FINMA took the following actions against BSI AG for significant AML program failures:
- Levied a 95 million CHF disgorgement
- Ordered the firm taken over by EFG
- Ordered the firm liquidated within 12 months
Additionally, 2 former managers are now the subject of separate enforcement actions.
What did BSI do? Among other things, they ignored the warning signs that are now manifested in the corruption scandals swirling around the sovereign wealth fund 1MDB:
In its proceedings against BSI, FINMA found serious shortcomings in the bank’s anti-money laundering processes resulting from inadequate risk management and the failure of the internal control system. FINMA’s findings are as follows:
- In the period from 2011 to April 2015, there were serious shortcomings in identifying transactions involving increased risk. These failures related in particular to business relationships with politically exposed persons (PEPs), the origin of whose assets was not sufficiently clarified, and whose dubious transactions involving hundreds of millions of US dollars were not satisfactorily scrutinised.
- The bank repeatedly, systematically and for an extended period breached its obligation to establish the necessary documentation for transactions with increased risks.
- In the context of 1MDB, the bank had business relationships with a range of sovereign wealth funds whose accounts were booked in both Singapore and Switzerland. The fact that this was BSI’s largest and most profitable client group was reflected in the remuneration paid to the bank employees involved.
- The fees charged were above average and out of line with normal market rates. Senior management at the bank did not question why the sovereign wealth funds should use a private bank to provide institutional services and pay excessive out-of-market fees for doing so.
- In the context of the 1MDB case, the bank failed to adequately monitor relationships with a client group with around 100 accounts at the bank. Transactions were executed within the client group and with third parties without the bank adequately clarifying their commercial justification.
- In one case involving a deposit of 20 million US dollars, for example, the bank was happy to accept the client’s explanation that the funds involved were a “gift”. In another case, an account was credited with more than 98 million US dollars without any effort to clarify its commercial background.
- The bank executed transactions involving similar amounts even though in some cases the explanations and contractual documents obtained contradicted the purpose of the account as stated when it was opened.
- Transactions were often generically justified on the basis of loan agreements, although the agreements provided no sufficient explanation of the real background to the transaction in question.
- Finally, in many cases there were clear indications of pass-through transactions. In one case, 20 million US dollars were 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. Nevertheless, the bank failed to properly document or carry out plausibility checks on these transactions or was happy to accept the explanation that the beneficial owner of all the accounts was the same person or that the transactions were being executed for “accounting purposes”.
- The bank executed substantial transactions for the foreign sovereign wealth funds, in some cases involving hundreds of millions of US dollars, without adequately clarifying the background to them.
- The sovereign wealth funds’ assets were typically invested through specially created intermediate structures. BSI supported the development of these structures with the aim of achieving a higher level of confidentiality for the investment activities. Ultimately, however, BSI was therefore unable to determine how these assets were invested.
- This was recognised by some within the bank and flagged up as an issue. In 2012, one employee of the bank sent the following communication to management: “My team is implementing these transactions without really knowing what we are doing and why and I am uncomfortable with this. […] there should be a stronger governance process around all this.” However, no further action was taken by the bank in this regard.
- The client advisor responsible for these relationships was repeatedly notably uncooperative in terms of compliance, particularly in dealing with the inadequate clarification of transactions. Management was aware of the situation but gave their support to the client advisor instead of the Compliance department. Consequently, no corrective action was taken and bonuses, for example, were unaffected. In fact, the opposite was the case. The client advisor in question was one of the bank’s top earners.
- Exceptions to the bank’s internal rules were made for important clients and justified as special client service. Management was informed, but took no action to monitor these exceptions.
- Overall, the management of the BSI Group during this period did not adequately supervise its subsidiary in Singapore, even though they had close and frequent contact and the Group’s executive management was represented on the subsidiary’s Board of Directors.
Summary: FINMA has therefore come to the following conclusions: The deficiencies identified constitute serious breaches of the statutory due diligence requirements in relation to money laundering and serious violations of the principles of adequate risk management and appropriate organisation. BSI was therefore in serious breach of the requirements for proper business conduct. Right up to top management level there was a lack of critical attitude needed to identify, limit and oversee the substantial legal and reputational risks inherent in the relationships.