J.P. Morgan's private bank was sanctioned for its involvement in a billion-dollar corruption scandal at Malaysian sovereign wealth fund 1MDB. The American bank will get an on-site monitor as a result.
Switzerland's regulator Finma said that the New York-based bank's Swiss arm has failed a money-laundering investigation linked to 1MDB. The American bank is the latest in a series of firms to be snagged by the scandal, in which U.S. prosecutors allege that government funds ended up in private coffers to fund everything from luxury real estate to diamonds to bankrolling Hollywood blockbuster «The Wolf of Wall Street».
«Given the inadequacy of the bank's controls and the serious breaches which have been identified in this case, FINMA will conduct an in-depth review of the bank's anti-money laundering systems,» the regulator said in a statement. Like Abu Dhabi-owned Falcon Private Bank, J.P. Morgan appears to have conducted its 1MDB business out of Switzerland, not Singapore, where the bulk of the scandal has played out.
Easily Placated
The bank failed to question of screen certain fund transfers from the sovereign wealth fund, and it couldn't spot blurred lines between business accounts, and personal ones. In one case, J.P. Morgan created an account worth several hundred million dollars from the fund for an individual with close ties to an 1MBD business partner.
If J.P. Morgan managed to identify clients as politically sensitive, requiring cautious handling, it didn't fully manage the higher risks from the relationships, was satisfied with incomplete or inconsistent client information, and even ignored automatically-generated alerts. The bank said it had increased training, added staff and made improvements in monitoring and surveillance in Switzerland since the infractions occurred.
On-Site Monitor
The U.S. bank will undergo an in-depth regulatory review including an on-site monitor, the Bern-based supervisor said. The bank escapes any enforcement sanctions against individuals, financial penalty, or business restriction beyond the outside monitor, said Finma, which lauded J.P. Morgan's good cooperation during the year-long investigation.
The last time regulators installed an outside monitor at a Swiss bank was when Credit Suisse agreed to pay $2.5 billion to settle a long-running U.S. tax evasion probe. Ex-prosecutor Neil Barofsky was appointed the Swiss bank's monitor, a job that was renewed after Credit Suisse last year paid $5.3 billion for mis-selling mortgage securities.
The U.S. investment bank is the seventh firm to be investigated by newly-confident Finma, after Banca della Svizzera, Falcon Private Bank, UBS, and others. Finma has also started investigating seven, unnamed bankers in connection with 1MDB.
