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1MDB: MAS names non-compliant banks

Chris Hamblin, Editor, London, 21 July 2016

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Supervisory visits and data analysis by the Monetary Authority of Singapore, which began in March 2015, have found lapses and weaknesses in anti-money-laundering controls at several Singapore financial institutions that have become embroiled in the 1MDB saga. The institutions, which the MAS plans to punish, include banks, capital market intermediaries and a remittance agent.

The regulator conducted on-site inspections and analysed information from foreign regulators. It uncovered an extensive 'layering' exercise in which money was pushed through blizzards of transactions (layering being the middle stage of money-laundering, after placement but before integration) and also 'subterfuge,' a word that presumably describes document fraud, which is a staple of money-laundering exercises at banks. In some instances, it spotted shell or unauthorised companies domiciled in various jurisdictions being used to conceal the true beneficiaries of the funds.

The financial institutions that managed 1MDB-related flows in a non-compliant way, according to the MAS, are as follows.

BSI Bank Ltd Singapore. The MAS completed its 'examination' (a word that American regulators use exclusively to describe a visit, but which the MAS uses to refer to an inquiry into a firm) of BSI Bank in May 2016. The regulator decided to withdraw BSI's status as a merchant bank in view of its serious breaches of AML rules, poor management oversight and gross misconduct by some of the bank’s staff.

DBS Bank Ltd, Standard Chartered Bank (Singapore Branch) and UBS AG (Singapore Branch). Having completed its inspections, the MAS is "finalising its assessments."

The preliminary findings are that there were instances of control failings in all three banks and, in some cases, weaknesses in the processes for accepting clients and monitoring transactions. There was also undue delay in detecting and reporting suspicious transactions.

The deficiencies observed in DBS, SCB and UBS related to lapses in specific processes and by various officers. The lapses were serious in their own right and the MAS is assuring the public that it will take "firm regulatory action" against the banks. However, the inspections did not reveal pervasive control weaknesses or misconduct on the part of staff at these banks.

Falcon Private Bank Ltd (Singapore Branch). The MAS completed its onsite inspection of this bank in April and found substantial breaches of AML regulations, including a failure to assess irregularities in activities pertaining to customers’ accounts and to send off suspicious transaction reports to the financial intelligence unit. The regulator is still collecting data about FPB Bank's behaviour as the oversight and management of certain key client relationships happened at the bank’s head office in Switzerland.

Raffles Money Change. The MAS has finished examining this licensed money changer and remittance agent. It has uncovered weak management oversight and inadequate risk management practices and internal controls. It blames the institution for failing to identify beneficial owners, verify the authenticity of remittance instructions and weigh up the remittance activities of one of its customers against his profile. Formal regulatory censure is on the way.

The regulator has sent out a strong signal that it intends to be stern with financial firms in this case, perhaps in an attempt to underline Singapore's worthiness to be the main wealth management venue for Asia.

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