The Monetary Authority of Singapore (MAS) announced yesterday that it has withdrawn approval from the Singapore branch of an international bank due to serious breaches of anti-money laundering (AML) requirements, poor management oversight, and gross misconduct by certain bank staff. MAS also imposed financial penalties on the bank and referred members of staff and senior management to be assessed for possible criminal prosecution.

Termed by MAS to be the “worst case of control lapses and gross misconduct” seen in Singapore, this is the first time in over thirty years that MAS has taken such stringent action against a bank to withdraw its license. The case serves as a strong reminder to financial institutions that MAS is a vigorous regulator that will not hesitate to take strong action in respect of regulated financial institutions that are found to have breached regulations or fallen short of expectations.

1. AML breaches and control failures

In withdrawing the merchant bank’s approval in Singapore, MAS stated that it had taken into account the bank’s repeated policy and process lapses uncovered in the course of previous bank inspections in 2011 and 2014, as well as multiple breaches of AML regulations and a pervasive pattern of non-compliance which were identified during a more intrusive inspection in 2015.

In 2011, MAS had identified policy and process lapses at the bank’s front office, and weak enforcement by control functions, which were subsequently rectified by the bank. In 2014, in the course of another bank inspection, MAS identified serious shortcomings in the bank’s due diligence checks on assets underlying the investment funds structured for the bank’s customers. MAS directed the bank to strengthen its control regime and examine its risk management processes.

During the course of a 2015 inspection, MAS found that there continued to be widespread control failures which had led to numerous breaches of various Singapore AML regulations. In addition to poor and ineffective management oversight, MAS observed that there was a poor risk culture in the bank and numerous acts of gross misconduct by certain staff. Particularly, MAS noted that there had been multiple unusual transactions which had been processed notwithstanding deficiencies in compliance documentation and concerns raised by the bank’s compliance officers.

2. Poor management oversight and misconduct

MAS stated that it had found evidence that the bank’s senior management, including the bank’s former CEO and former deputy CEO, had failed to discharge their oversight responsibilities, which had led to a poor risk culture prioritising questionable customer demands ahead of compliance with AML regulations and the bank’s internal controls.

Several of the bank staff were also alleged to have committed willful acts of misconduct, such as making material misrepresentations to auditors, abetting improper valuations of assets, and unauthorised trading.

In total, MAS referred six members of the bank to the Public Prosecutor to assess if there have been any criminal offences.

3. Imposition of financial penalties

MAS imposed financial penalties amounting to S$13.3 million on the bank for 41 AML breaches of Notice 1014 – Prevention of Money Laundering and Countering the Financing of Terrorism, in relation to the failure to perform enhanced customer due diligence on high risk accounts, and to monitor for suspicious customer transactions on an ongoing basis.

Notice 1014, which is applicable to all merchant banks in Singapore, emphasises that merchant banks should exercise appropriate due diligence, guard against establishing any business relations or undertaking any transaction that may facilitate money laundering or terrorism financing, and cooperate with the relevant law enforcement authorities in Singapore. It also imposes a duty on merchant banks to take appropriate steps to identify its AML risks, and to develop policies, procedures and controls to mitigate those risks.

Importantly, the merchant’s bank’s policy must ensure that any group policy on AML is strictly observed by all functions of its branches and subsidiaries. Where the AML requirements in the host country or jurisdiction differ from those in Singapore, the overseas bank or subsidiary is generally required to apply the higher of the two standards.

Other similar AML notices and guidelines apply to other types of financial institutions in Singapore, such as commercial banks, financial advisers and capital markets intermediaries. Financial institutions should pay careful consideration to their obligations to put into place robust AML controls, conduct appropriate due diligence, and to monitor and report any suspicious transactions.

Details of the risk assessment and remediation measures required of banks are also covered in our previous bulletin dated 31 July 2015.

4. AML enforcement by other regulators

The regulator of the international bank’s parent also announced yesterday that it had opened criminal proceedings against the parent bank, based on information uncovered by a criminal investigation. The parent’s regulator is indicating that due to internal control deficiencies in the parent bank’s organisation, the bank was unable to prevent the commission of AML offences and the bribery of foreign public officials.

Other regulators in Asia, in particular the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority, have also demonstrated in recent cases against securities firms and banks, that they will vigorously enforce AML rules and regulations and hold senior management accountable for internal controls deficiencies where justified.

5. Conclusion

This latest enforcement action by MAS demonstrates its strong commitment to safeguard the integrity and reputation of Singapore as a global financial hub, and its expectation that financial institutions will act as gatekeepers against illicit fund flows. It is clear that financial institutions which are regulated or with a presence in Singapore should take pay careful consideration to their regulatory obligations and work to remediate any gaps highlighted in the course of inspections or supervisory reviews.

Further, supervisory and enforcement cooperation is deepening with the extension of new information sharing protocols between regulators of different countries, such as the new powers recently conferred on the SFC in Hong Kong, which was covered in our earlier bulletin of 27 November 2015. In this context, it would be prudent for financial institutions with cross-border subsidiaries or branches to ensure that any policy or remediation measures are applied consistently throughout all functions of the group.