Swiss private bank BSI ordered to shut by Singapore over investigation into Malaysia state fund

Swiss authorities begin criminal proceedings against BSI

Singapore's business district (Reuters)

Singapore ordered BSI SA’s unit in the city-state to shut down as Swiss authorities began criminal proceedings against the bank, the biggest fallout suffered by a financial institution to date from global probes related to a troubled Malaysian state fund.

The Monetary Authority of Singapore served BSI Bank a notice of intention to withdraw its status as a merchant bank for breaches of money laundering rules, the first time in 32 years it’s withdrawing a license from a merchant bank.

The Swiss Attorney General said in a statement its decision was based on information from criminal proceedings on the case involving 1Malaysia Development Bhd (1MDB).

“BSI Bank is the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector,“ said Ravi Menon, managing director of the central bank.

“It is a stark reminder to all financial institutions to take their anti-money laundering responsibilities seriously.”

The actions are a major step in the global money laundering and embezzlement investigations surrounding 1MDB, probes that stretch from Singapore to Switzerland.

A Malaysian parliamentary committee has identified at least $4.2bn (£2.9bn) of irregular transactions by the state fund, and recommended the advisory board headed by the country’s Prime Minister Najib Razak be disbanded.

Both 1MDB and Najib have consistently denied wrongdoing.

CEO Resigns

BSI’s Group CEO Stefano Coduri has resigned with immediate effect, said the bank on Tuesday, adding that it has cooperated fully with the investigations into 1MDB by the Singapore and Swiss authorities.

BSI remains well capitalised, it said.

EFG International AG, which said it received approval from the Swiss Financial Market Supervisory Authority for its plan to take over BSI, said it still expects the transaction to be completed in the fourth quarter at the latest. The regulatory actions will result in a reduction in the purchase price, it said.

Singapore’s central bank said it will allow the transfer of the BSI Singapore unit’s assets and liabilities to the Singapore branch of EFG or to the parent entity, BSI SA.

The MAS will also impose $13.3m in financial penalties on the BSI unit for 41 breaches, including its failure to conduct due diligence on high-risk accounts and monitor for suspicious customer transactions.

The Swiss regulator says it will seize BSI’s profits to the tune of 95m Swiss francs (£66m) and start enforcement procedures against two former bank employees.

The central bank has also referred six senior BSI executives to the public prosecutor, including the Swiss private bank’s former Singapore chief executive officer and his deputy. The prosecutor will assess if there were any criminal offenses.

© 2016 Bloomberg