1MDB-tainted Falcon bank taps new market in Switzerland's 'Crypto Valley'

Zurich

WALK into Falcon Private Bank on the Pelikanstrasse in central Zurich and you are immediately struck by the giant photo of a woman crouched in the sprinter's starting position, painted head-to-toe in gold.

The image - a throwback to the Bond movie Goldfinger a half-century ago - casts the Abu Dhabi-backed firm as the agile adviser that you need to get off to a flying start to riches.

It is also part of a plan to overhaul a brand tarnished by the bank's involvement in the multibillion-dollar 1Malaysia Development Berhad (1MDB) embezzlement scandal and help advertise its push into a product that most Swiss banks are still too nervous to touch: crypto finance.

"In areas that are new, the big banks cannot move as quickly as the smaller banks," said Stefan Bollhalder, Falcon's chief investment officer. Larger rivals may also think "it's not worth the risk, so they leave it to the smaller ones".

Falcon Bank and Liechtenstein's Bank Frick are among a very limited number of the 150-plus private banks in Switzerland and the neighbouring duchy that have begun offering clients a direct way to invest in the volatile asset class. While Credit Suisse Group and UBS Group have shied away from crypto, Falcon and Frick are tapping pent-up demand for banking services from Crypto Valley, as the Swiss city of Zug has dubbed itself.

"Crypto Valley is almost unbanked," Michael Helbling, head of Falcon's crypto desk, said in the roundtable interview. "We have seen tremendous interest." Two notable players that Falcon works with today in Zug are Bitcoin Suisse, run by Crypto Valley pioneer Niklas Nikolajsen, and Crypto Broker, the bank says.

Falcon is starting to move past troubled times. Its Singapore unit was closed by regulators for failing to adequately flag US$1.27 billion in suspicious deposits linked to Malaysia's 1MDB scandal. A branch manager in Singapore was jailed, and a Swiss investigation continues.

Mindful of this, Falcon said that it did its homework before entering the crypto market. So far, it is offering investment strategy and brokerage services.

"The bank has learned its lessons," said Gianmarco Timpanaro, Falcon's marketing head, "and there was a really clear prerequisite to have all the compliance and legal sign-offs before we would enter this kind of business." That meant sharing its business plan with Swiss bank regulator Finma. Falcon also employs a firm of money-laundering software specialists to vet new clients by scrutinising their blockchain for red flags. Falcon said that it has turned away some potential crypto investors, and will continue to do so.

A 90-minute drive from Falcon in downtown Zurich, authorities in Liechtenstein are working on a law to promote blockchain startups. The 160 sq km country approved its first crypto fund before Switzerland - and Liechtenstein's crown prince and regent appears to endorse crypto business and other entrepreneurial business models, said Bank Frick CEO Edi Woegerer.

Tucked into a valley between Switzerland and Austria, the bank is also seeking to move on from a troubled past: Four years ago, its former CEO Juergen Frick was shot dead by an angry investor who had tried to extort him, according to the bank. The suspect fled the scene with his body discovered months later, dead from a gunshot wound.

Mr Woegerer took over after the CEO's shock death. Determined to turn the page, he is happier talking about the bank's future - and the advantages that it gets from marketing digital currency services. "We get exposure we couldn't buy," Mr Woegerer said.

The bank looked at cryptocurrencies more than four years ago, but struggled with the technology until they flew in a 19-year-old expert from California for six months. Today, it focuses on serving intermediaries such as brokers or crypto exchanges. Wealthy clients can open an account but are not the bank's focus, Mr Woegerer said.

Bank Frick also said that it is wary of the risks posed by the anonymous nature of cryptocurrencies, and is in regular contact with Liechtenstein's regulator, the FMA, which is supportive of the crypto business. Answering their, and correspondent bank, queries is more of a challenge than keeping the bank's reputation intact, Mr Woegerer said.

While blockchain, a digital log underpinning every cryptocurrency transaction, guarantees an audit trail for each coin, the ability of bitcoin owners to stay behind the scenes has attracted cyber criminals to Crypto Valley. Last year, Finma warned the public about digital coin scams, shut down one operator and opened investigations into others. WP