Falcon Private Bank's dealings with Malaysian state fund 1MDB reveal the bank threw caution to the wind and using sloppy methods in its dealings. Warnings from staff were dismissed out of hand.
Falcon has violated Swiss anti-money laundering law by failing to carry out enough background checks into transactions and relationships with 1MDB, Finma said on Tuesday.
1MDB is at the center of a billion-dollar corruption probe, and stands accused of using Singapore and other offshore centers to conceal its fraud.
The consequences for Falcon are dire: it is being booted from Singapore, will have to cough up 2.5 million Swiss francs in illegally gained profits and has been banned from banking politically-exposed persons, or PEPs, from anywhere in the world for three years.
Finma also threatened to yank Falcon's license – which Singapore did – meaning the bank is effectively on probation and without any opportunities in Asia, where growth has been headiest but also full of potential pitfalls.
The Swiss regulator has also opened so-called enforcement proceedings against two former executives, who aren't named.
Inadequate Checks
Falcon maintained several relationships with companies within 1MDB, and carried out transactions totally $2.5 billion through accounts of two of the state fund's offshore companies.
The bank didn't check the background or risk profile of the transactions in sufficient depth, Finma said, nor did it question the authenticity of the documents offered to attest to financing energy projects or second-guess why $1.3 billion was being «passed through» quickly from one account to another.
Contradictory Statements
Falcon also maintained a relationship with a young Malaysian businessman with links into Malaysia's government, but did not question how he was able to amass $135 million very quickly. Nor did the bank ask itself why $1.2 billion was later transferred to the client – clearly contradicting information he had provided when opening the account.
The bank also didn't bother to check other alleged «pass-through» transactions of $681 million, or the repayment six months later of $620 million via the same accounts despite evidence to the contrary.
«We started this six months ago and now we have to go through with it – somehow,» a Falcon banker wrote in an email to a colleague.
Internal Flags Ignored
Finma said that a number of bank employees brought serious concerns about the Malaysian businessman to their bosses, as numerous suspicions arose and key questions went unanswered.
Two representatives of Falcon's owner, Abu Dhabi's sovereign wealth fund, initiated the business relationships with 1MDB and its associates.
Owners' Illicit Purposes
As a result, the Falcon bankers responsible for the relationships to 1MDB assumed they were of great importance, and went to great lengths to make sure they worked smoothly.
Neither of the two, which aren't named by Finma but can be identified as Khadem al-Qubaisi and Mohamed Badawy al-Husseiny, are on Falcon's board anymore.
«Both board members pursued their own illegitimate purposes,» Finma said.
Threat to Revoke Swiss License
Besides a host of compliance and government measures, Finma also ordered the following:
- Finma has ordered the disgorgement of 2.5 million francs in illegally generated profits
- The bank is prohibited from entering into new business relationships with foreign politically exposed persons, or PEPs. for a period of three years. Finma can lift this ban earlier once the bank has an adequate control environment in place.
- The bank has been informed that it would lose its license if there is any repetition of the offense.
- The bank must strengthen the board of directors' independence.
- Finma has launched enforcement proceedings against two of the bank's former executive office holders.
The bank has since switched in a new Chief Executive, former Credit Suisse private banking head Walter Berchtold, as well as introduced a range of improvements, Finma said.
