MAS orders shutdown of BSI Bank in Singapore over alleged anti-money laundering lapses

THE Monetary Authority of Singapore (MAS) has asked BSI Bank to shut down its merchant bank operations in Singapore over alleged breaches of anti-money laundering rules and "gross misconduct" by certain staff.

MAS has referred six members of BSI Bank's senior management and staff to the Public Prosecutor to evaluate whether they have committed criminal offences.

MAS is also imposing a S$13.3 million fine on BSI Bank for 41 alleged breaches of anti-money laundering rules.

The move by MAS comes as former BSI wealth planner Yeo Jiawei is facing charges related to probes into money movements related to Malaysian state fund 1Malaysia Development Berhad (1MDB).

This is the first time that the central bank has shut down a merchant bank since the 1984 withdrawal of approval for Jardine Fleming over lapses in its advisory work.

"BSI Bank is the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector," MAS managing director Ravi Menon said in a statement. "It is a stark reminder to all financial institutions to take their anti-money laundering responsibilities seriously. Controls need to be robust, surveillance vigilant, and the management culture must emphasise professional integrity and risk consciousness."

BSI Bank has been operating as a merchant bank in Singapore since November 2005. It is a wholly owned subsidiary of Swiss bank BSI. Switzerland-based EFG International is currently in the midst of acquiring the entire BSI group, and MAS will allow the transfer of the Singapore subsidiary's assets to the Singapore branch of EFG Bank or to BSI SA.

MAS said that it found policy and process lapses at the front office and weak enforcement by control functions at BSI Bank during inspections in 2011. Those lapses were rectified.

New inspections in 2014 uncovered "serious shortcomings" in due diligence checks on assets underlying the investment funds structured for the bank's customers, which led MAS to instruct BSI Bank management to increase scrutiny of risk management processes and internal controls. A third and more intrusive inspection in 2015 revealed multiple breaches of anti-money laundering regulations and a pervasive pattern of non-compliance, MAS said.

MAS said that specific regulatory lapses included the processing of multiple unusual transactions which were essentially pass-through trades often without economic substance. Approvals of such transactions were allegedly based purely on faith of client representations despite deficient documentation and concerns raised by the bank's compliance officers.

The six BSI Bank employees who have been referred to the Public Prosecutor are former chief executive Hanspeter Brunner, former deputy CEO Raj Sriram, head of wealth management services Kevin Michael Swampillai, former senior private banker Yak Yew Chee, former senior private banker Yvonne Seah Yew Foong and Mr Yeo.