The Monetary Authority of Singapore (MAS) has criticised DBS, Standard Chartered Singapore, and UBS Singapore for "control failings" linked to flows from Malaysia's embattled state fund 1MDB, and said it will take "decisive actions" against financial institutions used as conduits for these questionable fund flows.
More banks may be fingered in the days ahead as the 1MDB scandal widens its reach into Singapore's financial sector, even as MAS stressed that the lapses at the three major banks in the city-state did not point to pervasive weaknesses in control processes.
The central bank said its supervision of financial institutions with 1MDB-related fund flows revealed "a complex international web of transactions involving multiple entities and individuals operating in several jurisdictions". Its account echoed - and came on the heels of - the United States Department of Justice (DOJ) lawsuit claiming more than US$3 billion was allegedly misappropriated from 1MDB and laundered through US financial institutions.
In its preliminary censure of DBS, StanChart and UBS, MAS said there were instances of control failings and, in some cases, weaknesses in processes for accepting clients and monitoring transactions.
"There was also undue delay in detecting and reporting suspicious transactions," it said.
MAS said the deficiencies at the three banks were due to lapses in "specific processes and by individual officers".
"The lapses were serious in their own right, and will be met by firm regulatory actions against the banks. However, the inspections did not reveal pervasive control weaknesses or staff misconduct within these banks, unlike in the case of BSI Bank."
Swiss bank BSI (which was the custodian bank for some US$4 billion of funds invested by 1MDB) has already had its merchant bank licence stripped by MAS for serious breaches in anti-money laundering controls, poor management oversight, and gross misconduct by some staff.
BSI's clients include 1MDB, related entities, and Malaysian tycoon Low Taek Jho. About S$120 million in assets belonging to Mr Low and his immediate family have been seized by Singapore authorities.
DBS, StanChart and UBS said they are cooperating with the relevant authorities, and that they take anti-money laundering controls seriously. Responding to queries, they said they had voluntarily reported suspicious transactions to the authorities.
A DBS spokeswoman told The Business Times: "Egregious financial crime is highly sophisticated and intentionally designed to evade systems and controls. DBS has previously identified certain questionable activities and voluntarily reported these to the relevant authorities."
Meanwhile, MAS is still investigating Falcon Private Bank, but has (for now) said the Swiss bank failed to "adequately assess irregularities in activities pertaining to customers' accounts and to file suspicious transaction reports". The regulator is waiting for more details from Falcon's head office. Falcon has said it will co-operate with the Singapore authorities.
MAS also censured licensed remittance agent Raffles Money Change Pte Ltd, saying it failed, among other things, to verify the authenticity of remittance instructions.
The statement from MAS confirms earlier reports that top banks here have been rounded up by the regulator for large-scale investigations into the scandal, with global regulators probing the vast web of illicit fund flows. MAS has, until now, mostly sidestepped directly naming 1MDB as the subject of investigations.
1MDB (1Malaysia Development Bhd) was set up by Malaysian Prime Minister Najib Razak in 2009. The Wall Street Journal reported last July that some US$700 million from the investment fund had been allegedly siphoned into Mr Najib's personal bank account - a charge he has consistently denied for the past year.
MAS said it has been examining banks on their exposure to 1MDB-related fund flows since March 2015.
It has conducted detailed onsite inspections, and analysis of information obtained from regulators abroad. And its examinations "revealed extensive layering of transactions and subterfuge aimed at disguising the nature of certain activities and fund flows".
"In some instances, shell or unauthorised companies domiciled in various jurisdictions were used to conceal the true beneficiaries of the funds," it added.
Meanwhile, the US DOJ has claimed that, from 2009 to 2015, 1MDB officials conspired to misappropriate and launder billions of dollars from 1MDB through a "complex web of opaque transactions".
"1MDB was created by the Malaysian government to promote economic development through international partnerships and foreign direct investment, with the ultimate goal of improving the wellbeing of the Malaysian people," it said in its statement. "Unfortunately, a number of corrupt 1MDB officials treated this public trust as a personal bank account."
The DOJ lawsuit referred to fund transfers to a "Malaysian Official 1" - a high-ranking official in the Malaysian government who also held a position of authority in 1MDB.
This article was first published on July 22, 2016.
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