The Bsi Bank of Switzerland - Victim of Growth or Perpetrator of a Crime?

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Case Analysis: The BSI Bank of Switzerland:

Victim of Growth or Perpetrator of a Crime?

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Background of BSI Singapore

In 2005, due to slow growth in the European economy, one of Switzerland’s oldest banks, BSI, targeted Singapore as its entry point to capture the Asian emerging private wealth management market. BSI encountered a great opportunity after 2008’s financial crisis, when clients shifted their assets towards private banking as a way to reduce risk, and Singapore’s strict regulatory system made Singapore “strong private-banking center”. Operating in this highly desirable market, BSI quickly expanded its branches, increased its size by mass recruitment, revised its internal policy to facilitate a better operation, focused on a bespoke, client oriented model by delivering products and services tailored specifically to one's needs, and “aimed to triple its Asian clients assets to CHF 10 Billion by 2015”. In the meantime, BSI also managed several state-owned wealth funds including 1MDB which would have a financial scandal.  Regulatory investigations initiated by the Monetary Authority of Singapore (MAS) and the Swiss Financial Market Supervisory Authority (FINMA) in 2011 and 2014 revealed that BSI had intentionally failed to report suspicious transactions that lead to significant money laundering and other related issues. In 2016, MAS revoked BSI Singapore’s operation license and BSI was forced to merge with another Swiss company, EFG International.  

Why Did BSI Experience Corruption?

The 2015 investigation which revealed breaches in anti-money laundering regulations and a “pervasive pattern of non-compliance” has several contributing factors in the loss of BSIs banking license in Singapore.  First, BSI targeted an aggressive market growth strategy and overlooked its internal management capabilities: they placed their focus on the potential of emerging markets and did not have enough of a support system to ensure that this growth was carried out responsibility. Second, senior leadership did not take action steps after being notified by the compliance department when “star performers” achieved results through suspicious operations. Specifically, account managers allowed money to transfer through the bank in a pattern that signaled money laundering. Third, the account managers were given atypically high fees in relation to the market average, that incentivized and cultivated a unhealthy work ethics. Fourth, managing complex compliance in the emerging countries is challenging, and the geographic distances hindered BSI’s headquarters in Switzerland to sufficiently monitor the activities of its subunits in Singapore. Fifth, BSI’s organizational structure placed high client management autonomy on the CROs in which any change in personnel had a high correlation with the company’s operating revenue. Lastly, when BRI instituted their ‘Operational Excellence Program’ in 2014, in which they downsized their workforce supporting CROs which increased workloads of support staff that were supposed to prevent corruption-related activities. All of the above should have raised alarm, yet these issues were never followed up on.