Amid 1MDB probes, BSI suffers exits in Singapore and wrangling over liability

BSI's Singapore office in Suntec City.
BSI's Singapore office in Suntec City.PHOTO: ST FILE

SINGAPORE/GENEVA (BLOOMBERG) - Global investigations into a troubled Malaysian state investment fund have cast a deepening shadow over one of the fund's Swiss bankers, BSI.

Several senior employees have left BSI's Singapore office in recent months or are leaving, including the three members of the bank committee that vetted major new clients at a time when money flowed in from 1Malaysia Development Bhd., or 1MDB, and related entities, according to people familiar with matter. None of the three have been accused of wrongdoing.

Separately, BSI's parent company, Grupo BTG Pactual, said on Tuesday (April 5) it has asked the bank's previous owner, Assicurazioni Generali SpA, to be indemnified for potential losses tied to BSI's dealings with the Malaysian fund.

The turmoil surrounding BSI comes as authorities in Singapore, Luxembourg and Switzerland are trying to determine if some of the billions of dollars raised since 2009 by 1MDB were siphoned into the personal accounts of politically connected individuals. The US Justice Department has asked global banks to retain records about 1MDB-related funds they may have handled, people familiar with the probe have said.

As more international banks field regulators' questions, Switzerland-based BSI and its Singapore arm has emerged as one of the most intertwined with 1MDB. One of the bank's former employees was named in a Singapore court proceeding in connection to the investigations, with documents from that case showing that the bank handled accounts for 1MDB and several related parties.

Neither BSI nor its staff have been charged by regulators in the city-state. The bank hasn't been accused of wrongdoing and has said it will cooperate with authorities. It also isn't clear whether the staff exits were related to the bank's dealings with 1MDB.

Recent departures from BSI Bank Singapore have included the unit's head of compliance and an executive in its wealth management unit, said the people familiar with the matter.  The chief operating officer for the bank's Asia operations, Gary Tucker, has decided to leave BSI and return with his family to Europe, according to Luciano Crobu, a spokesman for the bank. Mr Tucker didn't reply to e-mails seeking comment or return calls through BSI's main switchboard.

Those exits come on top of the previously reported pending retirement of the bank's Asia chief executive officer and the departure of a private banker who according to court documents was the primary relationship manager for 1MDB.

Mr Crobu declined to comment on staff matters beyond Tucker's, saying the bank doesn't on principle comment on staff movements or potential or ongoing investigations.

With BSI in the middle of a sale that would transfer it from Brazilian to Swiss ownership, questions have lingered about which of the bank's recent string of owners may be on the hook if regulators conclude that improprieties occurred.

In September, Sao Paulo-based BTG bought BSI from Italy's Assicurazioni Generali for 1.25 billion Swiss francs ($1.77 billion). Soon, BTG found itself in a position to sell. BTG's then-chief executive officer Andre Esteves was arrested in November amid a widespread corporate corruption scandal unrelated to the 1MDB matter. Esteves, now under house arrest, has denied any wrongdoing through his lawyers.

BTG announced in February that it was selling BSI to EFG International AGin a proposed 1.33 billion Swiss franc deal. Since then, people familiar with the two sides in the deal offered contrasting accounts about the degree to which various parties would be responsible for 1MDB-related litigation and regulatory costs.

On Tuesday, BTG said it had mailed a claim to Generali, asking it to cover any 1MDB-related liabilities.

"BTG has notified Generali by letter that it is entitled to indemnity to cover potential liability for BSI's dealings with a state-run Malaysian fund," the bank said in a statement. BTG hasn't sought a specific amount as potential costs are unknown, it said.

An official at Generali declined to comment.

For its part, EFG has said it enjoys protections for potential liabilities. Speaking on Feb 22 as the deal was announced, EFGCEO Joachim Straehle responded to a questioner asking if the bank would have protection from a fine of as much as $1 billion. Straehle said only that the bank's protection was "sizable."

On March 31, EFG chief financial officer Giorgio Pradellisaid on a call with analysts that the bank had strong legal protections for the deal and a "material" amount in escrow. EFG, through spokeswoman Daniela Haesler, declined to comment further on the agreements.

