Singapore Uncovers "Control Failings" At Banks Amid Probe Of Malaysian Dirty Money

Tom Burroughes Group Editor 21 July 2016

Singapore Uncovers

Authorities in Singapore have uncovered control lapses and other shortcomings at a number of financial institutions surrounding transactions linked to scandal-hit 1MDB, a Malaysian state-run fund. UBS, Falcon Private Bank, DBS and Standard Chartered are among those named.

(Updates with statement from 1MDB, US comments, background)

Singapore legal and regulatory authorities today said they have found “control failings” and other shortcomings at DBS, Standard Chartered, Falcon Private Bank, Singapore Branch, and UBS as a result of investigations into possible laundering of money connected to embattled Malaysian state-run fund 1MDB, confirming recent speculation. (See here.) MAS said it will where necessary take action against the banks concerned.

In a separate development, meanwhile, US authorities have launched a lawsuit to recover more than $1.0 billion in assets related to the fund, a move seen as putting Malaysian premier Najib Razak under pressure.

In the Singapore case, the Attorney-General’s Chambers, Singapore; Commercial Affairs Department, Singapore Police Force, and Monetary Authority of Singapore issued a joint statement about their investigations into the matter. Already, the MAS has moved to rescind the merchant banking licence of BSI Bank in Singapore, part of Switzerland’s BSI, for “gross misconduct” and failings in AML controls connected to 1MDB.

Today’s comments highlight how Singapore, which is sometimes billed as an offshore rival to Switzerland, has very publicly shown itself to want to come down hard on dirty money, concerned that any impression of indulgence will damage its image.

1MDB is accused of allowing politicians and other figures to siphon off millions of dollars in funds; the fund has repeatedly denied wrongdoing. Authorities in the US, Switzerland, Luxembourg and Singapore have launched investigations. In Switzerland, authorities froze accounts at certain banks.

Final moves
The MAS said it has completed its inspections of DBS, Standard Chartered, Falcon and UBS and is finalising its assessments.

“The preliminary findings are that there were instances of control failings in all three banks and, in some cases, weaknesses in the processes for accepting clients and monitoring transactions. There was also undue delay in detecting and reporting suspicious transactions,” MAS said in a statement. "The MAS announced today that its supervisory examinations of financial institutions (FIs) with 1MDB-related fund flows have revealed a complex international web of transactions involving multiple entities and individuals operating in several jurisdictions. Certain FIs in Singapore were among those used as conduits for these transactions. MAS’ supervisory examinations, which began in March 2015, found lapses and weaknesses in anti-money laundering (AML) controls in these Singapore-based FIs. MAS will be taking actions against these FIs," it said.

"MAS’ supervisory examinations included detailed onsite inspections, and analysis of information obtained from regulators abroad. They revealed extensive layering of transactions and subterfuge aimed at disguising the nature of certain activities and fund flows.  In some instances, shell or unauthorised companies domiciled in various jurisdictions were used to conceal the true beneficiaries of the funds," it said.

“We note the statement by the US Attorney General on 20 July 2016, seeking the forfeiture and recovery of more than $1 billion in assets associated with an international conspiracy to launder funds related to 1MDB,” the statement continued.

On Falcon, it said that it had found "substantial breaches" of AML regulations, including failure to adequately assess irregularities in activities pertaining to customers’ accounts and to file suspicious transaction reports. The supervisory examination of Falcon PBS is still ongoing as the oversight and management of certain key client relationships were done out of the bank’s head office in Switzerland, MAS said, adding that it is examining information obtained from Falcon PBS’ head office and has asked for further details.  

"With reference to the ongoing investigations by the Monetary Authority of Singapore on 1MDB-linked institutions and the statement released today, we would like to reiterate that we are in full cooperation with the authorities. We will comment further when the investigations are complete," Falcon is quoted as saying by Reuters.

Other entities are being scrutinised, the MAS said. Fund flows being investigated include those connected with Good Star Limited (Seychelles), Aabar Investments PJS Limited (BVI), Aabar Investments PJS Limited (Seychelles), and Tanore Finance Corp. (BVI).

The statement said that bank account seizures and curtailments of property dealings cover transactions totalling S$240 million. “Of these bank accounts and properties, about S$120 million belong to Mr Low Taek Jho and his immediate family,” MAS said.

“Singapore has made a number of requests for information to countries where these funds originated from or were subsequently sent to.  Some of these requests are still being processed.  Several countries have likewise requested Singapore’s assistance in relation to questionable fund flows pertaining to monies suspected to have originated from 1MDB.  Singapore has promptly acceded to all such requests, in compliance with our international obligations,” it said.

This publication has contacted UBS seeking comment.

Standard Chartered said it took financial crime compliance very seriously and that it reported the suspicious transactions when it discovered them. It added that the bank has strengthened its money-laundering controls, according to a report by CNBC.

DBS was quoted by the news broadcaster as saying that "egregious financial crime is highly sophisticated and intentionally designed to evade systems and controls," and added that it had previously voluntarily reported some questionable activities to authorities.

US action
 US authorities yesterday moved to seize more than $1 billion in assets related to 1MDB. Malaysian prime minister Najib Razak is not named in the Department of Justice case, but a reference in a DoJ statement as Malaysian Official 1" is understood to refer to him.

In a statement issued earlier today, 1MDB said it was not a "party to the [US] civil suit, does not have any assets in the United States of America, nor has it benefited from the various transactions described in the civil suit".

"Furthermore, 1MDB has not been contacted by the US Department of Justice or any other foreign agency in relation to their investigations.  As previously stated, 1MDB will fully cooperate with any foreign lawful authority, subject to international protocols governing such matters and the advice of the relevant domestic lawful authorities," it said.


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