Switzerland Launches Money-Laundering Probe of Bank Linked to Malaysia’s 1MDB

Haireez Azeem Azizi
Kuala Lumpur
160524-my-money-bsi-1000.jpg Swiss financial regulators approved the takeover of BSI Bank over its links to a corruption scandal engulfing Malaysia's Prime Minister Najib Razak.

The office of Switzerland’s attorney general said Tuesday it had opened criminal proceedings into potential money laundering by BSI AG, a Swiss bank linked to Malaysian state fund 1MDB, and Swiss financial regulators announced a takeover of the bank.

And while Swiss regulators said they had confiscated CHF 95 million (U.S. $95.7 million) worth of profits from BSI, the Monetary Authority of Singapore (MAS) said it planned to shut down BSI’s Singaporean branch.

1Malaysia Development Berhad has been at the center of a corruption scandal shadowing Malaysian Prime Minister Najib Razak, who chaired 1MDB’s advisory board until its dissolution earlier this month.

“Through business relationships and transactions linked to the corruption scandals surrounding the Malaysian sovereign wealth fund1MDB, BSI AG committed serious breaches of money laundering regulations and ‘fit and proper’ requirements,” the Swiss Financial Market Supervising Authority (FINMA) said in a statement Tuesday.

“[I]n the case of 1MDB, the bank executed numerous large transactions with unclear purpose over a period of several years and, despite clearly suspicious indications, did not clarify the background to these transactions,” FINMA added.

In Singapore, the MAS issued a statement saying it intended to strip BSI’s local branch of its license as a merchant bank in the city-state because of “serious breaches of anti-money laundering requirements, poor management oversight of the bank’s operations, and gross misconduct by some of the bank’s staff.”

“BSI Bank is the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector. It is a stark reminder to all financial institutions to take their anti-money laundering responsibilities seriously,” MAS Managing Director Ravi Menon said.

Along with saying that it planned to close the local BSI branch, MAS referred six bank officials, including a former chief executive officer and former deputy CEO to the Singapore prosecutor’s office to determine if they should face criminal charges.

The statement from the Singaporean authority, however, did not mention 1MDB.

1MDB: ‘Committed to fully cooperating’

The statement from the Swiss AG’s office said it had suspected that deficiencies in BSI’s internal organization were linked to allegations of the misappropriation of billions of dollars from 1MDB, which it has been investigating.

According to FINMA, the Lugano-based bank executed many large suspicious transactions over several years.

In the context of 1MDB, BSI failed to monitor a client group that maintained about 100 accounts in the bank, FINMA said. In one case, bank officials accepted a client’s explanation that funds for a deposit of U.S. $20 million were from a gift.

In another case, U.S. $20 million was “routed through a variety of accounts within the bank on the same day before eventually being transferred to another bank. Transactions of this kind are often a clear indication of money laundering.”

FINMA described the confiscated CHF $95 million as profits that were generated illegally, saying the money would revert to the Swiss government.

In Kuala Lumpur, 1MDB posted a three-paragraph statement on its website responding to the actions by the Singaporean and Swiss authorities.

“1MDB states that it has not been contacted by any foreign lawful authority on matters relating to the company. 1MDB remains committed to fully cooperating with any foreign lawful authority, subject to advice from the relevant domestic lawful authorities, and in accordance with international protocols governing such matters,” 1MDB said.

It went on to say that its investments were not affected by Tuesday’s announcements in Switzerland and Singapore.

Ongoing investigations

The announcements abroad further widen international criminal investigations linked with the deeply indebted Malaysian state fund.

In February, Swiss authorities said a criminal investigation into 1MDB had revealed that about $4 billion appeared to have been misappropriated from Malaysian state companies. That same month, Singapore’s central bank announced that it had seized many bank accounts over possible money-laundering and other offenses linked to 1MDB.

1MDB also faces investigations in the United States, United Arab Emirates, Luxembourg, Great Britain and Hong Kong, as well as other investigations in Switzerland and Singapore.

In April, the Malaysian Parliamentary Accounts Committee issued a 106-page report that recommended criminal investigations into 1MDB senior management, but without mentioning Prime Minister Najib Razak by name.

The committee called for probes into unapproved payments by the fund totaling close to U.S. $3 billion, among other discrepancies, which is being investigated by a special task-force headed by Police Inspector- General Khalid Abu Bakar.

1MDB and Najib have been the targets of investigations after the Wall Street Journal (WSJ) reported in July 2015 that nearly $700 million ended up in his private accounts. Since then, the newspaper reported that millions of dollars of money linked to 1MDB had been spent by Najib to fund a lavish lifestyle.

Malaysia’s attorney general has cleared Najib of any wrongdoing.

More recently, Najib and the rest of the advisory board said they would resign in light of the ongoing investigations. Najib told members of parliament that the advisory board has no administrative function and makes no transactions, according to media reports on Tuesday.


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