The cessation order is the second such move by the Singapore regulator after it ordered BSI Bank to be shut down in May for similar reasons.
The regulator also imposed fines against DBS Bank and UBS AG Singapore for AML breaches.
The sanctions against the three banks follow investigation by MAS into 1MDB-related fund flows that took place through these banks from March 2013 to May 2015.
Falcon Private Bank
Headquartered in Switzerland, Falcon has operated as a merchant bank in Singapore since August 2008, offering boutique private banking services.
A 2013 inspection found weaknesses in the bank’s controls for client acceptance and transaction surveillance that led to breaches of MAS’ AML requirements.
Falcon Bank paid a fine of S$0.3m (£176,051, $218,309) for these breaches, and MAS instructed the merchant bank to strengthen its AML controls.
However, a 2015 inspection uncovered an even larger number of regulatory breaches as well as serious failings on the part of head office senior management and the Singapore branch manager.
Loss of status
MAS decided to withdraw Falcon Bank’s status as a merchant bank in Singapore and impose a fine of S$4.3m for 14 breaches of AML and countering the financing of terrorism (CFT), taking into account the following factors:
- The bank’s head office failed to guard against conflicts of interest when managing the account of a customer who was associated with the bank’s former board chairman Mohamed Ahmed Badawy Al-Husseiny. The former chairman misled and influenced the Singapore branch into processing the customer’s unusually large transactions despite multiple red flags.
- The improper conduct of the Singapore branch manager and certain senior managers at the head office impaired the effectiveness of the Singapore branch’s compliance function in discharging its responsibilities. Their interference was wrongful and egregious in nature, and contributed to substantial breaches of AML regulations. MAS has been informed that the Singapore branch manager, Jens Sturzenegger, has been arrested by the Commercial Affairs Department on 5 October 2016.
- Falcon Bank has demonstrated a persistent and severe lack of understanding of MAS’ AML requirements and expectations. Taking into account the totality of Falcon Bank’s conduct, MAS’ assessment is that the merchant bank will be unable to comply with these requirements and expectations going forward.
Falcon Private Bank responds
The Swiss bank welcomed the completion of the investigations, which it says finally resolved the 1MDB issue for the bank with the regulators.
Falcon Private Bank said although the withdrawal of the Singapore banking license was regrettable and disappointing, the decision would not impact the strategic development of the bank.
The bank advised that it is currently in close contact with employees, clients and partners and is committed to finding optimal solutions for all parties involved and guaranteeing an orderly wind down of the Singapore operation.
Focus on core locations
Walter Berchtold, chief executive of Falcon Private Bank, said: “We have been in close collaboration with the regulators and welcome that the 1MDB case has been closed with the regulators. Falcon Private Bank adheres to all rules and regulations, is well capitalised, enjoys a strong balance sheet and the full support of our shareholder Aabar.
“The bank will now focus again on growing our businesses in the core locations Switzerland, Middle East and London.”
DBS and UBS
MAS also announced the completion its inspections of DBS and UBS in relation to their 1MDB-related fund flows.
The inspections revealed several breaches of AML requirements and control lapses. There were deficiencies in the on-boarding of new accounts, weaknesses in corroborating the source of funds, inadequate scrutiny of customers’ transactions and activities, and failure to file timely suspicious transaction reports.
The control lapses observed in DBS and UBS relate to specific bank officers who failed to carry out their duties effectively. MAS’ inspections did not find pervasive control weaknesses within these banks.
MAS admonished the two banks and instructed their management to investigate the lapses, promptly address the control deficiencies, and take appropriate disciplinary measures against the staff involved.
Financial penalties amounting to S$1m were imposed on DBS for 10 breaches and S$1.3m on UBS for 13 breaches of AML and CFT.
MAS also directed DBS and UBS to appoint an independent party to confirm that rectification measures have been effectively implemented and to report its findings to MAS.
