1MDB scandal: Singapore uncovers lapses at DBS, UBS, Standard Chartered

Singapore uncovers lapses in banks tied to 1MDB scandal

DBS, UBS and Standard Chartered have become embroiled in the scandal surrounding 1MDB, with Singapore's central bank saying it had found lapses and weaknesses related to the beleaguered Malaysian wealth fund.

The Monetary Authority of Singapore (MAS) said on Thursday that it found "lapses and weaknesses" in anti-money-laundering controls at the banks' Singapore operations and that it would be taking actions against them.

The preliminary investigation found "extensive layers of transactions and subterfuge aimed at disguising the nature of certain activities and fund flows," with shell companies in various jurisdictions used to conceal the funds' true beneficiaries.

In May, the MAS also completed a related investigation of BSI Singapore, which resulted in a decision to shut down that private bank, calling it at the time "the worst case of control lapses and gross misconduct that we have seen in the Singapore financial sector."

The MAS said the deficiencies at the three banks were related to lapses in specific processes and by individual officers, which would be met by "firm regulatory action," but the central bank added that the inspections didn't find pervasive weakness or staff misconduct, unlike at BSI Bank.

UBS said that it self-reported the suspicious transactions and was working with regulators on the matter.

Standard Chartered said it took financial crime compliance very seriously and that it reported the suspicious transactions when it discovered them. It added that the bank has strengthened its money-laundering controls.

DBS said "egregious financial crime is highly sophisticated and intentionally designed to evade systems and controls," and added that it had previously voluntarily reported some questionable activities to authorities. The Singapore-based bank said it took its anti-money-laundering obligations seriously and would continue to cooperate with regulators and law enforcement.

CNBC has contacted Prime Minister Najib Razak's office and 1MDB for fresh comment. Najib previously chaired 1MDB's advisory board during the period when funds allegedly went missing.

The Singapore announcement thickens the plot of the long-running scandal over billions of dollars missing from the Malaysia state fund 1MDB, coming a day after U.S. authorities moved to seize assets tied to the beleaguered fund, including funds related to the film "The Wolf of Wall Street."

In the course of Singapore's investigations, bank accounts belonging to various individuals were seized and dealings in properties belonging to some of these individuals have been curtailed, the MAS said. The assets amount in total to S$240 million ($176.82 million), with about S$120 million of that total belonging Low Taek Jho and his immediate family, it said.

Low has been a friend of Najib's family, particularly Najib's stepson, Riza Aziz, who was named in the U.S. complaint.

In the U.S., prosecutors said they were seeking to seize more than $1 billion of assets tied to an international conspiracy to launder funds funneled away from 1MDB, marking the biggest action ever taken under the Kleptocracy Asset Recovery Initiative.

In a statement, the Department of Justice said officials at 1MDB, their relatives and other associates diverted more than $3.5 billion from the state funds and laundered it through complex transactions and shell companies with bank accounts in Singapore, Switzerland, Luxembourg and the U.S.

The assets the DOJ said were purchased with the laundered funds included high-end real estate and hotels in New York and Los Angeles, a $35 million jet aircraft, artwork by Vincent Van Gogh and Claude Monet, a stake in EMI Music publishing rights and production of the 2013 film "The Wolf of Wall Street," which ironically was not only about a corrupt stockbroker, but also was banned from playing in Malaysia for being too risqué.

The film's producer, Red Granite Pictures, was co-founded by Najib's stepson Riza Aziz.

Will US probe into 1MDB impact Malaysian politics?

Red Granite said in a statement Thursday that to its knowledge, "none of the funding it received four years ago was in any way illegitimate and there is nothing in today's civil lawsuit claiming that Red Granite knew otherwise."

"Red Granite continues to cooperate fully with all inquiries and is confident that when the facts come out, it will be clear that Riza Aziz and Red Granite did nothing wrong. Red Granite does not expect the lawsuit – which is limited to future proceeds generated by a single film, and which was not filed against Red Granite or any of its employees – to impact its day to day operations," the statement said.

Riza was named as a "relevant individual" in the complaint, but Najib wasn't named. However, the Wall Street Journal reported, citing a person with direct knowledge of the investigation, that the complaint's 32 references to "Malaysian Official 1," who allegedly received hundreds of millions from 1MDB, were to Najib.

After the Singapore announcement, Malaysia's attorney general said that there was no evidence from any law enforcement agency in various jurisdictions showing that funds were appropriated from 1MDB, according to wire reports. The Malaysian attorney general added that there haven't been any criminal charges against any individuals for misappropriating funds from 1MDB, the reports said.

Within Singapore, two individuals have been charged with various offenses in cases likely related to 1MDB and several others were still being investigated, the MAS statement said.

Switzerland's Financial Market Supervisory Authority (Finma) said on Thursday that it was conducting four other enforcement proceedings in relation to 1MDB, in addition to the one it concluded against BSI Bank. It declined to name the banks until the investigations were concluded.

In an April statement, Finma CEO Mark Branson said that the evidence in the 1MDB "points to clear cases of corruption."

Prior to the Singapore authorities' announcement, the Malaysian Prime Minister's Office said in a statement on Thursday that the government would fully cooperate with any lawful investigation of Malaysian companies and citizens, but it noted that the country's attorney general had found no crime was committed.

