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A roster of recent rogues in the financial services industry

The “naughty corner” for miscreant banks and other wealth management institutions is a crowded one and reveals compliance to be a major issue for firms these days, both when spending money and recruiting staff. Charges of interbank rate fixing, lax anti-money laundering controls and questionable pricing policies have been levelled at the world’s private banks.
Some of the failings that have been punished go
back several years and, as of the time of writing, firms have
moved, or say they have done, to clean up their act. Some firms
making the headlines are aware of the work they must embark upon
to improve their reputation. Other banks have added to risk
management teams in recent months, and no doubt will continue to
do so.
By way of a guide to some of the problems that have hit these
firms, here is a summary of the main regulatory incidents. Not
all of the cases mentioned are complete and could be subject to
further action. The penalties, and the regulators’ reasons for
imposing them, are announced in reverse order.
2016
Falcon Private Bank and
others
The Monetary Authority of Singapore said that
the operations of Falcon Private Bank in the city state have been
closed down as a 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 was issued with a fine of S$4.3
million ($10.2 million) for 14 offences against the
Prevention of Money Laundering and
Countering the Financing of Terrorism
Act. The statement 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 were issued.
BNP Paribas
BNP Paribas Wealth Management was fined HK$4 million ($515,000) by a Hong Kong regulator for overcharging clients to the tune of about HK$9½ million for a period lasting almost two years. The fine was imposed by the Asian jurisdiction’s Securities and Futures Commission; the behaviour in question related to the period from 1 January 2011 to 31 December 2013. Charges, mark-ups and fees received by the firm from around 2,300 clients were higher than those stated in documents given to customers, the regulator said. Transactions covered different types of investment products, including equities, bonds, structured products, options, swaps and funds.
The SFC said that its fine would have been higher but for the fact that BNP Paribas agreed to use an independent reviewer to examine the charges; its repayment of overcharged amounts; the fact that it reported the matter to the regulator under its own steam, its co-operation with the authorities and its otherwise clean disciplinary record.
BSI Bank
In arguably one of the largest compliance cases
in years, and certainly in Singaporean history, the Monetary
Authority of Singapore revoked the merchant banking licence of
this bank, which is part of Switzerland-headquartered BSI, for a
number of infractions of AML laws and for the ‘gross misconduct’
of certain staff. The matter relates to the corruption scandal
that has plagued Malaysia's state-run 1MDB fund.
Julius Baer
The bank agreed to pay a penalty of $547
million after admitting to helping American clients hide billions
of dollars in offshore accounts. Julius Baer admitted to its
actions in a detailed statement and US prosecutors agreed to drop
charges after three years if the bank abides by the terms of the
deal. In addition, two of the bank's client advisors, Daniela
Casadei and Fabio Frazzetto, pleaded guilty to felony tax
charges. The pair had been fugitives since 2011 when they were
originally charged.
November 2015
Barclays
The bank was fined £72.069 million ($108.664
million) for failing to conduct sufficient checks on
ultra-high-net-worth clients, putting further pressure on firms
to adopt best practice in ‘know-your-client’ checks. The
UK-listed banking giant arranged a £1.88 billion transaction for
these clients in 2011 and 2012 without performing proper levels
of due diligence on them. The UK's Financial Conduct Authority
said that the wealthy clients involved were “politically exposed
persons,” i.e. highly risky politically, and therefore should
have been subject to greater scrutiny.
Deutsche Bank
The German bank was ordered to pay a $258
million penalty for carrying out transactions on behalf of
US-sanctioned countries, including Iran, Syria and Sudan. The
banking giant set up payment processing schemes to evade US
Treasury Office of Foreign Asset Control (OFAC) sanctions.
Between at least 1999 and 2006, Deutsche Bank conducted more than
27,200 US dollar clearing transactions worth more than $10.86
billion on behalf of Iranian, Libyan, Syrian, Burmese, and
Sudanese financial institutions and other entities subject to US
economic sanctions. The bank was to pay $200 million to the NYDFS
and $58 million to the Federal Reserve, and install an
independent monitor for such violations. It also fired the six
employees involved in the scheme who were still employed by the
bank, and banned three additional employees from any duties
involving the US operations.
Goldman Sachs
US authorities fined the firm $50 million after
an employee of the Wall Street firm agreed to steal confidential
regulatory and government information to use in advising a
client. The New York Department of Financial Services said that
Goldman Sachs accepted a “three-year voluntary abstention from
accepting new consulting engagements that require the NYDFS to
authorise disclosure of confidential information”.
