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.