Shut down of BSI Bank in Singapore

A recent move by the Monetary Authority of Singapore (MAS) has illustrated that the costs of non-compliance with anti-money laundering (AML) requirements can be as severe as the revocation of a banking license. This serves as a stark reminder to global financial institutions of their AML responsibilities.

On 24 May 2016, MAS announced it had served BSI Bank Limited (BSI) a notice of intention to withdraw its status as a merchant bank in Singapore for serious breaches of AML requirements, poor management oversight of its operations, and gross misconduct by some of its staff. This was the first time MAS has withdrawn its approval for a merchant bank since 1984.

MAS' reprimand was a result of BSI's repetitive compliance lapses over a period of around five years. Policy and process deficiencies were identified by MAS in 2011. Although these lapses were rectified, in 2014, MAS identified further serious weaknesses in BSI's controls. MAS instructed BSI's management to increase scrutiny of the bank's risk management processes and internal controls. The investigation culminated in 2015 when MAS discovered multiple breaches of AML regulations and a pervasive pattern of non-compliance, including:-

  • widespread control failures;
  • poor and ineffective oversight by the senior management of BSI Bank;
  • unacceptable risk culture, with blatant disregard for compliance and control requirements as well as MAS regulations; and
  • numerous acts of gross misconduct by certain staff.

MAS specifically mentioned the way in which BSI Bank processed certain unusual transactions which were essentially pass-through trades without economic substance. MAS found that despite deficient documentation and concerns raised by the bank's compliance officers, these transactions were approved solely based on the faith in the representations made by the bank's clients.

In addition, MAS imposed on BSI Bank a financial penalty of S$13.3 million for 41 breaches of MAS' Notice 1014 - Prevention of Money Laundering and Countering the Financing of Terrorism.

AML Focus & Action

The action taken by MAS against BSI illustrates the increased focus of financial services regulators globally on AML and counter-terrorist financing (CTF) compliance. In Hong Kong, the Hong Kong Monetary Authority (HKMA) has tripled its specialist resources in AML/CTF in the last four years and last year, publicly stressed its resolve to enforce strict compliance with AML rules and exercise its powers to sanction and reprimand. Financial institutions, particularly banks, are expected to implement strong and effective supervisory AML controls, which, among other things, should enable identification of high risk customers and reporting of suspicious transactions.

In light of the severity of the possible sanction, it will be prudent for financial institutions to review and strengthen their internal policies, such as internal control and audit policies, to identify any regulatory gaps and control deficiencies. If deficiencies are identified, financial institutions should implement a robust remediation plan, and consider the need to conduct a more detailed look-back review. Establishing a good compliance culture is critical to today's financial institutions and one essential component is effective and sustainable programs to equip staff with indepth financial crime risk awareness.

Risk of personal criminal liability

The BSI case also highlights the referral of serious AML misconduct for personal prosecution. MAS has referred six members of BSI Bank's senior management and staff in Singapore to the Public Prosecutor to consider whether they have committed criminal offences. Switzerland's financial markets regulator, Swiss Financial Market Supervisory Authority (FINMA), has also commenced enforcement proceedings and is investigating two former senior managers to determine their individual level of responsibility. Such steps are consistent with the message from the US Department of Justice in September 2015 that greater focus will be applied to individual wrongdoing in corporate investigations going forward.