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Singapore's MAS tells Falcon to close, fines DBS, UBS over 1MDB

The logo of the Monetary Authority of Singapore is seen on its main building in Singapore on May 24, 2016.
Roslan Rahman | AFP | Getty Images
The logo of the Monetary Authority of Singapore is seen on its main building in Singapore on May 24, 2016.

The Monetary Authority of Singapore (MAS) has ordered Swiss wealth manager Falcon Private Bank to cease operations in the city-state over lapses related to its handling of funds tied to scandal-hit Malaysian sovereign fund 1MDB.

The move comes after MAS - Singapore's central bank - in May ordered the shutdown of another Swiss private bank, BSI, and subsequently charged people in connection with the probe and froze assets linked to 1MDB.

1MDB, once a pet project of Malaysian Prime Minister Najib Razak, who chaired its advisory board, is the subject of money-laundering investigations in at least six countries, including Switzerland, Singapore and the U.S., after billions of dollars allegedly were funneled from the fund to the private bank accounts of individuals connected with Najib.

Najib has denied any wrongdoing and said Malaysia would cooperate with the international investigations.

Being drawn into the scandal, however, has been an blow to Singapore, one of the world's leading wealth management centers, which prides itself on its clean reputation.

As well as pulling Falcon's banking license, MAS also on Tuesday imposed financial penalties on local banking giant DBS Bank and the Singapore branch of Swiss bank UBS for breaches of the city-state's anti-money-laundering (AML) requirements in their dealings with 1MDB.

"Falcon Bank has demonstrated a persistent and severe lack of understanding of MAS' AML requirements and expectations," MAS said in a statement. "Taking into account the totality of Falcon Bank's conduct, MAS' assessment is that the merchant bank will be unable to comply with these requirements and expectations going forward," MAS added.

It imposed a 4.3 million Singapore dollar ($3.1 million) financial penalty on Falcon.

MAS said that the improper conduct at Falcon involved the bank's former chairman, its Singapore branch manager, and senior managers at Falcon's head office, which "impaired the effectiveness of the Singapore branch's compliance function."

"Their interference was wrongful and egregious in nature," MAS said.

Falcon told Reuters that it the removal of its Singaporean banking license would not impact the strategic development of the bank, and that it was focused on expanding its business in Switzerland, the Middle East and London.

In July, Singapore authorities said that as part of its 1MDB-related probe it found problems at DBS, UBS and Standard Chartered.

On Tuesday, the regulator said that it had not finalized its investigation into StanChart, but had imposed a S$1 million penalty on DBS and S$1.3 million on UBS.

MAS said that it uncovered "several breaches of AML requirements and control lapses," with deficiencies found during the opening of new accounts, the checking the sources of funds flowing into those accounts and the scrutiny given to subsequent transactions and activities.

In a statement released after the penalties were announced, a UBS Singapore spokesperson said the bank was disappointed it did not do more to detect and report the AML breaches earlier.

"We are further strengthening our controls and appropriate action will be taken on individuals responsible for the lapses. UBS is determined not to be used as a platform for financial crime," the spokesperson said in a statement.

"We will donate all profits from this account to the establishment of an industry-wide AML program to be run by an independent educational body to help combat financial crime and reinforce Singapore's status as a financial center which adheres to the highest standards."‎

A DBS spokesman said in a statement that the Singapore-based bank acknowledged that it "should have taken more rigorous action with respect to the questionable activity, even if it was intentionally designed to conceal another purpose."

"Reinforcing a culture that is sensitive to regulations and suitability of transactions is very important to us. To ensure this, DBS will be taking appropriate actions to hold responsible staff accountable, which will include our senior executives," the spokesman said, adding that the bank would donate the profits "attributable to our shortcomings" to a worthy cause.

CNBC contributed to this report.

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