The Swiss-based private bank reformed its compliance measures after past scandals and aimed to become the most admired wealth manager. But now Julius Baer's name is coming up concerning tax crimes, money laundering, and alleged fraud. What's going on?
Millionaires must get a cold shiver when reading headlines like «How a couple lost a fortune in an alleged Swiss banking fraud» in an extensive «Financial Times» (behind paywall) report. It chronicles how a couple of Russian origin was said to have been relieved of 22 million francs ($24.4 million) by their banker and advisor.
The report reveals the risks in the opaque world of Swiss asset managers, with one bank featuring prominently: Long-established Julius Baer, for which the alleged fraudster once worked and which held the couple's funds.
Request for Finma Investigation
The couple filed a claim for damages against the institution and asked the Swiss Financial Market Supervisory Authority (Finma) to investigate the bank for compliance failings. The former clients accuse Julius Baer of standing by and watching the advisor's goings-on for years.
This is «publicity» Julius Baer is probably happy to do without. It has the ambition to more than double its assets under management to a trillion Swiss francs by 2030, with Millionaire clients presumably contributing the lion's share. More unpleasant is that the name of the self-proclaimed «pure play» private bank has been publicly mentioned several times in recent weeks concerning tax fraud, money laundering, and embezzlement.
Hundreds of Millions Concealed
Last week, former Formula One executive Bernie Ecclestone admitted to hiding funds worth 400 million pounds ($487 million) from the British tax authorities, which Julius Baer held in Singapore. Last month, it was reported that police blocked $92 million at the private bank due to a massive money laundering scandal currently rocking Singapore.
In the same month, data analysis from a hack revealed Julius Baer was among the banks holding funds belonging to a former Russian minister of information. According to an internationally recognized court, the latter allegedly enriched himself with state assets after the turn of the millennium.
Supervision Must React to Relevant Evidence
A Julius Baer spokeswoman told finews.com that the bank couldn't comment in detail on actual and alleged events or general allegations for known reasons. The company adheres to the applicable regulations in its business activities and continuously adapts its extensive controls and processes for compliance with these regulations to developments.
«In the event of relevant issues, Julius Baer cooperates with the competent authorities to ensure an efficient resolution in the interest of all parties involved.»
Finma said it doesn't comment on details of its supervisory activities or individual media reports. It said about its general approach, «If Finma has indications of facts that could be relevant for supervisory purposes, it investigates them.»
All Coincidence?
It may be partly coincidence that all these entanglements are coming to light. They differ, and their origins sometimes go back to the noughties, but one can speak of previous cases as more are piling up.
They're also different from a legal perspective. The couple's claims are in civil law, while the money laundering scandal in Singapore is a case for regulators. Nevertheless, the incidents look bad for a bank that's given itself a clean-cut image after being implicated in an international money laundering scandal and sanctioned by Finma.
Detecting Abuse More Quickly
Julius Baer reformed its internal risk controls in a multi-year project dubbed «Atlas.» In 2020, Baer CEO Philipp Rickenbacher touted a culture change and the goal of becoming the most admired global wealth manager.
In a recent «Reuters» TV interview, Rickenbacher said the current risk organization is the proper foundation to support and sustain growth at the highest level. Still, he cautioned that banking is a «risk business» that individuals always try to abuse.
What's fundamentally changing is the speed with which the bank is uncovering abuse and the ability to take quick remedial action. That evolution isn't over yet. «We continue to invest on the anti-money laundering side in understanding our clients (behavior) based elements, and it's going to keep us busy in the years to come, but it's very, very important for us as a basis for future growth,» he said.
Verdict Early This Year
The Financial Times reporting contrasts with such assurances, and the «Aargauer Zeitung» (in German, behind paywall) reported on the alleged fraud in March. At that time, the banker-advisor of the couple had been sentenced to 18 months imprisonment by the Zurich Commercial Court and for restitution of 13 million francs. The verdict is under appeal and on hold until ruled upon.
Julius Baer isn't part of the proceedings, and custodian banks in Switzerland aren't obliged to monitor the actions of independent asset managers. It's often the case that clients grant extensive powers of attorney to their advisors, but that doesn't protect the bank from being pilloried in the media for alleged compliance shortcomings.
In the tax fraud proceedings against Ecclestone, the «Bears» are not involved. Depending on jurisdiction and regulation, banks can assume that customers' tax honesty cannot be conclusively verified. Still, caution should prevail if known or exposed persons and large sums of money are involved.
Unpredictable Russian Banking
In the Singapore money laundering scandal, significant assets have been frozen at various local institutions and Credit Suisse. Whether and how local authorities will hold the financial institutions accountable is uncertain. Still, the corruption scandal involving the Malaysian sovereign wealth fund 1MDB showed the city-state is quite capable of cracking down on financial institutions.
Revelations about former Russian money at the private bank are even more unpredictable. Although the data may have come from a criminal hack and date back to events before the Ukraine war, reputational risks are rising for the Swiss banking industry because of its unclear line on Russian banking. Considerable pressure from the US is already being felt and can increase anytime.
Regarding Russia, Julius Baer says the group quickly adapted its business policy to the events, including closing the local office, stopping new business, and terminating relationships with clients domiciled in Russia."
An Old Lesson
As the «Financial Times» reporting also suggests, it's not enough for the reputation of the Swiss banking industry that its institutions claim to comply with applicable rules. The industry should have learned this lesson since the beginning of the «white money era» and the de facto end of bank-client confidentiality.
All the more reason to be concerned when allegations against individual banks accumulate again. It could indicate a systemic problem is emerging for the profession.
