SINGAPORE (Oct 11): The Monetary Authority of Singapore (MAS) is withdrawing the merchant bank status of Falcon Bank’s Singapore branch for its “serious failures in anti-money laundering (AML) controls and improper conduct” by senior management at its head office in Switzerland, as well as the Singapore branch.

In addition, MAS has imposed on Falcon Bank financial penalties amounting to S$4.3 million for 14 breaches of the central bank’s regulations, which include failures to adequately assess irregularities in activities pertaining to customer accounts, and file suspicious transaction reports.

Financial penalties of S$1 million on DBS Bank and S$1.3 million on UBS, for breaches of MAS’s AML requirements, will also be imposed, as there “deficiencies found in the on-boarding of new accounts, weaknesses in corroborating the source of funds, inadequate scrutiny of customers’ transactions and activities, and failure to file timely suspicious transaction reports”.

While MAS’s inspections did not find pervasive control weaknesses within DBS and UBS, MAS says it has admonished the two banks and instructed their management to investigate the lapses, promptly address the control deficiencies, and take appropriate disciplinary measures against the staff involved.

Falcon, DBS and UBS have been under investigation by MAS into Malaysian state fund 1Malaysia Development Bhd (1MDB) fund flows that took place from March 2013 to May 2015.

This comes just months after the shutdown of BSI Bank (Singapore) in May for similar breaches in the same case.

(See also: BSI Bank ordered to shut down by MAS)

In a Tuesday statement, MAS says its decision to withdraw Falcon Bank's merchant status was due to its head office’s failure 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.

“Falcon Bank has demonstrated a persistent and severe lack of understanding of MAS’s AML requirements and expectations. Taking into account the totality of Falcon Bank’s conduct, MAS’s assessment is that the merchant bank will be unable to comply with these requirements and expectations going forward,” says the central bank.

According to MAS, the “improper conduct” of Falcon Bank’s Singapore branch manager, Jens Sturzenegger, and certain senior managers at the head office had “impaired the effectiveness of the Singapore branch’s compliance function in discharging its responsibilities”.

Sturzenegger was arrested by the Commercial Affairs Department on Oct 5.

MAS is in the midst of finalising its assessment of Standard Chartered Bank, Singapore Branch, and says it will make an announcement in due course.

The central bank has referred the 1MDB-related transactions it processed by Raffles Money Change to the Commercial Affairs Department for their follow-up investigation.

(See also: Raffles Money Change claims compliance with MAS)