Singapore Branch Of Falcon Bank Ordered To Close Over Money Laundering Failures.

Legal News & Analysis - Asia Pacific - Singapore - Regulatory & Compliance

Asia Pacific Legal Updates


13 October, 2016


The Monetary Authority of Singapore (MAS) has ordered the Singapore branch of Falcon Private Bank to close over failures in anti-money laundering (AML) controls and improper conduct by senior management in both Singapore and at the bank's head office in Switzerland.


MAS has fined Falcon Bank S$4.3 million (£2.5 million) and will withdraw the bank's merchant bank status, it said.

The authority is also imposing fines of S$1m on DBS Bank and S$1.3m on the Singapore branch of UBS for breaches of its AML requirements, it said.


The actions follow examinations by MAS into fund flows through the banks from March 2013 to May 2015, with close cooperation from overseas counterparts including the Swiss Financial Market Supervisory Authority. 

Falcon Bank has been operating as a merchant bank in Singapore since 2008, MAS said.


An initial inspection in 2013 found weaknesses in the bank’s controls for client acceptance and transaction surveillance that led to breaches of MAS’ AML requirements. Falcon Bank paid a fine of S$300,000 for these breaches, and MAS instructed the merchant bank to strengthen its AML controls, it said.


A further inspection in 2015 uncovered an even larger number of regulatory breaches as well as "serious failings on the part of head office senior management and the Singapore branch manager", MAS said.


The bank's merchant bank status is being withdrawn due to three factors, MAS said. The bank's head office failed to guard against conflicts of interest when managing the account of a customer who was associated with the bank’s former board chairman Mohamed Ahmed Badawy Al-Husseiny.


"The former chairman misled and influenced the Singapore branch into processing the customer’s unusually large transactions despite multiple red flags," MAS said. 


Improper conduct by the Singapore branch manager and certain senior managers at the head office also impaired the effectiveness of the Singapore branch’s compliance function in discharging its responsibilities, MAS said.


"Their interference was wrongful and egregious in nature, and contributed to substantial breaches of AML regulations," it said.


MAS has been informed that Falcon Bank's Singapore branch manager has been arrested by the Singapore Commercial Affairs department.


Overall, Falcon Bank "has demonstrated a persistent and severe lack of understanding of MAS’ AML requirements and expectations", the authority said.


MAS said that its inspections did not find similar pervasive control weaknesses within DBS and UBS. "The control lapses observed in DBS and UBS relate to specific bank officers who failed to carry out their duties effectively," MAS said.


The international Financial Action Task Force (FATF) said last month that Singapore has a strong legal and institutional anti-money laundering (AML) and counter-terrorist financing (CTF) framework in place but there are still gaps in its effectiveness, particularly in larger transnational cases.


MAS set up a dedicated AML department in August, along with a separate department to strengthen the enforcement of its regulations.


MAS already had a "robust regime" in place to counter the risk of Singapore's financial sector being used for money laundering and terrorist financing, but international finance is increasingly complex  and there is a need for greater supervision, MAS said in June. 


The dedicated AML department will look after all policies on money laundering and other illicit financing risks, MAS said. It will monitor risks and carry out on-site supervision of how financial institutions manage these risks.


Pinsent Masons


For further information, please contact:


Ian Laing, Partner, Pinsent Masons