NEW YORK and SINGAPORE – Falcon Private Bank, a Zurich-based wealth manager implicated in the transfer of alleged illicit funds into the personal bank account of Malaysia’s then-premier Najib Razak, is in advanced negotiations to sell-off its assets and cease operations, capping off a four year struggle with Swiss and other financial regulators.
The bank’s demise follows a string of consecutive annual losses accrued since 2016, when the Swiss Financial Market Supervisory Authority (FINMA) found that it violated money-laundering regulations in its dealings with the 1Malaysia Development Berhad (1MDB) state fund by failing to carry out adequate compliance checks.
Aided by the US Department of Justice (DoJ), Swiss authorities determined that Falcon had approved dozens of fraudulent transfers, including one wherein US$681 million was transferred from an account at the bank’s Singapore branch into Najib’s personal AmBank account in March 2013.
Singapore later revoked Falcon’s banking license and jailed its branch manager for failing to comply with anti-money laundering rules. The bank weathered regulatory sanctions and attempted to reinvent itself as a cryptocurrency asset manager following the scandal with financial backing from shareholder Aabar, the financial investment arm of Abu Dhabi state fund Mubadala Investment Company.
But those big capital infusions from its shareholder weren’t enough to turn the firm’s loss-making tide.
“We don’t know how large Aabar’s injection was, but it was clearly enough financial backing and commitment for Falcon to embark on this new business plan,” said Katharina Bart, a senior contributor at Finews, a Swiss-based outlet for the financial services industry.
Roberto Grassi, the company’s chairman, announced on May 11 that “the controlled cessation of Falcon’s banking activities is the best way to protect the interests of our stakeholders,” an outcome that industry watchers attribute mainly, but not solely, to reputation damages incurred from its role in the multi-billion dollar 1MDB scandal.
Days before Falcon publicized its decision to wind down, the DoJ announced that it had reached a settlement to recover more than $49 million in assets that Falcon’s former director, Khadem al-Qubaisi, obtained using funds pilfered from the Malaysian state fund and laundered through financial institutions in several jurisdictions.
US and Malaysian authorities believe an estimated $4.5 billion was embezzled from 1MDB between 2009 and 2014, which was used variously to acquire rare artwork by Vincent Van Gogh and Claude Monet, purchase luxury properties in New York, Los Angeles and London, and bankroll the production of the hit Hollywood film “The Wolf of Wall Street.”
The DoJ’s asset forfeiture complaint outlines several transactions included in the settlement reached on May 6, and alleges further that $472 million was diverted from an account controlled by fugitive Malaysian financier Low Taek Jho, better known as Jho Low, to an account held by al-Qubaisi at Luxembourg’s Banque Privée Edmond de Rothschild.
The majority of these funds remain frozen in financial jurisdictions across the globe amid an ongoing multinational probe into 1MDB’s dealings, though a significant portion remains untraced by US and Swiss authorities.
Nearly $1.1 billion in assets associated with 1MDB have so far been recovered. Al-Qubaisi is currently serving a 15-year sentence in the United Arab Emirates after being convicted of unspecified charges in June 2019.
Following his sentencing, representatives of the Abu Dhabi Criminal Court were quoted in the Wall Street Journal stating only that al-Qubaisi was convicted for “exploiting his job and unlawfully appropriating 149 million euros after selling shares he owns for the company he heads, without disclosing his ownership of the shares, for 210 million euros.”
Court officials also claimed that the charges had nothing to do with al-Qubaisi’s role in the 1MDB scandal. Al-Qubaisi was sentenced alongside his former deputy and chief executive of Falcon bank, Mohamed Ahmed Badawy al-Husseiny, who was given a 10-year sentence for “exploiting his position and facilitating the seizure of the company’s money by Mr. Qubaisi.”
But aside from Abu Dhabi court officials’ cryptic justifications for sentencing al-Husseiny and al-Qubaisi to prison, there has been until now little clarity and arguably much less justice regarding their 1MDB dealings. Al-Qubaisi’s decision to relinquish ill-gotten assets to the DoJ, however, confirms a degree of culpability that could only previously be speculated, observers say.
