Swiss Regulator Sanctions, Fines Coutts $6.5 Million Over AML Lapses Relating To 1MDB

Josh O'Neill Assistant Editor 3 February 2017

Swiss Regulator Sanctions, Fines Coutts $6.5 Million Over AML Lapses Relating To 1MDB

The Swiss Financial Market Supervisory Authority collaborated with the Monetary Authority of Singapore during its year-long investigation into the private bank and its relation to the 1MDB fund, which is currently at the epicentre of worldwide money laundering probes.

A Swiss regulator has fined Coutts SFr6.5 million ($6.57 million) over “serious breaches” of money laundering regulations relating to the scandal-hit 1Malaysia Development Berhad and is considering opening enforcement proceedings against the employees responsible.

The state-owned investment fund 1MDB is currently the subject of worldwide money laundering investigations in at least six countries, including the US, Switzerland and Singapore. In recent months, multiple indictments, penalties and jail sentences have been handed down to former bankers affiliated with the fund. Last year, BSI and Falcon Private Bank were forced to shut shop in Singapore by regulators amid the country's biggest crackdown on alleged money laundering connected to 1MDB. 

“Coutts has seriously breached money laundering regulations by failing to carry out adequate background checks into business relationships and transactions associated with 1MDB,” the Swiss Financial Market Supervisory Authority (FINMA) said in a statement. As a result, the financial watchdog has ordered the private bank to shell out SFr6.5 million of “unlawfully generated profits”.

FINMA began its year-long investigation into Coutts in early 2016. The enforcement proceedings unveiled “serious deficiencies” in the bank's anti-money laundering processes for business relationships and transactions associated with 1MDB as it failed to clarify the circumstances surrounding numerous large, high-risk transactions. In total, $2.4 billion of 1MDB-related assets were transferred through Coutts accounts in Switzerland between 2003 and 2009, FINMA found. 

Between late 2009 and early 2013, “numerous high-risk transactions” totalling $1.7 billion were processed through a Coutts account held by a “young Malaysian businessman”, FINMA said. Although Coutts had “serious ground for suspicion”, according to FINMA, the bank then opened a further business relationship with him in 2012. In March of the following year, $380 million was transferred into the account from an offshore company, followed by a further $300 million. Pass-through transactions were then used to transfer the majority of the funds to another company owned by the businessman. 

Despite the “obviously suspicious nature” of these transactions, Coutts failed to scrutinise them efficiently and was “content to make superficial enquiries,” FINMA said. 

A number of Coutts employees expressed concerns to their managers and the bank's compliance unit about its relationship with the Malaysian businessman. The individual responsible for providing him with advisory services in Singapore said: “I feel very uncomfortable with this guy and the transactions that are going through the account. I think the management has to make a decision whether to keep this relationship.”

In 2013 and 2014, various compliance bodies operating within the bank again raised and questioned the relationship. On each occasion, however, Coutts decided to continue its dealings with the businessman. 

In the course of its investigations, FINMA collaborated with a number of other regulators - specifically with the Monetary Authority of Singapore, which has already brought its proceedings against Coutts to a close - due to the nature of the cross-border transactions. As the bank belonged to Royal Bank of Scotland during the period in question, FINMA said it has brought the case to the attention of the UK's financial regulator, the Financial Conduct Authority. 

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