October 2015
Crédit Agricole
Crédit Agricole Corporate and Investment Bank,
a bank owned by the French group Crédit Agricole, agreed to pay a
total of $787.3 million in criminal and civil penalties and enter
a deferred prosecution agreement with US authorities for
violating sanctions involving Sudan and other jurisdictions. The
bank entered the agreement with the US Attorney’s Office of the
District of Columbia for breaches of the
International Emergency Economic Powers
Act (IEEPA) and
the Trading With the Enemy Act
(TWEA). The bank
also signed settlement agreements with the Treasury Department’s
Office of Foreign Assets Control (OFAC), the Board of Governors
of the Federal Reserve System, the New York County District
Attorney’s Office and the New York State Department of Financial
Services (DFS).
July 2015
FCA fines
The UK's Financial Conduct Authority levied
fines of £1.23 billion ($1.92 billion) for market integrity
breaches last year, according to new data from Kinetic
Partners.
The regulator's recent enforcement actions relating to interbank rate manipulations include March's ban of Paul Robson from the UK financial services industry – the first public ban of a trader over Libor (the London Interbank Offered Rate) manipulations. Deutsche Bank was also ordered to fork out £227 million over its manipulation of Libor and Euribor inter-bank rates. This was a record FCA penalty for Ibor misconduct.
Foreign exchange manipulation fines, pleas and
settlements
Six of the world’s biggest banks – Barclays,
Citigroup, Royal Bank of Scotland, Bank of America, UBS and JP
Morgan – were hit with heavy fines for breaking rules that
pertained to the $5.3 trillion (daily turnover) global forex
market, putting the need for compliance once again in the
spotlight. In total, the penalties that the banks paid stand at
$5.6 billion.
Barclays was hit with a with a fine totalling £1.534 billion ($2.38 billion) levied by regulators in the US and the UK for failing to control practices in its foreign exchange operations. UBS signed a resolution agreement with US authorities over its investigation of the alleged rigging of the foreign exchange markets, avoiding criminal prosecution and obtaining conditional immunity from prosecution. The bank admitted a charge of wire fraud and had to pay a $203 million fine in connection with Libor. It also agreed to pay a $342 million penalty relating to its forex business.
In the case of JP Morgan, it agreed to plead guilty to breaking US law and pay a fine of $550 million. The agreement was with the US Department of Justice and Federal Reserve. The Royal Bank of Scotland also reached settlements with the Federal Reserve and the DoJ over foreign exchange transgressions.
RBS agreed to enter a guilty plea pursuant to a plea agreement with the DoJ admitting that it knowingly, through one of its euro/US dollar currency traders, joined and participated in a conspiracy to eliminate competition in the purchase and sale of the euro/US dollar currency pair exchanged in the FX spot market in the US and elsewhere, in violation of the Sherman Antitrust Act. The charged conspiracy continued from as early as December 2007 to at least January 2013. RBS is charged with participating in the conspiracy from as early as December 2007 until at least April 2010. The plea agreement was subject to approval of the federal court in Connecticut that was presiding over the matter. RBS agreed to pay $395 million to the DoJ and $274 million to the Federal Reserve to resolve the investigations. RBS remained in discussions with governmental and regulatory authorities in other jurisdictions in relation to conduct within its FX business. In addition, RBS and RBS Securities have reached an agreement to settle the consolidated antitrust class action brought on behalf of plaintiffs who entered into FX transactions with RBS or other defendant banks. The agreement is subject to execution of a final settlement agreement and approval of the federal court in New York that is presiding over the matter.
Citigroup signed settlements with the US
Department of Justice and the board of governors of the Federal
Reserve System to resolve investigations into its foreign
exchange business. The settlement with the DoJ included a guilty
plea by Citicorp, a subsidiary of Citigroup, to a violation of
the Sherman Antitrust Act and fine of $925 million. The
settlement with the Fed included the entry of a cease and desist
order and a civil money penalty of $342 million. Citi also
reached a separate agreement to settle related private US class
action claims for a payment of $394 million, subject to court
approval.
Bank of America was fined $205 million. BoA avoided a guilty plea
over the actions of its traders in chatrooms. Five out of the six
banks (excluding Bank of America) pleaded guilty to felony
charges.
