BSI Appealing Swiss Regulator Actions Against It Over 1MDB

by John Letzing
Wall Street Journal
June 23, 2016

BSI says Finma actions are “unlawful” and “disproportionate”

ZURICH—BSI SA, a Swiss bank embroiled in the legal controversy surrounding Malaysian state investment fund 1Malaysia Development Bhd., said on Thursday that it is appealing “flawed” actions taken against it by Switzerland’s financial regulator.

The Swiss regulator, Finma, issued a sternly worded statement in May, saying that BSI had committed “serious” breaches of money-laundering regulations in its dealings with the Malaysian fund, 1MDB, and had executed a number of large transactions for the fund “despite clearly suspicious indications.” Finma ordered BSI to pay 95 million Swiss francs ($99 million) in profits tied to its business with 1MDB to Switzerland’s public coffers.

Finma also said it was starting enforcement proceedings against two unidentified former managers at the Lugano-based bank.

On Thursday, BSI said Finma’s communication about actions taken against the bank “has severely harmed the reputation of the bank and its employees.” BSI added that it “challenges Finma’s assessment of the facts, and holds that the measures [Finma] ordered are unlawful and disproportionate.”

BSI said it has lodged its appeal with the Swiss Federal Administrative Court. A BSI spokesman declined to comment further on what remedies the bank is seeking.

A Finma spokesman said that its decisions can be challenged and are subject to judicial review, and declined to comment further.

Finma’s action against BSI in May corresponded with related action taken by authorities in Singapore—which was the locus of BSI’s business with 1MDB, as The Wall Street Journal has previously reported. Singapore’s central bank revoked BSI’s local banking license and asked prosecutors to investigate some of the bank’s senior employees.

BSI — which is being acquired by EFG International, a Zurich-based bank — said later that its Singapore subsidiary continues to operate normally, adding that its license would only be pulled in the future as BSI is absorbed by EFG International.

Finma’s action also came alongside an announcement from Switzerland’s Office of the Attorney General that it was opening criminal proceedings against BSI. The attorney general’s office said its decision was based on evidence it had gathered as part of its investigation of 1MDB, and on issues raised by Finma.

Investigators are gathering evidence about 1MDB in at least seven countries. Some investigators believe as much as $6 billion was siphoned from 1MDB, much of it funneled through BSI in Singapore, according to court records, documents viewed by The Wall Street Journal and people familiar with the probes, the Journal has reported. 1MDB was established several years ago by Malaysian Prime Minister Najib Razak to spur economic development.

Mr. Najib has denied wrongdoing or taking money for personal gain. He has said money he received was a legitimate donation from Saudi Arabia and that most of it was returned. Malaysia’s attorney general agreed the money came from Saudi Arabia legally and that most of the money was returned, and cleared Mr. Najib of wrongdoing. 1MDB has denied wrongdoing and said it is cooperating with investigations in Malaysia and abroad.

Finma has said that BSI failed to adequately monitor its relationships with clients who had ties to 1MDB and maintained about 100 accounts at the bank.

BSI said on Thursday that all of its client relationships related to 1MDB were closed in early 2015. Since the fall of 2013, the bank said, it had been “in continuous and transparent contact with Finma relating to…1MDB and related matters.”

“BSI acknowledges certain internal shortcomings in the past,” the bank said. “Where deficiencies have been recognized, BSI has taken, and continues to take corrective measures.”

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