Compliance

JP Morgan To Be Probed Over AML Failings As 1MDB Saga Rolls On

Tom Burroughes, Group Editor, 22 December 2017

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The fallout from the claims about money extracted from Malaysia's 1MDB continue to be felt around the world.

Switzerland’s regulator yesterday said it is carrying out an “in-depth” probe of JP Morgan after enforcement proceedings against the bank in the Alpine state concluded it “seriously breached anti-money laundering regulations” linked to payments from scandal-hit Malaysian state fund 1MDB

FINMA said it is tackling a total of seven cases against banks linked to the 1MDB affair, which has already seen the Singaporean financial regulator, the Monetary Authority of Singapore, kick out BSI and Falcon Private Bank from the Asian city-state. 

However, unlike other 1MDB cases, FINMA said it will not start enforcement proceedings against any individuals based on the outcome of its investigation. Additionally, no monetary penalties or business restrictions have been imposed on JP Morgan, which displayed good cooperation during the FINMA-led investigation.

JP Morgan failed to adequately identify the increased money laundering risks in some of the business relationships related to this case. In other relationships, while the bank correctly identified the clients as politically exposed persons (PEPs), it managed the increased risks arising from these relationships inadequately,” FINMA said on its website. 

The case, as shown by a survey also reported today on this news service, highlights how the fight against illicit money remains a major compliance headache for the private banking industry around the world. The 1MDB saga has brought some strange twists, even drawing Hollywood film The Wolf of Wall Street into its net.

“In managing these business relationships, the bank accepted incomplete or inconsistent information from clients without examining it further or documenting it. The bank’s internal monitoring and control system in place at the time also proved insufficient: some system-generated alerts warning of heightened risks were ignored or the information provided by clients was accepted as plausible without further clarification,” the statement continued.

The Swiss Financial Market Supervisory Authority, to use the watchdog’s full name, concluded enforcement proceedings against JP Morgan (Switzerland) Ltd. 

FINMA’s ruling, which has not been appealed, is final and binding, the statement said. 

Setting out the details, FINMA said the bank failed in particular to identify the money laundering risks relating to cash flows between business accounts and personal accounts. In one case, it credited hundreds of millions of US dollars from the 1MDB sovereign wealth fund, allegedly earmarked for the purchase of a company, to the personal account of an individual with close ties to a 1MDB business partner. It subsequently transferred a tranche of this money to the account of a company associated with that individual. In doing so, the bank questioned neither the economic purpose of the transactions, the procedure involved, nor the substantial amount that remained in the personal account.

Review
FINMA said it has appointed a monitor to carry out an on-site review of the appropriateness and functioning of the bank's controls and monitor them on an ongoing basis. This review focuses primarily on the handling of high-risk transactions including, in particular, the monitoring of transactions between personal and business accounts. FINMA has also brought this case to the attention of the Office of the Comptroller of the Currency (OCC), the US regulator with overall responsibility for JP Morgan. 

The regulator added that among the total of seven cases it is following, one of them “remains open”, but it did not specify the names of the other institutions.

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