November 2014
HSBC
HSBC’s Swiss-based private banking unit agreed to pay $12.5 million to settle charges with the Securities and Exchange Commission for failing to register before providing cross-border brokerage and investment advisory services to US clients. HSBC Private Bank amassed as many as 368 US client accounts and collected fees totalling approximately $5.7 million for cross-border advisory and brokerage services, which it began providing more than 10 years ago.
The UK’s financial regulator slapped fines
totalling £1.115 billion ($1.7 billion) on five banks for lax
controls on their G10 spot foreign exchange trading operations,
while US and Swiss regulators have also punished banks, ending a
probe into forex benchmark-rigging. The British regulator imposed
the fines on the following banks: Citibank NA £225,575,000; HSBC,
£216,363,000; JP Morgan, £222,166,000; Royal Bank of Scotland,
£217,000,000, and UBS £233,814,000.
Separately, the Bank of England fired its chief currency dealer,
Martin Mallett, making the saga one of the most serious financial
scandals to have hit the City in years. US and Swiss regulators
also investigating the issue in the world’s $5.3 trillion-a-day
forex market took action. FINMA, the Swiss regulator, forced UBS
to disgorge SFr134 million ($138 million); and, in the US, the
Commodity Futures Trading Commission imposed a total financial
penalty of more than $1.4 billion on the banks.
September 2014
Barclays
The bank was fined a record £37.7 million
($61.8 million) by the UK Financial Conduct Authority for failing
to properly protect clients’ custody assets, in a setback for the
bank after the Libor scandal in 2012. The FCA said that the
bank’s investment arm had failed to protect clients’ assets worth
£16.5 billion between November 2007 and January
2012.
August 2014
Bank of America
The bank agreed to pay a record fine of $16.65
billion over its failure to disclose the risk to customers of its
mortgage-backed securities in the run up to the financial crisis
in 2008. The US Justice Department said in a stateme that as part
of the settlement the bank had agreed to pay $9.65 billion in
cash and $7 billion in relief to struggling homeowners. The cash
portion consists of a $5.02 billion civil monetary penalty and
$4.63 billion in compensatory remediation payments. The fine is
the largest civil settlement with a single entity in US history
and relates primarily to conduct that occurred at Countrywide and
Merrill Lynch before BoA acquired them before the financial
crisis.
Standard Chartered
The bank reached a $300 million settlement with
US authorities over defective anti-money laundering controls. It
also faces tighter controls on certain clients in Hong Kong and
United Arab Emirates. The UK-listed bank said it had reached a
final settlement with the New York State Department of Financial
Services regarding deficiencies in the anti-money laundering
transaction surveillance system at its New York branch.
The bank had to suspend dollar clearing through its New York
branch for high-risk retail business clients at its SCB Hong Kong
subsidiary; exit high-risk client relationships within certain
business lines at its branches in the United Arab Emirates, and
refuse to accept new dollar-clearing clients or accounts
throughout its operations without prior approval from the
DFS.
PricewaterhouseCoopers
The firm was fined $25 million for improperly
altering a report on anti-money laundering and sanctions
compliance by Bank of Tokyo Mitsubishi. The New York State
Department of Financial Services has also banned PwC from
accepting consulting work at financial institutions regulated by
the organisation for two years.
July 2014
Lloyds Banking Group
The bank was fined $370 million by British and
US authorities for the manipulation of Libor and other benchmark
failings. The fine includes $105 million by the Commodity Futures
Trading Commission, approximately $178 million by the Financial
Conduct Authority and $86 million from the US Justice Department.
The manipulation of submissions covered by the settlements took
place between May 2006 and 2009. Lloyds said that the individuals
involved had either left the group, been suspended or are subject
to disciplinary proceedings.
June 2014
BNP Paribas
France's largest bank was fined $8.97 billion
and temporarily lost the ability to handle dollar-denominated
business in the US (with clients using a third-party bank) during
2015. The bank pleaded guilty to violations of US sanctions
against Sudan, Cuba and Iran. The issue has raised concerns that
US authorities are treating such cases as ‘shakedown’ operations
to fill government coffers (as argued by
The Economist magazine).
The fines have soured Franco-American relations.
May 2014
Credit Suisse
The bank pleaded guilty to conspiracy to help
US citizens evade taxes and agreed to pay a $2.815 billion
settlement with US authorities, a move that the Swiss bank said
will not affect its licences or business and operational
capabilities.
