Swiss sanction RBS unit over lapses linked to Malaysian fund

AP News
Posted: Feb 02, 2017 6:28 AM

GENEVA (AP) — Switzerland's financial markets regulator on Thursday sanctioned a private bank linked to Royal Bank of Scotland for having "seriously breached" money laundering rules in connection with indebted Malaysian sovereign wealth fund 1MDB.

Regulator FINMA said Coutts & Co. Ltd, a wealth manager with over three centuries of history, failed to fully monitor and report glaringly suspicious business activity through 1MDB that included tens of millions of dollars spent on casinos, yachts and private jets.

It has ordered Coutts to hand over to the Swiss government "unlawfully generated profits" of 6.5 million Swiss francs ($6.6 million), and said it is considering enforcement measures against the employees responsible.

Investigators in Singapore, Switzerland, Hong Kong and the U.S. have been probing allegations that people close to Malaysian Prime Minister Najib Razak stole more than $1 billion from 1MDB, or 1Malaysia Development Bhd.

FINMA cited "serious deficiencies" in the anti-money laundering processes at the Swiss arm of Coutts, the first local bank to accept assets from individuals with what would become the Malaysian fund. It said a total of $2.4 billion in 1MDB-related assets moved through Coutts accounts in Switzerland.

"Coutts & Co. Ltd. has seriously breached money laundering regulations by failing to carry out adequate background checks into business relationships and transactions associated with Malaysian sovereign wealth fund 1MDB," FINMA said in a statement .

It faulted Coutts' Swiss operations for failing to report suspicions inside the bank to authorities until the spring of 2015 despite "the existence of substantive evidence."

In particular, FINMA cited the case of one unspecified Malaysian businessman who started doing business with Coutts in Zurich in mid-2009, with indications that his family would transfer $10 million into an account. Months later, some $700 million was transferred in from 1MDB, FINMA said, and documents provided in support of the transaction contained "obvious mistakes" — including mixing up of identities.

"A member of the bank's compliance unit noted in an internal email: 'It would be the first time in my career that I would see a case where (in) an agreement over the amount of $600 million or so, the role of the parties has been confused,'" FINMA said. Coutts' own legal services unit even cited the risk of a "total fabrication," FINMA added.

FINMA said numerous "high-risk transactions" continued through early 2013. And that at one point, Coutts "took no action to clarify the use of $35 million for visits to casinos and the purchase of a range of luxury services" like the chartering of yachts and private planes.

In a statement, RBS welcomed the end of the probe and regretted "any historic failings" in its anti-money laundering processes.

RBS has been winding down Coutts' international operations after selling the majority of its assets to Swiss private bank Union Bancaire Privee last year in hopes of converting Coutts into a Britain-focused bank.

Aside from Coutts, FINMA has launched proceedings against five other banks and announced action against BSI Bank and Falcon Private Bank AG last year.

Regulators in Singapore last month fined the local Coutts branch 2.4 million Singapore dollars ($1.7 million) for inadequate customer due diligence on "politically exposed persons."