SINGAPORE: The order for Swiss Bank BSI’s shut-down late last month sent shockwaves across the financial industry, and highlighted one particular challenge that Singapore faces in its drive to be a leading hub for private wealth – its exposure to illicit money.
Said Mr Dane Chamorro from consulting firm Control Risks: “Because of the nature of private banking and the types of accounts, clients and money it tends to attract, it does come with a different risk profile than, say, if you are establishing yourself as a securities hub or fixed income hub.”
“If you look at a number of the financial scandals - everything from tax in the EU to Barings and BNP - somewhere in this process, there is often a private bank involved in terms of servicing some aspect of the transaction,” added Mr Chamorro, in an interview with Channel NewsAsia programme Money Mind.
This is a problem that affects all private banking hubs, including the world’s top wealth management centre, Switzerland.
In April, chief executive Mark Branson of Switzerland’s financial regulatory body, FINMA, said the risk posed by money laundering was “on the increase”. Fourteen Swiss banks, he admitted, had a red rating for possible money laundering risk
In Singapore, BSI became the first merchant bank to lose its licence since Jardine Fleming in 1984, and on top of that it was fined S$13.3m for 41 breaches of anti-money laundering regulations.
TAINTED FUNDS ARE ‘MORE THAN LIKELY’
The city-state is ranked 6 in Deloitte’s 2015 Global Wealth Management Centre Rankings, and was the only international wealth centre other than Hong Kong to attract net new assets from 2009 to 2014.
Mr Nizam Ismail, a partner in law firm RHTLaw Taylor Wessing, said: “Because we’ve got so much assets under management here in Singapore, it’s more likely than not that that some of it could be tainted by being proceeds of crime.”
According to an MAS survey, Singapore's assets under management grew 30 per cent year-on-year to S$2.4 trillion in 2014.
Nonetheless, Mr Chamorro is confident that the Monetary Authority of Singapore (MAS) has in place “very robust” structures for compliance, as would most financial centres. “But nothing is perfect and any system is only as strong as its weakest link,” he added.
In the case of BSI, he said it was “the bank’s responsibility to flag to MAS suspicious transactions”.
‘LIKE TRYING TO STOP A TRUCK WITH BARE HANDS’
Mr Nizam - who has previous experience as a head of compliance - described the tough spot that banks’ compliance officers could find themselves in. Typically, their sign-off is needed on any new product or business the bank wants to introduce.
“It takes a lot of courage for a compliance officer to say ‘no’ to a big transaction… It’s like standing in front of a moving truck and trying to stop it with your hands,” Mr Nizam said.
“And I think the point in the BSI case was that the truck just went over the compliance officer because it was a very big truck full of goodies.”
While the MAS did not name the scandal-hit Malaysian fund, a Swiss probe into 1MDB accused BSI of routinely failing to carry out required background checks on large sums deposited.
However, Mr Nizam noted, a slew of regulatory changes introduced by MAS last year has “significantly increased the level of scrutiny”.
“You also have other players who are not within the financial system, like corporate secretarial firms or corporate services providers, which are for the first time ever in Singapore now required to have money laundering compliance programs, or anti-money laundering compliance programmes,” he said.
STRONG SIGNAL OF ZERO TOLERANCE
And then there’s the unambiguous signal that Singapore has sent, not just by shutting down BSI – but also naming six individuals, including the bank’s former CEO and deputy CEO, whom it referred to the public prosecutor for possible criminal prosecution. Thus far, one of them, former wealth planner Yeo Jiawei, has been charged in court.
Said Mr Nizam: “Now this is the first time that any banker has been charged for money laundering offences in Singapore … It is likely that after going through an investigation process, there will be more people who might be charged for criminal offences.
“The point is, it’s the risk of criminal liability to individual bankers that will send a very strong signal of zero tolerance towards money laundering.”
Said Mr Chamorro: “There’s no skating by - that just because you’re a private bank, the regulatory framework will allow you to turn a blind eye to certain transactions.”
In short, Mr Nizam warned: “Don’t mess around with your money laundering compliance obligations. Make sure that you pick out suspicious transactions, have an internal escalation policy to senior management and file suspicious transactions reports with the authorities here.”
Watch the full episode of Money Mind on 'Dirty Money'.