Switzerland’s BSI Bank has been fined and ordered to close in Singapore for serious breaches of anti-money laundering requirements, poor management oversight of operations and gross misconduct by some of its staff.

Stefano Coduri has stepped down as group CEO, and Roberto Isolani, a member of the board, is replacing him. The bank said it had been improving its risk and compliance culture by implementing a number of measures, including introducing a new chief risk officer and a new group legal counsel.

The Monetary Authority of Singapore (MAS) has ordered BSI to withdraw its status as a merchant bank and referred to the Public Prosecutor the names of six of its current and former employees to evaluate whether they have committed criminal offences.

The individuals in question are: Hanspeter Brunner, former Asia CEO; Raj Sriram, former deputy Asia CEO; Kevin Michael Swampillai, Asia head of wealth management services; Yak Yew Chee, former senior private banker; Yeo Jiawei, former wealth planner; and Yvonne Seah Yew Foong, former senior private banker.

Swampillai is currently suspended by the bank, while Yeo is in remand and has been charged by the Public Prosecutor for various offences.

MAS is also to impose financial penalties on BSI amounting to S$13.3 million ($9.6 million) for 41 breaches of MAS rules on money laundering and financing of terrorism. The breaches include failure to perform enhanced customer due diligence on high-risk accounts and to monitor for suspicious customer transactions on an ongoing basis.

The regulator made no mention in its statement of BSI's links to Malaysian state fund 1MDB, a client of the Swiss bank that is itself at the centre of a corruption scandal. Global investigations are ongoing into 1MDB and financial firms related to it.

The MAS sanctions on BSI come after the private bank has changed hands twice in the past year, first being sold to Brazilian group BTG Pactual in a deal that completed in September year. BTG was then forced to sell it amid allegations related to a corruption scandal in Brazil. Swiss private bank EFG is in the process of buying BSI.

Following the MAS announcement, BSI put out a statement of its own saying that Coduri had been replaced by Isolani.

The bank added that it had taken note of comments by MAS and Swiss regulator Finma in relation to "past compliance gaps related to the 1MDB case" and had co-operated fully with both Finma and MAS "with regard to the investigations into 1MDB, arising from activities occurring between 2011 and April 2015". 

The bank also said it had been improving its risk and compliance culture by implementing a number of measures, including introducing a new chief risk officer and a new group legal counsel.

Several senior BSI executives had already stepped down from their posts in recent months, including Brunner in March and his subsequent replacement Sriram last month.

BSI Bank has been operating as a merchant bank in Singapore since November 2005, where it offers private banking services.

This is the first time that MAS is withdrawing its approval for a merchant bank since 1984, when Jardine Fleming (Singapore) was shut down for serious lapses in its advisory work.

MAS said it was working closely with the Swiss Financial Market Supervisory Authority, the home regulator of BSI SA, to oversee an orderly closure of BSI in Singapore.

In the interest of the bank’s customers, MAS said it would allow the transfer of the Singapore subsidiary’s assets and liabilities to the Singapore branch of EFG or to the parent entity in Switzerland, BSI SA.

Past lapses
In 2011, MAS had inspected BSI Bank and found policy and process lapses at the front office and weak enforcement by control functions. The lapses were rectified. In 2014, MAS inspected the bank again and uncovered serious shortcomings in its due diligence checks on assets underlying the investment funds structured for customers.

Given repeated findings of weaknesses in its control regime, MAS instructed BSI’s management to increase scrutiny of its risk management processes and internal controls. A more intrusive third inspection by MAS in 2015 revealed multiple breaches of anti-money laundering regulations and a pervasive pattern of non-compliance.

MAS’s decision to withdraw BSI’s status as a merchant bank takes into account the repetitive lapses, as well as the 2015 inspection findings, which revealed:

  • widespread control failures which led to numerous serious breaches of various anti-money laundering regulations;
  • poor and ineffective oversight by the senior management of BSI Bank;
  • unacceptable risk culture, with blatant disregard for compliance and control requirements as well as MAS’ regulations; and
  • numerous acts of gross misconduct by certain staff.

MAS said specific regulatory lapses included the processing of multiple unusual transactions, which were essentially pass-through trades often without economic substance. Approvals of such transactions were based purely on faith of client representations despite deficient documentation and concerns raised by the bank’s compliance officers, noted the regulator.

MAS added that it had found considerable evidence of gross dereliction of duty and failure to discharge oversight responsibilities on the part of BSI’s senior management. Their ineffective governance led to a poor risk culture, which prioritised questionable customer demands ahead of compliance with anti-money laundering regulations and the bank’s own internal controls, said the watchdog.

It added that several of the bank staff had also committed wilful acts of misconduct, such as: making material misrepresentations to auditors; abetting improper valuations of assets; and taking instructions from persons other than customers’ authorised representatives on matters relating to customers’ accounts.