Huge 1MDB-related fines 'hurt shareholders, not those liable'

A construction worker talks on the phone in front of a 1Malaysia Development Berhad (1MDB) billboard at the Tun Razak Exchange development in Kuala Lumpur, Malaysia.
A construction worker talks on the phone in front of a 1Malaysia Development Berhad (1MDB) billboard at the Tun Razak Exchange development in Kuala Lumpur, Malaysia.PHOTO: REUTERS

The relatively lighter fines levied on banks in Singapore ensnared in the 1MDB scandal, compared with the sums that banks in the United States and Europe have had to fork out for various offences, are largely down to Singapore's policy of targeting errant individuals to send a deterrent message.

The difference is stark, with banks overseas copping fines in the billions of dollars from their respective enforcement bodies.

But as Monetary Authority of Singapore (MAS) managing director Ravi Menon said yesterday, huge fines would not hurt a bank's senior management, directors or the individuals responsible, but instead hurt shareholders.

"And that, to me, is one of the serious failings of the current regime globally. That people continue to do wrong things because they are not being held personally liable and responsible," he said.

Mr Menon, who was speaking at the release of MAS' annual report, added: "What do we want these fines to achieve? Increasingly, the MAS approach is to place responsibility on the individual responsible for lapses and the supervisor.

"Punishing the bank serves a purpose and we have done so because it sends a very clear signal to the board and senior management that they need to raise their game."

ACCOUNTABILITY

What do we want these fines to achieve? Increasingly, the MAS approach is to place responsibility on the individual responsible for lapses and the supervisor. Punishing the bank serves a purpose and we have done so because it sends a very clear signal to the board and senior management that they need to raise their game.

MR RAVI MENON, managing director of the Monetary Authority of Singapore.

However, the shame of being named in an MAS announcement in relation to such lapses is more painful to the bank and sends a stronger message, he said.

Similarly, issuing a prohibition order that bans someone from working in the financial industry for several years is a strong deterrent.

The MAS has fined eight banks in the past year for 1Malaysia Development Berhad-related breaches.

DBS Bank paid a $1 million penalty, while UBS was fined $1.3 million, Credit Suisse $700,000 and United Overseas Bank $900,000.

MAS also closed Falcon Private Bank for serious failures in anti-money laundering controls and improper conduct.

Said Mr Menon: "Last year, I said that the findings on the 1MDB-related transactions that flowed through here had made a dent in (Singapore's) reputation as a clean and trusted financial centre.

"I believe we have begun the process of restoring that reputation. We have taken tough and unprecedented enforcement actions and sent an unequivocal message that the MAS will not tolerate the criminal abuse of Singapore's financial system."

Last month, the MAS completed a two-year review of banks involved in 1MDB-related transactions.

"The MAS has intensified its supervision of financial institutions that have higher inherent money laundering risks or control areas found wanting in previous inspections," Mr Menon added.

A version of this article appeared in the print edition of The Straits Times on June 30, 2017, with the headline 'Huge 1MDB-related fines 'hurt shareholders, not those liable''. Print Edition | Subscribe