Coutts International is deeply entrenched in the scandal over alleged corruption at Malaysian 1MDB. Part of its assets were acquired by Union Bancaire Privee in 2015.
Swiss Finma opened an enforcement probe against Coutts & Co in Zurich roughly one year ago, in connection with the 1MDB graft scandal. The regulator has concluded the probe, it said on Thursday, two months after Singapore's regulator MAS completed a similar one.
The findings of the investigation are a shattering indictment of Swiss banking: after BSI and Falcon Private Bank, Coutts is the third bank which massively violated money-laundering regulations.
6.5 Million Francs Clawback
The common denominator among two of the three banks is Hanspeter Brunner, formerly a top private banker in Asia who has been ensnared by 1MDB. In 2009, the Swiss private banker moved from Coutts to BSI, taking over 70 of his staff with him to the rival bank.
Coutts was responsible for the accounts with 1MDB; 2.4 billion francs of funds linked to the scandal-engulfed fund flowed through several accounts at the bank.
The accounts were opened by a young Malaysian businessman, Finma said, without identifying whom. The regulator is allegedly referring to Jho Low, an affluent Malaysian businessman with links to Malaysian leader Najib Razak.
Zurich Accounts
In a U.S. investigation as well as from trials of bankers in Singapore, Low is emerging as the financial linchpin of the global money trail to siphon billions from Malaysia. He is now AWOL, but his family has moved to shield assets from being seized by prosecutors.
Since Coutts has vanished into UBP after the 2015 takeover, Finma said it will dispense with punishing the now-defunct private bank. But the regulator will claw back 6.5 million Swiss francs in profits, as well as open an enforcement proceeding against unnamed former Coutts bankers.
Geneva-based UBP, which acquired some of Coutt's clients and assets in 2015, said it is not on the hook financially: it sifted out 1MDB-linked accounts before the acquisition, and didn't buy the Coutts entity itself.
«As a result, UBP has not inherited any of Coutts’ legal liabilities,» the private bank said in a statement.
RBS to Cough Up 6.5 Million
Finma told finews.asia that Coutts, which continues to exist as a shell in Zurich in order to continue phasing out the firm, will have to pony up the ill-gained profits. This effectively means that the fine falls upon the Royal Bank of Scotland (RBS), Coutts' former parent.
The regulator also said that Coutts built up a relationship in Singapore with people later linked to 1MDB as early as 2003. This gives Coutts the dubious honor of being the first private bank to get a foot in the door with 1MDB.
Coutts' modus operandi is a blueprint of that found by regulators at BSI and Falcon: the private bank's management chose to ignore and override alarm bells from compliance officers and maintain the lucrative 1MDB-linked accounts.
$600 Million «Confused»
The warning signs could hardly have been more obvious: instead of an originally flagged $10 million from the client's family, Coutts' first 1MDB-linked account accepted a staggering $700 million.
The explanations for the huge fund transfer were implausible to Coutts' employees, according to an email: «It would be the first time in my career that I would see a case where [in] an agreement over the amount of USD 600 Mio. or so the role of the parties has been confused.»
Coutts' legal department said this smacked of «total fabrication», but the bank nevertheless chose to proceed with the client. The bank processed $1.7 billion in transactions through this account alone through the spring of 2013.
Casinos, Yachts, Private Jets
For example, $500,000 was transferred to a domiciliary company belonging to Low. Coutts also processed a whopping $35 million spent at casinos and to charter yachts and private plane travel, taking no action to clarify the spending.
The private bank deepened its relationship with the purported 1MDB mastermind in 2012: $380 million was transferred from an offshore entity into a new account, which Coutts subsequently shifted in pass-through transactions to other domiciliary companies belonging to the Malaysian financier.
Swiss banker Alexander Classen took the helm at Coutts International from Gerhard Mueller in 2011. Classen now runs a family office, while Mueller is on the board of EFG International's Liechtenstein subsidiary.
Private Bankers Raise Alarm
Inside Coutts, various employees raised alarms about the increasingly suspicious client behavior. One private banker wrote in an email: «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.»
The warnings went largely unheeded. An internal meeting in 2012 concluded that «[X] is a key client who we are comfortable with the Source of Funds, Source of Income and activity performed on these accounts».
The pattern continued until 2014. RBS sold Coutts' international arm to UBP in the following year. Finma said it has informed the British Financial Conduct Authority of the enforcement proceedings.