April 2014
Invesco Perpetual
The Financial Conduct Authority in the UK fined
Invesco Perpetual £18.6 million ($31.3 million) for exposing
investors to greater levels of risk than they had been led to
expect. Between May 2008 and November 2012, Invesco Perpetual did
not operate within the requisite investment limits. The FCA said
that the bank broke the rules it had designed to limit risks to
investors on 33 occasions in 15 funds, resulting in losses of £5
million.
Standard Chartered
The Monetary Authority of Singapore took
"appropriate supervisory actions" against the bank after it found
that bank statements of some private banking clients had been
stolen. The issue pertained to a report by Standard Chartered in
December 2013 that around 560 of its private banking clients'
February bank statements had been stolen at its third-party
service provider, Fuji Xerox Singapore. Fuji Xerox had been the
designated printer of the bank's statements for private banking
customers. The police alerted Standard Chartered of the
theft.
January 2014
Standard Bank
The Financial Conduct Authority fined the
British subsidiary of South Africa's Standard Bank Group £7.6
million ($12.6 million) for failings relating to its anti-money
laundering policies and procedures to do with corporate customers
connected to politically exposed persons. The FCA said that
Standard Bank had failed to take reasonable care to ensure that
all aspects of its anti-money laundering policies were applied
appropriately and consistently to its corporate customers
connected to PEPs between 15 December 2007 and 20 July
2011.
November 2013
Royal Bank of
Scotland
The US Department of the Treasury’s Office of
Foreign Assets Control announced a $33 million agreement – as
part of a combined $100 million settlement – with the Royal Bank
of Scotland to settle the UK-listed firm’s potential liability
for breaking US sanctions regulations. The settlement resolved
OFAC’s investigation of apparent violations by RBS of US
sanctions programmes relating to Iran, Sudan, Burma and Cuba.
Between 2005 and 2009, RBS engaged in payment practices that
interfered with the implementation of US economic sanctions by
financial institutions in the UK.
December 2013
Lloyds Banking Group
The Financial Conduct Authority fined this
British bank a record £28 million ($45.8 million) for "serious
failings" relating to its sales incentives, which resulted in a
culture of mis-selling among advisors. The FCA said that this was
the largest ever fine that it or its predecessor, the Financial
Services Authority, had ever levied over retail
conduct.
November 2013
SAC Capital
The $15 billion hedge fund run by Steve Cohen,
one of the biggest names in the global hedge fund business, had
to forfeit its investment advisory business and pay a total fine
of $1.8 billion after pleading guilty to insider trading charges,
the US Department of Justice said. The settlement brought a
seven-year investigation by US prosecutors to an end and fuelled
months of speculation as to whether Cohen might turn the
remainder of his business into a family office
structure.
October 2013
Rabobank
This Dutch bank agreed to pay more than $1
billion in criminal and civil penalties to settle investigations
by British, American and other regulators of its part in
manipulating global benchmark interest rates. Rabobank’s chief
executive, Piet Moerland, left his post immediately after the
announcement.
The settlement with Rabobank is the second largest agreement
after the $1½ billion penalty imposed on UBS related to the
manipulation of benchmark rates, which help determine the
borrowing costs for trillions of dollars of mortgages, business
loans, credit cards and other financial products. As part of the
settlement, Rabobank avoided criminal charges as long as it
continued to co-operate with investigators. The firm had to pay a
$325 million criminal penalty to the US Justice Department, and
fines of $475 million to the Commodity Futures Trading
Commission, as well as $170 million to the UK’s Financial Conduct
Authority and about $96 million to the Dutch
authorities.
October 2013
HSBC
A unit of the bank was ordered to pay $2.46
billion after a US court ruled that one of the bank’s subsidiary
companies, along with three of its senior executives, had made
false statements that inflated the company’s share price. The
ruling was against credit card and mortgage lender Household
International, acquired by London-based HSBC in March 2003.
Household – now known as HSBC Finance Corp – is believed to have
made misleading statements that inflated the company’s share
price. When contacted by this publication, HSBC stated that the
matter had been noted in its filing for some time and that this
was the next legal step in “an 11-year case.”
September 2013
JP Morgan
British and American regulators fined JP Morgan
a total of $920 million for “serious failings” relating to trades
carried out by the firm’s chief investment office. The bank
agreed to settle actions brought by the US Securities and
Exchange Commission, which imposed a financial penalty of $200
million and required the firm to admit wrongdoing; the Office of
the Comptroller of the Currency, which imposed a financial
penalty of $300 million, and the Federal Reserve, which imposed a
financial penalty of $200 million. In addition, the Financial
Conduct Authority fined the bank $220 million.