1MDB Probe Widens as Investigators Target Swiss Private Bank

Hugo Miller, Giles Broom, Andrea Tan
Bloomberg
May 24, 2016

Two of the world’s biggest financial scandals deepened Tuesday as investigations stemming from a troubled Malaysian state fund widened to include a private bank being sold by a wounded Brazilian firm.

Swiss prosecutors began criminal proceedings against BSI SA, while in Singapore authorities ordered the closure of the bank’s local unit. At the same time, EFG International AG won approval to buy BSI from Brazil’s Grupo BTG Pactual SA, which is embroiled in the Petroleo Brasileiro SA scandal involving bribes and kickbacks.

The developments mark the latest twist in the saga of criminal probes into 1Malaysia Development Bhd, with allegations of embezzlement. The Monetary Authority of Singapore said it will withdraw BSI Bank Ltd.’s license for breaches of money-laundering rules as the Swiss Attorney General said legal action is being taken against the firm based on information from investigations into 1MDB.

“We’ve made clear over recent years and months that we see money-laundering risk as having risen in our country,” Mark Branson, chief executive officer of Swiss regulator Finma, said on a conference call Tuesday. “We don’t think that’s endemic, but we do think it’s a risk which has increased over time and here is a case that’s a particularly bad example.”

Corruption Scandals

The widening corruption scandals prompted Finma to investigate more than 20 banks and it’s now preparing to penalize six Swiss lenders over their ties to alleged corruption in Malaysia and Brazil, Branson said. He declined to name the banks or say what penalties are being considered.

Prosecutors in Switzerland, Luxembourg, the U.S., Malaysia and Singapore have been investigating at least $4.2 billion of irregular transactions by the Malaysian state fund, whose advisory board headed by Prime Minister Najib Razak is being disbanded. Najib has denied any wrongdoing.

U.S. prosecutors are examining an alleged transfer of hundreds of thousands of dollars from a former employee of the Malaysian fund to Tim Leissner, who was then a senior banker at Goldman Sachs Group Inc.’s Southeast Asia operations, according to people briefed on the matter. More broadly, prosecutors are looking into Goldman Sachs’s role in helping raise more than $6 billion several years ago for 1MDB, according to people familiar with the inquiry.

Billionaire Arrested

BSI’s parent company, Sao Paulo-based BTG Pactual, is selling assets in the wake of a corruption investigation involving state-owned oil producer Petroleo Brasileiro that led to the arrest of former chairman Andre Esteves on Nov. 25. The billionaire, who has denied wrongdoing, was released from prison in December.

BTG and BSI’s previous owner, Assicurazioni Generali SpA, are at odds over indemnities for potential losses tied to BSI’s dealings with the Malaysian fund. BTG will seek compensation from Generali for fines levied on BSI, saying Tuesday the flaws occurred prior to its acquisition of the Swiss private bank last year. Generali declined to comment on BSI and the criminal proceedings.

Branson said Switzerland is not alone in facing this problem and BSI is a good example of the global reach of these kinds of scandals.

“Here you have banks involved with headquarters in the U.K., in the U.S., in the Middle East and in Switzerland,” said Branson, a Briton who worked at Credit Suisse Group AG and UBS Group AG before joining Finma.

Global Issue

“You have transactions that have run chiefly over Singapore, partly over Switzerland and also other financial centers,” he said. “You have multiple continents, you have banks based in multiple jurisdictions, so this is an issue for the financial industry worldwide.”
BSI’s Group CEO Stefano Coduri resigned as the Swiss regulator said it will seize 95 million Swiss francs ($96 million) from the firm and start enforcement procedures against two former bank employees. BSI said Tuesday that it has cooperated fully with the investigations into 1MDB by the Singapore and Swiss authorities.

The Singapore authorities have also referred six senior BSI executives to the public prosecutor, including the private bank’s former chief executive officer in the city state and his deputy. Coduri was not one of the people referred by MAS. The prosecutor will assess if there were any criminal offenses.

BSI “ignored clear warning signals,” about the risk of some of its transactions as it pursued higher-margin returns, Branson said.