In striking its deal to buy BSI, Zurich-based EFG was advised to take its Swiss rival's business but not its legal operating units in countries where there are potential regulatory and legal risks, according to a person familiar with the deal. EFG was also advised to review BSI's clients and staff to decide which of them shouldn't be kept when the deal closes, said the person.

BSI has exited its Malaysia business, CEO Stefano Coduri said during a March 31 call with investors, adding that the move was "in context" of 1MDB. He declined to discuss the Malaysia business's size or staffing levels. "There are official investigations, but I cannot elaborate on the topic," he said.

Swiss prosecutors said in January they are seeking legal assistance from Malaysia after a probe they conducted into 1MDB, whose advisory board is headed by Malaysian Prime Minister Najib Razak, revealed "serious indications" that about US$4 billion may have been misappropriated. The Swiss said on Feb 1 that Najib is "not one of the public officials under accusation" in its probe.

Both 1MDB and the premier have consistently denied wrongdoing. The Malaysian attorney general's office cleared Mr Najib of any wrongdoing in January. It has at least twice rejected the country's central bank's request for criminal proceedings against 1MDB.

On March 31, the Monetary Authority of Singapore said that as part of its investigations related to 1MDB, it has been conducting a "thorough review of various transactions as well as fund flows" through its banking system. Singapore, which in March 2015 said it was assisting in Malaysia's probe of 1MDB, is also working closely with authorities in other financial centers.

BSI Singapore managed accounts for 1MDB and the fund's Brazen Sky Ltd subsidiary, according to documents entered into a Singapore court. It also did business with Abu Dhabi's Aabar Investments PJSC, an entity with which 1MDB did business, as well as Malaysian financier Low Taek Jho, according to the documents.

Mr Low, who has said he provided consulting to 1MDB and has gained attention for art and real estate deals in the US, has been called by a Malaysian parliamentary committee to assist in its probe of 1MDB. Mr Low didn't respond to a phone call seeking comment. Officials at Aabar Investments didn't reply to an e-mail requesting comment.

Those Singapore documents emerged when a one-time BSI private banker, Yak Yew Chee, went to court in Singapore to attempt to access funds that had been frozen by city-state authorities investigating fund flows related to 1MDB.

Mr Yak left the bank in February, according to a spokeswoman. He hasn't been charged and said in court documents that he hasn't done anything wrong.

In an Aug 14 e-mail reproduced in court papers, Mr Yak said the bank's regional leaders knew of the accounts and had met "big clients" of the bank. The lender followed anti-money laundering procedures and sent related alerts to clients, he wrote.

"I get the sense that senior management, namely yourself, is trying to make me a scapegoat of sorts for things that senior management knew and should assume full accountability for, not that there was anything that was done illegally," Mr Yak wrote in the e-mail to regional CEO Hanspeter Brunner. Mr Brunner didn't respond to e-mails requesting comment or return calls through BSI's main switchboard. BSI, through spokeswoman Valeria Montesoro, declined to comment on the e-mails cited in court documents, adding that it is committed to anti money-laundering controls.

BSI said on March 9 that Mr Brunner, 64 this month, would retire in coming weeks. Mr Brunner was a member of the Singapore unit's client acceptance committee - which also included Lisa Tan, head of legal and compliance for BSI Singapore and Mr Tucker, the unit's COO - the people familiar with the situation said. The committee approved and vetted major client accounts including those linked to 1MDB and related entities, they said.

Ms Tan has left BSI, the people said. A BSI receptionist confirmed she had left the bank. Ms Tan didn't reply to e-mails sent previously to her office address, and an e-mail sent April 4 to her office address was returned with a delivery failure message.

Kevin Swampillai, managing director of wealth management services, has also left, according to the people. He declined to comment on his relationship with the bank when contacted by telephone on April 1.

Yeo Jiawei, a wealth planner who proposed investment products to the fund, left in mid-2014, according to one of the people. He was questioned as part of the 1MDB investigation and was part of a team managed by Swampillai, they said.

A BSI receptionist confirmed Mr Yeo has left the bank. Yeo's contact details weren't listed in the local public directory and he didn't reply to e-mails sent to his former office address.