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WSJ: Swiss banks focus of 1MDB controversy

 | December 4, 2015

The Swiss authorities are probing suspected money laundering and possible corruption of “foreign officials”.

WSJ-1MDBKUALA LUMPUR: The Wall Street Journal (WSJ), in continuing to pursue the story on the 1MDB controversy, has reported that there’s unprecedented attention on a number of Swiss banks and Zurich-based Falcon Private Bank AG, a small wealth manager snapped up by an Abu Dhabi investor during the financial crisis.
“Swiss authorities investigating 1MDB executives are focusing on these institutions,” said the US-based publication.

It was the WSJ which first broke on Friday 3 July this year that Malaysian government investigations had found that RM2.6 billion entered Prime Minister Najib Abdul Razak’s personal banking accounts at Ambank Islamic private banking services before the last General Election in 2013. There’s a Falcon Bank connection here leading the trail to Switzerland, Abu Dhabi, British Virgin Islands (BVI), Kuala Lumpur and Singapore.

The Swiss authorities, according to WSJ, are probing suspected money laundering and possible corruption of “foreign officials”. “The investigations have landed Falcon in the middle of the controversy around 1MDB.”

Switzerland’s Attorney General’s office said in August that it was probing two unidentified executives at 1MDB, and other, unidentified individuals, based on “suspicious transactions” at unnamed banks. In September, the Swiss authorities said they had frozen assets in unspecified Swiss banks, as part of the probe.

At least two other Swiss banks carried out multiple transactions linked to 1MDB viz. BSI SA, which was sold last year to BTG Pactual, and Coutts International, the latter recently acquired by Geneva-based Union Bancaire Privée, based on documents sighted by the WSJ and according to people familiar with the matter.

A spokesman for BSI declined to comment, said WSJ, as did a spokesman for BTG Pactual.

A spokesman for Union Bancaire Privée referred questions to a spokeswoman for Coutts, who declined to comment.

Falcon, which so far hasn’t been accused of any wrongdoing, has pledged in a statement issued by a spokesman that “the bank is fully transparent and co-operative with the current investigations by various authorities and regulators”.

The Falcon spokesman said the bank was legally barred from answering questions about its clients. The spokesman said Falcon was fully independent and that “our shareholder is not involved in our daily business operations.”

1MDB, noted the US paper, has similarly stressed in public statements that it’s “fully cooperating with investigators” and has denied any wrongdoing.

Citing banking experts, WSJ wrote that 1MDB went through small private banks for billions in transactions instead of the “typically used” big global banks because of their size and scale.

“Large transactions tied to government funds or elected officials would also likely raise red flags for internal auditors,” according to bankers and anti-money-laundering specialists approached by the US paper.

Experts approached by the US paper stressed that 1MDB’s ties with Falcon and other Swiss banks raises questions why relatively small wealth managers were handling significant payments for a government fund.

“It would be very odd for a government fund to even have an account with a small, private bank,” said Daniel Marovitz, who runs European operations for cross-border bank payments service provider Earthport PLC. Marovitz, who previously was a managing director in Deutsche Bank AG’s global transaction banking division, said “large banks covet such clients and compete aggressively for their business”.

The fact sheets on Falcon show that it kept a relatively low profile for decades as a unit of U.S. insurance giant American International Group Inc., concentrating mostly on wealth management for Swiss clients.

When the insurer nearly collapsed during the 2009 financial crisis, its Swiss bank was offloaded to an Abu Dhabi sovereign-wealth fund. The bank then allegedly became involved in several 1MDB transactions.

The bank’s Abu Dhabi owner is International Petroleum Investment Co. (IPIC), a fund that was alleged to have conducted various business deals with 1MDB.

Falcon posted a profit of nearly 7.5 million Swiss francs last year, while assets under management, WSJ reported, rose to 15.6 billion francs at the end of 2014, compared to the 8.7 billion francs recorded in 2009.

When AIG owned Falcon , nearly half its clients were Swiss residents, 3 per cent came from Central and Eastern Europe while 7 per cent from the Middle East, Asia and Africa.

Currently, the daily reported, 23 per cent are Swiss residents while 20 per cent are from Central and Eastern Europe, while 25 per cent are from the Middle East, Asia and Africa, according to the bank.

A spokesman for IPIC didn’t respond to the WSJ’s requests for comment.

A representative of 1MDB, likewise, also didn’t respond to a request for comment.


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