STORY OF THE WEEK: MAS Closes Falcon Private Bank In Singapore; Branch Manager Arrested; Fines For Two More Private Banks

Andrew Deane Asia Publisher Singapore 14 October 2016

STORY OF THE WEEK: MAS Closes Falcon Private Bank In Singapore; Branch Manager Arrested; Fines For Two More Private Banks

Undeniably, the decision by the Monetary Authority of Singapore to ban Falcon Private Bank from the Asian city-state was the biggest news story in wealth management this week.

The Monetary Authority of Singapore today confirmed that the operations of [tagFalcon Private Bank]Falcon Private Bank in the city-state have been closed as result of the investigation into its connections with the 1MDB scandal and for “serious failures in anti-money laundering (AML) controls and improper conduct by senior management at the head office in Switzerland as well as the Singapore branch.” The bank's branch manager has been arrested.

The shut-down of Falcon adds to the move by MAS earlier in the summer to remove the merchant banking licence of BSI Singapore, part of Switzerland-headquartered BSI, for "gross misconduct" and other failings related to AML lapses. The transactions in the saga are linked to 1MDB, the Malaysian state-run fund which is accused of being used by Malaysia's prime minister, and others, for personal gain. Other banks have been censured and fined. As reported here today, more former BSI bankers have been charged.

In the statement about Falcon Private Bank, which is owned by UAE-based International Petroleum Investment Company, the MAS detailed the three key areas and responsibilities that led to its decision. These are highly critical of the head office in Switzerland and the senior management in Singapore.

1. The merchant bank’s head office failed to guard against conflicts of interest when managing the account of a customer who was associated with the bank’s former board chairman, Mohamed Ahmed Badawy Al-Husseiny. The former chairman misled and influenced the Singapore branch into processing the customer’s unusually large transactions despite multiple red flags.

2. The improper conduct of the Singapore branch manager and certain senior managers at the head office had impaired the effectiveness of the Singapore branch’s compliance function in discharging its responsibilities. Their interference was wrongful and egregious in nature, and contributed to substantial breaches of AML regulations. MAS has been informed that the Singapore branch manager, Jens Sturzenegger, was arrested by the Commercial Affairs Department on 5 October 2016.

3. Falcon Bank has demonstrated a persistent and severe lack of understanding of MAS’s AML requirements and expectations. Taking into account the totality of Falcon Bank’s conduct, MAS’s assessment is that the merchant bank will be unable to comply with these requirements and expectations going forward.

The bank has been issued with a fine of S$4.3 million ($10.2 million) for 14 breaches under the Prevention of Money Laundering and Countering the Financing of Terrorism act.  

"Clients and customers of Falcon Bank are assured that the merchant bank, which is a branch of Falcon Private Bank in Switzerland, has the full support of its head office which is financially sound. MAS is working closely with FINMA, the home regulator of Falcon Private Bank, to oversee an orderly closure of the merchant bank branch in Singapore," the statement issued from the MAS read.

"Although the withdrawal of the Singapore banking license is regrettable and disappointing, the decision will not impact the strategic development of the Bank. Falcon Private Bank is currently in close contact with employees, clients and partners and is committed to finding optimal solutions for all parties involved and guaranteeing an orderly wind down of the Singapore operation," Falcon Private Bank said in a statement today. "The bank will now focus again on growing our businesses in the core locations Switzerland, Middle East and London. We are highly confident of our expertise to create a long-lasting, positive customer experience," Walter Berchtold, CEO of Falcon Private Bank, said.

Other banks
The MAS also detailed failings by DBS and UBS. Fines of S$1 million for DBS for 10 breaches and S$1.3 million for UBS for 13 breaches have been issued. Both banks have issued statements to this publication, given below. 

DBS said: “DBS takes our anti-money laundering obligations seriously and accepts MAS’s decision. While MAS’s findings indicate that the bank’s control weaknesses are not pervasive, we should have taken more rigorous action with respect to the questionable activity, even if it was intentionally designed to conceal another purpose. These actions are for lapses which occurred in 2013 and 2014. We have made many enhancements since then and are in a materially better position than before.

"Reinforcing a culture that is sensitive to regulations and suitability of transactions is very important to us. To ensure this, DBS will be taking appropriate actions to hold responsible staff accountable, which will include our senior executives. Further, we will be donating profits attributable to our shortcomings to a worthy cause. Together with our regulators and the industry, we intend to intensify our efforts in collaborating and fighting financial crime,” it added. 

UBS said: "We take our responsibility to help detect and fight financial crime very seriously and worked closely with the regulators to resolve this matter.

"We are disappointed we did not do more to detect and report this earlier. We are further strengthening our controls and appropriate action will be taken on individuals responsible for the lapses," it added.

"UBS is determined not to be used as a platform for financial crime. We will donate all profits from this account to the establishment of an industry-wide AML programme to be run by an independent educational body to help combat financial crime and reinforce Singapore's status as a financial center which adheres to the highest standards," the Swiss bank said. ‎

Ravi Menon, managing director, MAS, said, “Keeping Singapore a clean and trusted financial centre is a shared responsibility. The board and senior management of each financial institution play a pivotal role.  They must put in place robust mechanisms to detect suspicious activities, promote strong risk awareness among their staff, and empower their compliance and risk management people. Most of all, they must set the tone from the top – that profits do not come before right conduct. MAS will work closely with the industry to ensure that standards are kept high and will take strong deterrent actions against institutions that fall short.”


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