A compliance scandal can cost a wealth manager billions. Now, the pressure on experts tasked with vetting business risks in private banking is getting personal, finews.com has learned.
The $4.5 billion 1MDB graft scandal and the ensuing sanctions for now-defunct Swiss wealth manager Banca della Svizzera Italiana, or BSI, are a prime example: a healthy, functioning system to spot and pass on suspicious transactions is vital for private banks.
The reports are flagged to MROS, a roughly 15-person money-laundering team in Bern which works as the interface between banks and regulators. Last year, MROS received 6,126 such reports – nearly double that of 2016.
Criminal Consequences
Most of those reports come from banks, where compliance lawyers and officers are responsible for make sure anything even mildly untoward gets flagged. If they fail to submit a notification – often an elaborate document – in time, it doesn't just reflect badly on the wealth manager.
Under Swiss money laundering law, compliance officials can be sanctioned and fined under criminal code. If negligent, compliance officers face fines of up to 150,000 Swiss francs ($148,450). The finance department of the Swiss government collates notifications against compliance experts, and issues sanctions.
Compliance Brakes
This mechanism piles pressure on a job that is often derided by «front» staff as impediments to doing business. Concern among compliance staff of exposing themselves to personal legal risk is so high that a specific case was analyzed at a professional conference last fall.
«Of course it is burdensome to receive such a letter all of a sudden,» Olaf von der Lage told finews.com. He runs Complias, which advises financial firms on compliance matters and co-founded the Swiss Association of Compliance Officers. A notification alone, according to von der Lage, is no reason to panic because it doesn't automatically mean a person is at fault.
Fighting Can Pay
To be sure, most reports do result in penalties, the Swiss government said: this year, the finance department has already received 8 notifications of compliance staff breaching their duties (in 2018, the number stood at 15).
It can pay to fight: two of four judgments were overturned on appeal in Swiss criminal court. One isn't yet finalized because the government is appealing. The two compliance officers convicted were fined 20,000 francs and 15,000 francs, respectively.
Low Risk for Rank and File
The skirmishes illustrate the highwire act compliance bankers are walking: even if they are ultimately acquitted and their legal expenses reimbursed, the time and worry spent on safeguarding their professional livelihood are considerable.
For comparison, the real danger for compliance staff at the bottom end of the pecking order is relatively low, according to Swiss regulator Finma. The overseer is responsible for most notifications to the government. The overseer said in general it wants to pursue bankers responsible for wrong-doing.