Both had been chief executives of Falcon’s parent company, Aabar, while al-Qubaisi served as a managing director to Aabar’s then-parent, the International Petroleum Investment Company (IPIC), a state-owned fund acquired by Mubadala in 2017 following corruption allegations stemming from transactions it undertook with 1MDB.
IPIC guaranteed two separate dollar-denominated bonds for 1MDB in 2012, while Goldman Sachs was enlisted for an exorbitant $600 million fee to sell the bonds to investors. According to the DoJ’s forfeiture complaint, Low worked hand-in-hand with al-Qubaisi and al-Husseiny to divert the proceeds of the bonds sold on IPIC’s oil-rich guarantee.
The two Falcon executives received seven-figure kickbacks after setting up offshore companies in the British Virgin Islands and the Seychelles under the name “Aabar”, apparently hoping to confuse compliance officers and investigators into believing that these companies were controlled by IPIC’s subsidiary, through which more than $2.5 billion in bond proceeds illicitly flowed.
But for some of the larger and more critical transactions, al-Qubaisi and al-Husseiny turned to their own bank, Falcon, where both men sat on the board and ultimately used their positions to authorize the now infamous $681 million transfer from an offshore company controlled by fugitive financier Low into Najib’s personal account.
A forged loan agreement drawn up by Low and al-Husseiny to justify that transaction was, according to the DoJ, rebuffed by Falcon’s then-CEO Eduardo Leemann, who described the document as “amateurish at best” and “a joke.” Despite Leemann’s warnings, al-Husseiny managed to push the audacious transaction through.
Malaysia’s then-premier, according to witness testimony from former 1MDB executive Shahrol Azral Ibrahim Halmi, is alleged to have distributed the funds to his political allies to secure votes for his Barisan Nasional (BN) coalition, which emerged victorious in the country’s May 2013 general election.
Remaining bond proceeds were funnelled back through Falcon’s Singapore branch toward other global investments managed by Low, according to media reports and 1MDB-related investigations.
Najib’s premiership ended when he was toppled in May 2018’s general election and he is currently on trial for corruption in Malaysia along with members of his immediate family for allegedly benefiting from misappropriated 1MDB funds. The 66-year-old former premier denies all charges against him.
Low remains a wanted fugitive and is often rumored to be hiding in China, where businesses he owns remain active. He could not be reached for comment for this article.
For Falcon, the 1MDB scandal proved to be the beginning of the end. Leemann resigned from his role as Falcon’s CEO in September 2016 and was replaced by former Credit Suisse manager Walter Berchtold, who was succeeded in 2017 by Martin Keller, also a former Credit Suisse executive.
Despite top management changes and attempts to innovate the bank’s business strategy, Falcon’s efforts ultimately came to naught. Assets under management reportedly fell to 10 billion francs ($10.2 billion) from 14 billion francs ($14.3 billion) as financial regulators closed in while key employees and customers headed for the exits.
In late April, a Reuters report cited sources claiming that FINMA was on the cusp of revoking Falcon’s banking license on the grounds that it continuously failed to meet regulatory requirements as it sought to realign its business in the years following the 1MDB scandal.
The Swiss financial watchdog, however, had not rescinded Falcon’s banking license when Asia Times went to press.
Industry watchers believe the company may only forfeit its license once its assets are liquidated and client portfolios divested, a process that may take up to two years. It is unclear whether the bank’s loss-making position or the imminent threat of a banking license suspension, or both, hastened its decision to wind down operations.
“This is probably unknowable,” said Bart of Finews. “FINMA doesn’t disclose when it threatens to revoke a banking license, this is also an exceedingly rare occurrence. Falcon may have pre-empted this by winding itself down.”
Falcon did not respond to Asia Times’ emailed request for comment for this article. A media release dated May 11 available on its website states that the cessation of its banking activities will be carried out during 2021.
The company says it will maintain its obligations towards its clients and stakeholders and will offer “a fair social plan” for affected employees.
The private wealth manager’s failure to make a clean break from its 1MDB past and successfully reinvent itself “was the larger issue here,” Bart added. “The license [issue] is merely emblematic of the bank’s bigger problems.”
Matt Mulberry reported from New York. Nile Bowie reported from Singapore.