REGULATORS’ closure of the Swiss BSI bank’s Asian outpost for failing in its duty to prevent money laundering has highlighted the risks of hunting wealthy clients farther afield as Swiss banks’ traditional line in hiding money from foreign tax men is choked off.

The Swiss banking watchdog FINMA has already opened enforcement proceedings against no fewer than six other unnamed Swiss banks in relation to either the Malaysian fund that tripped up BSI or a separate scandal involving Brazil’s state-controlled oil producer, Petrobras.

“We’ve made clear over recent years and months that we see money laundering risk as having risen in our country,” FINMA chief executive Mark Branson told reporters.

“We’re concerned that not all organizations have matched their control processes to this increased risk.”

The head of Singapore’s central bank accused BSI of the “worst case of control lapses and gross misconduct” ever seen in the city-state’s financial sector for its dealings with the scandal-hit Malaysian government fund 1 Malaysia Development Bhd (1MDB).

In recent years, Swiss banks have paid billions of dollars in fines as global prosecutors, led by the United States, chipped away at the secrecy that for decades enabled the world’s wealthy to keep their cash in Switzerland, out of sight of the tax man.

Faced with the prospect of a sharp decline in their wealth management business at home, and an economic slowdown in Europe, BSI and other Swiss private banks expanded rapidly into Asia, where economies — and the number of ultra-rich individuals — were growing much faster.

In 2009, BSI made clear its intentions by hiring around 100 Asian-based bankers from its rival RBS Coutts.

What BSI and perhaps others failed to take account of was the higher prevalence of corruption in the region, and the greater difficulty of making compliance checks.

“You end up kicking out clients who suddenly are unacceptable because of tax issues, but you replace them with clients who are far worse,” said Carlo Lombardini, a banking lawyer and professor of banking law at the University of Lausanne. “They have no tax issues but have corruption issues.”

As well as courting wealthy individuals, BSI took on a group of state-owned wealth funds as clients, including 1MDB. They became, according to FINMA, its most profitable client group, paying fees well above the norm.

The wheels began to come off last year when Singaporean and Swiss regulators began questioning transactions linked to 1MDB.

FINMA said BSI had repeatedly missed red flags in various transfers involving 1MDB over several years, and failed to double-check potentially suspect transactions, including a deposit of US$20 million described by the client as a “gift.”

1MDB is now at the center of a multi-billion-dollar graft scandal, and its transactions have triggered investigations on three continents.

While Singapore shut down BSI’s branch there, FINMA confiscated 95 million Swiss francs (US$96 million) that it said BSI had earned illegally through suspect transactions.

BSI CEO Stefano Coduri resigned and the bank said it would, among other measures, appoint a new chief risk officer and legal counsel. (SD-Agencies)