(Bloomberg) -- The message to employees at Falcon Private Bank’s Singapore branch was clear: process the transactions, and get them done on time.
“Head Office is watching you,” one of the bank’s senior managers warned.
The correspondence is part of what Swiss authorities alleged on Tuesday were “serious” breaches of anti-money laundering rules in Falcon’s dealings with 1Malaysia Development Bhd. -- the country’s troubled state investment company -- and a “young Malaysian businessman” with ties to the government.
Managers at Zurich-based Falcon brushed aside concerns raised by a number of bank employees, the Swiss regulator said. Under pressure from two board members with 1MDB ties, the bank’s managers approved $3.8 billion of asset transfers linked to the fund from 2012 to mid-2015, the regulator, known as Finma, said.
“Although management’s attention was drawn to these matters, it repeatedly failed to properly investigate the business relationships, specifically those with politically exposed persons, and high-risk transactions,” Finma said in a statement Tuesday. The Swiss attorney-general’s office said later in the day it’s considering opening a criminal case against Falcon.
The allegations -- the latest to emerge from a series of investigations by officials in the U.S., Singapore and Malaysia -- shed further light on how international banks allegedly aided in the misuse of 1MDB funds meant for economic development. The scandal has dented investor confidence in Malaysia and cast an unflattering spotlight on the administration of Prime Minister Najib Razak, who led 1MDB’s advisory board until the end of May.
Falcon and its main shareholder, Aabar Investments PJS, said in a statement that they welcomed the completion of investigations by Finma and the Monetary Authority of Singapore, which also released results of an investigation into Falcon on Tuesday.
“Following a constructive dialogue, this completion finally resolves the 1MDB topic for the Bank with the regulators,” Falcon said, without disputing the regulators’ findings or indicating that the firm will challenge them. “Safeguarding the Bank’s reputation and the adherence to all laws, regulations and rules is of highest importance to Falcon Private Bank and its employees.”
1MDB has consistently denied wrongdoing and Malaysia’s government has said it will cooperate with lawful investigations of local companies or its citizens in relation to the fund. 1MDB didn’t respond to an e-mail seeking comment on Tuesday.
Among the questionable Falcon dealings highlighted by Swiss authorities was a $681 million “pass through” transaction in the unnamed Malaysian businessman’s accounts.
While the Swiss statement didn’t provide details on where the $681 million ended up, the figure matches what Najib has acknowledged receiving in his own accounts before the country’s 2013 general election. Najib has said the money was a private donation from the Saudi royal family and that $620 million was later returned. The premier has consistently denied wrongdoing and has been cleared by a Malaysian investigation. Najib’s office didn’t immediately reply to an e-mail seeking comment on Finma’s statement.
Falcon, which also handled a repayment of $620 million through the Malaysian businessman’s accounts six months later, failed to adequately investigate the commercial background for the transactions despite “conflicting evidence,” the Swiss regulator said.
“We started this six months ago and now we have to go through with it -- somehow,” an unidentified author wrote in an internal Falcon e-mail, according to Finma.
Falcon’s managers were focused on making sure 1MDB’s transactions went smoothly, attaching “great significance” to the accounts because two of the bank’s board members had initiated the 1MDB relationship, the Swiss regulator said. Both board members pursued their own “illegitimate purposes,” Finma said, adding that they have since left the board and that there’s no evidence other board members of Falcon were implicated.
While Finma didn’t identify the two board members, Singapore’s MAS accused Falcon’s former chairman, Ahmed Badawy Al-Husseiny, of wrongdoing in a separate statement on Tuesday. Al-Husseiny “misled and influenced” Falcon’s Singapore branch to process unusually large 1MDB-related transactions despite multiple red flags, said MAS, which has been cooperating with Finma in its investigation.
Al-Husseiny is the former chief executive officer of Aabar Investments, a unit of International Petroleum Investment Co., an Abu Dhabi government fund. Falcon, founded in 1965 as Ueberseebank, got its current name in 2009 after Aabar took over the firm from American International Group Inc.
Al-Husseiny faces a travel ban and had his personal assets ordered frozen by the U.A.E central bank, the Wall Street Journal reported in April, citing people it didn’t identify. Al-Husseiny, who declined to comment to Bloomberg in April, couldn’t be reached for comment on his mobile phone Tuesday.
MAS said it ordered Falcon to cease operations in Singapore and that the firm’s local branch manager had been arrested. Finma has started enforcement proceedings against two of Falcon’s former executives and threatened to withdraw the bank’s license if there were any further breaches of money-laundering regulations. The Singapore branch manager couldn’t be reached for comment, and the bank didn’t immediately respond to a phone call seeking comment on the officials.
Falcon’s alleged failures echo those of other banks associated with 1MDB. BSI SA had its Singapore banking license revoked over its role in the 1MDB scandal in May, with Ravi Menon, managing director of MAS, calling it “the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector.”
The U.S. Department of Justice said in July that a handful of global banks were used to shift money improperly without confirming who the recipients were, other than using information provided by 1MDB. At times, when compliance officers raised questions, they were brushed aside and the transfers were eventually approved.
On Tuesday, a spokesman for Finma also said enforcement proceedings are underway against UBS Group AG, one of six banks targeted by the regulator over 1MDB. A UBS spokesman said the bank is looking into the matter.
For its part, Falcon said the 1MDB episode has prompted the bank to improve the way it operates.
“Since 2013, the Bank has further enhanced its compliance, invested in additional resources as well as reviewed the organisational setup and relevant processes,” Falcon said. “Furthermore, based on the findings of the regulators, Falcon Private Bank has initiated additional measures to prevent future issues.”