"As the Prime Minister has always maintained, if any wrongdoing is proven, the law will be enforced without exception," the statement said.

In the wake of the Singapore and U.S. announcements, further plot twists in the 1MDB saga may be on the cards, analysts said.

"Now that the U.S. has come out in the open and accused those individuals involved in the laundering of this money, you will see governments around the world, especially countries like the U.K., and Switzerland and Singapore, step up their investigations.and they will connect the activities with the U.S. government," James Chin, director of the Asia Institute at the University of Tasmania, told CNBC's "Capital Connection."

Chin focuses on Southeast Asian governance issues.

Why was 'Malaysian Official One' unnamed in US lawsuits?

But analysts still don't expect the latest developments to dislodge the grip of Malaysia's Prime Minister Najib Razak from power.

"Domestically in Malaysia, the political impact will still be quite minimal," Oh Ei Sun, who was political secretary to Malaysia's Prime Minister's Office from 2009-11, told CNBC.

For one, the Malaysian government's inordinate control over the media means many Malaysians won't even hear about the asset seizures in the U.S.

"The mainstream media are not even printing this today and then you don't see it in various news bulletins," said Oh, who is currently an adjunct senior fellow at the S. Rajaratnam School of International Studies in Singapore. "Unless they really go online, they're hard-pressed to get information about this development."

Indeed, the website Malaysian Insider, owned by The Edge Media Group, was shut down earlier this year after the government blocked access to it over its reporting on 1MDB and two of The Edge's other publications were suspended for several months last year.

Concerns about the implications of the prime minister's ties to a multi-country criminal investigation aren't likely to dent Najib's ability to rule, analysts said.

"In Malaysia, moral authorities, or in general moral obligations, is definitely not a prerequisite in politics," Oh said.

"What you have to do in Malaysian politics very often is distribution of resources. For example, how to make sure your supporters will get amply compensated," he said, noting that as long as that's done, "you can still hold on to power for a very long time to come."

The Asia Institute's Chin agreed that Najib was likely to keep his hold on power for now.

"Unless the prime minister is named directly in one of these charge sheets it will be quite easy for him to deny that he's the recipient of this money," Chin said, noting that global investigators may have faced difficulties getting documentation from Malaysia's central bank.

Another problem has prevented political change in Malaysia: fatigue.

Despite more than 18 months of 1MDB-related revelations, "people are unable to do anything about it ," Oh said. "This sort of inability to affect change really gets into people's mind and thereby people are sort of desensitized."

But the Asia Institute's Chin does expect the political situation to change eventually.

"Ultimately, it will unseat him. The issue is the timing," Chin said, noting that Najib's political enemies within his own party have left to form an opposition alliance and it will take time to develop. That means Najib isn't likely to step down in the near future.

For its part, 1MDB said in a statement Thursday, prior to the Singapore announcement, that it wasn't a party to the U.S. civil suit, didn't have any assets in the U.S. and didn't benefit from the transactions described in the U.S. complaint. It added that it wasn't contacted by the U.S. authorities in relation to the investigation, but it stood ready to cooperate with any foreign lawful authority.

Singapore authorities also said on Thursday that they found "substantial breaches" of money-laundering regulations at Falcon Private Bank's Singapore branch. That included a failure to assess irregularities in customers' accounts and a failure to file suspicious transaction reports.

The MAS said the investigation of Falcon PBS was continuing as some key client relationships were handled from the bank's head office in Switzerland.

Falcon PBS is owned by Abu Dhabi sovereign wealth fund International Petroleum Investment Co., or IPIC. Earlier this year, IPIC and its subsidiary Aabar Investments PJS, said that they never received $3.5 billion in payments from 1MDB, which were related to a guarantee for a bond that was placed by Goldman Sachs.

Instead, the payments appear to have been sent to a nearly identically named firm registered in the British Virgin Islands (BVI), Aabar Investments PJS Ltd. and Swiss authorities said at the time they believed the funds flowed in part to "a company related to the motion picture industry."

IPIC and 1MDB reportedly have entered arbitration to resolve the disputed payment.

Falcon Private Bank said that it remains in full cooperation with authorities and that it will comment further when investigations are complete.

Questions about movement of funds from 1MDB gained attention around a year ago, when the Wall Street Journal reported that in 2013 nearly $700 million had flowed from the fund to Malaysian Prime Minister Najib Razak's personal bank account.

Najib has repeatedly denied wrongdoing and, under pressure from the outcry caused by the WSJ report, said the funds were a private donation from a Middle Eastern country he declined to name. He has denied benefiting personally from any of the funds.

In January, Malaysia's Attorney General Mohamed Apandi Ali said that Saudi Arabia's royal family gave Najib a $681 million gift, of which Apandi said about $600 million was later returned.

Apandi said that no criminal offense had been committed. But globally, investigations into 1MDB in locales as varied as U.S., Switzerland, Singapore and the Seychelles have continued.

In addition to 1MDB funds allegedly flowing into the film production company founded by Najib's stepson Riza, the WSJ has also reported tha Riza used at least $50 million from 1MDB to purchase luxury properties in London, Los Angeles and New York.

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—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1