Lacher, the bank’s chairman,
said in a statement yesterday.
As reported by FWR in August 2018, the bank conducted an internal
probe into a money-laundering scam involving PDVSA.
FINMA probes
FINMA said it had carried out several inspections at Swiss banks
to see if anti-money laundering rules were followed in connection
with the alleged cases of corruption linked to Petróleos de
Venezuela S.A. (PDVSA), as it is fully known, and FIFA. Part of
this process included the appointment, in 2017, of an agent to
investigate Julius Baer. In 2018, FINMA broadened its probe after
one of the bank’s client advisors in the US was arrested, and in
response to events unfolding in Venezuela.
The regulator said it found “systematic failings” in how Julius
Baer followed AML rules.
For example, almost all of the 70 business relationships selected
on a risk basis and the “vast majority” of the more than 150
sample transactions selected on the same basis showed
irregularities, FINMA said. The offences spanned a period of
several years, from 2009 to early 2018.
“FINMA also uncovered systematic failures in risk management at
Julius Baer, which repeatedly failed to react to clear
indications of possible money laundering risks or did not do so
decisively enough,” it said.
The regulator said that Julius Baer “did not do enough to
determine the identities of clients, nor did it establish the
purpose or background of its business relationships”.
The watchdog said it unearthed “organizational failings and
misplaced incentives”, which it said encouraged people to breach
legal obligations. Julius Baer’s remuneration system “focused
almost exclusively on financial targets and paid scant regard to
compliance and risk management goals”.
“As an example, a client advisor looking after Venezuelan clients
in 2016 and 2017 received bonuses and other remuneration in the
millions, even though Julius Baer had reported a number of his
clients, on the basis of investigations or suspected wrongdoing
in connection with the PDVSA case, to the Money Laundering
Reporting Office Switzerland (MROS),” the bank said. “In 2017,
the client advisor’s bonus was reduced by only 2.5 per cent. Even
the previous year, the individual had been awarded a special
bonus reserved for ‘top performers’. Through these payments, the
client advisor in both years received the highest total
remuneration of his career at Julius Baer.”
Bank’s response
The bank’s statement said: “The identified deficiencies have been
addressed, and in particular the Bank’s control system as well as
compliance processes have been improved and strengthened
significantly, both in terms of personnel and in the context of
in-house rules and management principles. Julius Baer notes that
FINMA has expressly acknowledged these measures in its
assessment.”
Julius Baer said its Latin American business has been under new
leadership since December 2017, and new appointments have been
made to “all key positions”.
“The region’s strategy has been completely overhauled, including
the introduction of a market-specific focus that has resulted,
among other things, in the closure of the local business in
Panama and Venezuela,” it said.
“The group undertook a comprehensive program over the last two
years to strengthen its global risk management, and made new
appointments to key and leadership positions. This program
addressed many of the weaknesses identified by FINMA. Further
investments and measures are being implemented with high
priority,” it said.
In recent years the Swiss financial services industry has been
caught up in several global corruption cases (Petrobras,
Odebrecht, 1MDB, Panama Papers, FIFA and PDVSA).
“FINMA has therefore focused its AML supervisory activities on
how institutions deal with such international money-laundering
cases. Among the institutions it supervises, FINMA has most
recently and in general observed higher standards of compliance
with the legal obligations to combat money laundering. FINMA’s
risk monitor continues to designate money laundering as a major
risk to the Swiss financial services industry,” FINMA said.