1MDB: 1 More Dirty Bank?

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The 1 Malaysia Development Bank (1MDB) scandal is nothing short of newsworthy. With the incendiary ingredients comprising one minister of a resource rich developing nation, one Hollywood heartthrob, one state investment fund, a handful of corrupt cronies and several cooperative private bankers against the backdrop of a pessimistic economic situation, the meltdown was not going to be anything short of spectacular.

The “recipe” above is set against the backdrop of an illicitly funded jet set lifestyle including lavish real estate in Beverly Hills and New York, artwork by Monet and Van Gogh as well as a business jet amongst other ill-gotten assets stashed across Switzerland, Hong Kong, the United States, Singapore and the Seychelles; this narrative could very well be a leaf out of a John Grisham novel. Unfortunately, this is no work of fiction. For those unfamiliar with this life time soap opera, allegations were made in several newspapers including the Wall Street Journal in 2015 that the sovereign fund had been used to siphon state funds into the private accounts of Prime Minister Najib Razak and people associated with him. In a case of life imitating art, the 1MDB saga is a very real scandal which has exposed the depth and extent of money laundering taking place in the upscale offices of some of the world’s oldest and most established banks and businesses.

Indeed, the Monetary Authority of Singapore as well as the Attorney General’s Chambers and the Commercial Affairs Department of Singapore have said their investigation of the funds found “deficiencies” at major banks including “undue delay in detecting and reporting suspicious transactions”. This is a scandal the scale of which has seen the shutdown of two private banks in Singapore (Falcon Private Bank and BSI) in addition to fines ranging from S$1 million to S$1.3 million on various other banks and financial institutions. The shutdown of BSI marks the first shutdown of a merchant bank in Singapore in more than thirty two years.

Faced with the twin challenges of increased compliance costs as well as debt write offs from the depressed oil and gas industries, banks are caught between a rock and a hard place in deciding whether to transact with Politically Exposed Persons (PEPs) and other questionable entities or risk diving profits and correspondingly dissatisfied shareholders.

Some have said that in today’s globalised world, money laundering is an unfortunate but necessary “occupational hazard” and the corresponding fines, a “business expense”. That may be the perception but readers are cautioned that at least in Singapore, the Monetary Authority of Singapore did not appreciate the “dent” to its reputation as a clean and trusted financial centre and the fines and closures doled out are just the beginning of the fight against money laundering and terrorism financing.

For more detailed information, please approach the writer or any member of our compliance team.

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