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Swiss banks haunted by growth in Asia as regulators probe funds

Wednesday, October 12, 2016 - 09:42
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Arrests and enforcement actions against BSI SA and Falcon Private Bank AG for their involvement in the US$3.5 billion fraud and corruption scandal enveloping Malaysian state investment company 1Malaysia Development Bhd are roiling the taciturn bankers of Zurich and Geneva who had relied on growth in Asia to offset a slowdown after the financial crisis.

[GENEVA] Swiss private banks, who rushed to tap emerging markets for new business to help offset slow growth and a tax-evasion crackdown in the US and Europe, are having to work harder to confirm how clients made their fortunes and the origin of funds paid into the bank.

Arrests and enforcement actions against BSI SA and Falcon Private Bank AG for their involvement in the US$3.5 billion fraud and corruption scandal enveloping Malaysian state investment company 1Malaysia Development Bhd are roiling the taciturn bankers of Zurich and Geneva who had relied on growth in Asia to offset a slowdown after the financial crisis.

"There is no longer a banking model which can be built through the acquisition of non-compliant clients," Yves Mirabaud, president of the Geneva Financial Center industry association and senior managing partner of Mirabaud SCA, said on Tuesday.

"We will never be the CIA, we will never be the police department, but we have absolutely no interest to go after non-compliant clients." He declined to comment on specific banks.

Prosecutors in Singapore, Switzerland and the US and other jurisdictions are looking into alleged corruption and money laundering in which more than US$3.5 billion was allegedly diverted from 1MDB. The Swiss financial regulator known as Finma said enforcement proceedings are underway against UBS Group AG, one of six banks targeted, while the country's top prosecutor is also considering whether to open a criminal case against Falcon.

The 1MDB investigations shows cooperation between regulators has increased in recent years, especially around anti-money laundering rules, according to Patrick Emmenegger, a professor at the University of St Gallen in Switzerland.

"How many other opaque banks are involved in the type of business they can no longer defend? Given the level of cooperation and international exchange of information between regulators they will get caught in the net sooner or later," he said.

The Monetary Authority of Singapore fined Falcon S$4.3 million, UBS S$1.3 million and DBS Group Holdings Ltd S$1 million for anti-money laundering lapses related to 1MDB this week. Regulators there ordered Falcon Private Bank to cease local operations on Tuesday having stripped BSI SA of its license earlier this year.

In response to the Singaporean sanctions, UBS and DBS said in separate statements they will strengthen controls and take actions against employees responsible for the lapses. 1MDB has consistently denied wrongdoing and Malaysia's government has said it will cooperate with lawful investigations of local companies or its citizens in relation to the fund.

Back home, Swiss private bankers, who for centuries relied on secrecy as their prime selling point, are discovering that their days of mystery are at an end and clients in the private banking capital of Geneva who don't want to declare their assets are moving them out.

"I'm pretty sure it's mainly already done," Mr Mirabaud said.

BLOOMBERG