By Anshuman Daga, Saeed Azhar and Joshua Franklin
SINGAPORE/ZURICH (Reuters) - Singapore ordered BSI's operations in the city-state to close, as Switzerland started criminal proceedings against the private bank, in the biggest international crackdown on financial entities dealing with a troubled Malaysian state fund.
The Monetary Authority of Singapore (MAS) said on Tuesday it had withdrawn BSI Bank's status as a merchant bank in Singapore for serious breaches of anti-money laundering rules, the first time in 32 years it has taken such action against a bank.
In a statement that highlighted an "unacceptable risk culture," regulatory lapses and gross misconduct of some of BSI's staff, MAS said it was also reviewing transactions of other banks in Singapore.
"MAS is conducting supervisory reviews of several other financial institutions and bank accounts through which suspicious and unusual transactions have taken place," it said.
The central bank has referred the names of six current and former members of BSI Bank's senior management and staff to the public prosecutor to evaluate whether they have committed criminal offences.
"BSI Bank is the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector," said Ravi Menon, managing director of MAS.
The Singapore central bank's action was "a shot across the bow to the industry," said Chris Wilson, a partner at PwC Consulting, specialising in anti-money laundering and financial crime.
"This sends a strong signal to senior management of any institution out there that they could also face these issues," adding that regulators in other countries may now review their own rules or step up enforcement.
MAS did not explicitly name Malaysian state fund 1Malaysia Development Bhd in its statement. But the Swiss Financial Market Supervisory Authority or Finma said in Zurich that Swiss-based BSI AG had committed serious breaches of money laundering regulations through business relationships and transactions linked to the corruption scandals surrounding 1MDB.
The fund, which was founded by Malaysian Prime Minister Najib Razak in 2009 shortly after he came to office, is being investigated for money-laundering in at least six countries.
A Malaysian parliamentary committee in April identified at least $4.2 billion (2.8 billion pounds) in irregular transactions by 1MDB. It recommended the fund's advisory board, which Najib chaired, be disbanded. Both 1MDB and Najib have denied any wrongdoing.
The probes surrounding 1MDB have cast an unwelcome spotlight on Singapore, which has been trying to burnish its anti-money laundering credentials.
BSI CHIEF RESIGNS
BSI said in a statement its group CEO Stefano Coduri has stepped down with immediate effect.
The bank said it has undertaken steps to strengthen management, including introducing a new chief risk officer and appointing a new group legal counsel.
"BSI remains well capitalized with excellent liquidity and solvency ratios," it said. `
Switzerland's Office of the Attorney General (OAG) said it had opened criminal proceedings against BSI in connection with 1MDB.
"The OAG suspects deficiencies in the internal organisation of the BSI SA bank," the OAG said in a statement. "It is believed that due to these deficiencies, the bank was unable to prevent the commission of offences currently under investigation in the criminal proceedings relating to 1MDB," it said.
Swiss authorities said in February a criminal investigation into 1MDB had revealed that about $4 billion appeared to have been misappropriated from Malaysian state companies.
The Malaysian attorney general's office in January cleared Najib himself of any criminal offences or corruption, declaring that $681 million deposited into his personal bank account was a gift from Saudi Arabia's royal family.
In February, Swiss bank EFG International AG agreed to buy BSI from Brazil-based BTG (LON:BTG) Pactual (BBTG11.SA) for 1.33 billion Swiss francs ($1.34 billion).
Switzerland's financial watchdog Finma said in a separate statement on Tuesday the acquisition could still go ahead but on the condition that BSI be fully integrated and then dissolved.
MAS said the assets of BSI in Singapore will be transferred to EFG.
The Swiss banking watchdog said it is seizing 95 million Swiss francs ($96 million) of profits from BSI and had launched enforcement proceedings against two of its former senior managers.