GENEVA – A Swiss private bank accused of turning a blind eye to shady money transfers and wilful defiance of regulators will face criminal proceedings and be liquidated for its alleged role in the suspected embezzlement of $4 billion from a Malaysian state fund.
In a two-pronged crackdown, authorities in Singapore on Tuesday ordered the closure of the local branch of BSI, which is based in Lugano, Switzerland, citing serious breaches of anti-money laundering requirements, poor management oversight and gross misconduct by some staff.
And the Swiss attorney-general’s office said it had begun criminal proceedings against the bank, pointing to signs that money laundering and bribery of foreign officials in the case of the 1MDB investment fund “could have been prevented had BSI SA been adequately organized.”
The Swiss financial markets supervisor, FINMA, detailed how the bank shunted tens of millions of dollars’ through its system for years with little or no explanation or proper oversight. BSI, “despite clearly suspicious indications, did not clarify the background to these transactions,” it said.
The revelations, culminating a probe by FINMA begun three years ago, come three months after BSI’s owner, Brazil’s BTG Pactual, announced plans to sell the bank to Switzerland’s EFG International for 1.5 billion-1.6 billion Swiss francs ($1.5 billion-$1.6 billion). The two sides were aware then that regulators were looking into the case, people familiar with the case told The Associated Press.
The Swiss regulator said Tuesday it would approve the deal on condition that BSI be integrated into EFG and dissolved within a year.
The move comes after Switzerland’s attorney general opened an investigation last year of two former 1MDB officials and persons unknown on suspicion of bribery and money laundering, among other offences. Investigations so far into 1MDB have indicated that $4 billion earmarked for development projects in Malaysia may have been misappropriated from state-owned companies.
Malaysian Prime Minister Najib Razak was behind the creation of 1MDB in 2009 and has been fighting allegations that cash from the fund flowed into his personal accounts. No public officials in Malaysia have yet been charged with wrongdoing, and the Malaysian government had no comment about the case on Tuesday.
The Swiss market regulator said BSI had business relationships with a range of sovereign wealth funds, with accounts in Switzerland and Singapore. It said senior management “did not question why the sovereign wealth funds should use a private bank to provide institutional services and pay excessive out-of-market fees for doing so.”
“In one case involving a deposit of $20 million for example, the bank was happy to accept the client’s explanation that the funds involved were a ‘gift’,” FINMA said. “In another case, an account was credited with more than $98 million without any effort to clarify its commercial background.”
In yet another case, it said, $20 million was transferred through a variety of BSI accounts on the same day before being transferred to another bank — the kind of transaction that is “often a clear indication of money laundering.”
FINMA said exceptions to the bank’s internal rules were made for important clients, and that management was informed but took no action to monitor those exceptions. The regulator said six other, unspecified Swiss banks are also being investigating in connection with the 1MBD case, and two former top managers of BSI are being investigated to determine what they knew.
The regulator also ordered the confiscation of 95 million francs in “illegally generated profits” from BSI. FINMA spokesman Vinzenz Mathys said that was the second-largest confiscation ever by the regulator after one in connection with a foreign-exchange trading case at UBS in 2014 and 2015.
The Monetary Authority of Singapore said it had referred to prosecutors the names of six senior BSI Bank managers and staff to determine whether they committed criminal offences.
In February, Singapore said it had seized a large number of bank accounts and was working closely with Malaysia, the United States and Switzerland in the 1MDB probe.
BSI said it had “co-operated fully” with FINMA and Singapore’s MAS on investigations into 1MDB arising from activities between 2011 and 2015. Regarding the Swiss attorney general’s announcement, the bank said that “BSI will co-operate to ensure a quick and fair resolution.”
CEO Stefano Coduri’s offer to resign was accepted by the board of directors, which thanked him “for his sense of responsibility,” the bank’s statement said. Roberto Isolani, currently a BSI board member, was appointed to replace him.
Geir Moulson reported from Berlin. Associated Press writer Annabelle Liang in Singapore contributed to this report.