30
Oct
16

Falcon Bank sanctioned by Swiss Financial Market Supervisory Authority for 1MDB breaches

Falcon sanctioned for 1MDB breaches

Falcon Private Bank Ltd. has seriously breached money laundering regulations by failing to carry out adequate background checks into transactions and business relationships associated with Malaysian sovereign wealth fund 1MDB which were booked in Switzerland, Singapore and Hong Kong. The Swiss Financial Market Supervisory Authority FINMA has ordered the disgorgement of illegally generated profits amounting to CHF 2.5 million and banned the bank from entering into business relationships with foreign politically exposed persons for a period of three years. Furthermore, the bank would have its licence withdrawn in the event of a further breach. FINMA has launched enforcement proceedings against two of the bank’s former executives.

FINMA launched enforcement proceedings against Falcon Private Bank Ltd. (Falcon) at the beginning of 2016 based on evidence that Swiss money laundering regulations had been breached. The breaches in question relate to business relationships and transactions in the context of the alleged corruption scandal surrounding the Malaysian sovereign wealth fund 1MDB. An investigating agent appointed by FINMA analysed the transactions, internal processes and the bank’s control organisation.

Falcon breached anti-money laundering due diligence requirements

FINMA concluded its enforcement proceedings against Falcon at the beginning of October 2016. In the period under investigation between 2012 and the summer of 2015, FINMA identified serious shortcomings in Falcon’s anti-money laundering activities and in risk management. Assets amounting to approximately USD 3.8 billion were transferred to accounts at Falcon and associated with the 1MDB Group during that period. These funds were generally moved on quickly. The business relationships and transactions booked in Switzerland and at Falcon’s Singapore and Hong Kong branches were unusual and involved a high level of risk for the bank both through their nature and the amounts transacted. Although management’s attention was drawn to these matters, it repeatedly failed to properly investigate the business relationships, specifically those with politically exposed persons (PEPs), and high-risk transactions; it also failed to adequately analyse or monitor the risks involved. In doing so, Falcon was in serious breach of its duty to ensure proper business conduct.

Falcon failed to adequately check transactions and business relationships

The bank had a number of business relationships with domiciliary companies within the 1MDB Group and executed transactions amounting to approximately USD 2.5 billion via the accounts of two of these offshore companies. The bank failed to adequately check the background and risk profile of these complex transactions in sufficient depth. It did not sufficiently query or assess the plausibility of the proffered documents and information about the supposed financing of energy projects, nor did it question the commercial background of the USD 1.3 billion which was immediately transferred from one account to another (pass-through transactions).

Falcon also had a client relationship with a young Malaysian businessman with links to individuals in Malaysian government circles. The bank did not verify how this individual had been able to acquire assets of USD 135 million in an extremely short period of time or why a total of USD 1.2 billion was transferred to his accounts at a later date – a transaction which was clearly at variance with the information he had provided when opening the account. Falcon also failed to adequately investigate the commercial background to pass-through transactions amounting to USD 681 million and the repayment six months later of USD 620 million via these accounts despite conflicting evidence. In this context, an internal Falcon email states: “We started this six months ago and now we have to go through with it – somehow”.

Internal warnings were ignored

A number of bank employees expressed serious concerns to their managers about the relationship with the Malaysian businessman because of numerous suspicious factors and key questions remaining unanswered. One internal email relating to the transfer of USD 1.2 billion states: “We can’t find any reason/motivation/statement why this transaction has to pass through FPB [Falcon] and not from [Bank X] directly to the respective parties […].” Nevertheless, these internal warnings were not followed up satisfactorily.

Although the bank’s decision-makers were aware of these internal concerns, they decided to carry out the transactions. The focus was always on trying to process the transactions on time. One senior manager warned the Singapore branch carrying out the transactions: “Head Office is watching you”.

…more
Falcon sanctioned for 1MDB breaches
11 October 2016 – FINMA


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