By Andy Mukherjee
Bloomberg
Oct 12, 2016
A slap on the wrist of a licensed, regulated intermediary must satisfy three conditions. One, the errant party must feel remorse before relief. Two, all other players ought to be put on notice. Three, society should feel avenged on behalf of its often faceless victims.
The punishment meted out by Singapore to banks as part of its ongoing investigation into the 1MDB scandal looks to have achieved little success in meeting the first aim. It has done better in hitting the second goal, but largely missed the third.
Start with the first objective. A S$1 million ($725,000) fine on homegrown DBS and a S$1.3 million penalty on UBS elicited just the kind of contrition one can expect from organizations brimming with talented public relations professionals. UBS said it was “disappointed” it didn’t do more to detect and report suspicious transactions earlier; DBS said it should have taken more “rigorous action.” Both have promised to go after miscreant bankers, and forgo profit from their lapses. UBS would support industry-wide anti-money-laundering initiatives, while DBS would donate to a worthy cause.
These are all fine words, but peering through them is a palpable sense of relief. While nobody quite expected pragmatic Singapore to score an own goal by aggressively punishing shareholders of lending institutions for egregious behavior by their executives, the fines appear way too small in a city where being in possession of chips outside of a casino attracts a S$150,000 penalty.
Crime and Punishment
The fine of S$1 Million on DBS is equivalent to six people being caught in Singapore with chips outside casinos or 500 litterbugs being given the maximum penalty for first-time offenses
Falcon offers a case study. The Zurich-based institution joined BSI as the second Swiss private bank to get booted out of Singapore in connection with 1MDB, the Malaysian state investment firm alleged to have been looted of billions of dollars that were then laundered in multiple countries. Falcon was fined S$300,000 by the Monetary Authority of Singapore following a 2013 inspection that uncovered breaches of the central bank’s anti-money-laundering requirements. When the regulator probed the bank again in 2015, it found “an even larger number of regulatory breaches as well as serious failings” on the part of Swiss-based senior management and the Singapore branch manager, the MAS said on Tuesday.
If a S$300,000 fine leads to more bad behavior, then skeptics could argue that a few million dollars also fails to set an example, which is the second goal of any punishment. But in this case, they’d be wrong. The real stick in the central bank’s statement on Tuesday lies not in the quantum of the fine, but in its revelation that Falcon’s Singapore branch manager was arrested last week by the Commercial Affairs Department. Add that to charges filed on Monday against two former employees of BSI, and it’s safe to assume that MAS Notice 626 and 1014 on money laundering are now being read by more people in banks than just compliance officers.
Bankers are on notice. But where the MAS stick may have come up short is in sending a message to society that courtiers to the rich and the powerful won’t get off lightly. After all, there’s no reason why the integrity of the city’s financial system should matter any less than the reliability of its subway network. Considering that Singapore’s transport regulator slapped a S$5.4 million penalty on train operator SMRT for one day of service disruption last year, maybe it’s time for the MAS to ask for powers to inflict bigger pecuniary damages on those who don’t play by its rules.
At the very least, the fine should lead to some uncomfortable investor questions for CEOs at annual general meetings. Writing a check for less than what it costs to buy a decent apartment in Singapore isn’t much of a punishment.