Switzerland's banking regulator has an effective weapon to enforce the many new regulations it has put in place over the past decade: public embarrassment. Take the case of former Nigerian President Sani Abacha. At the end of 1999, the Swiss government froze all assets identified as being linked to Abacha, about $660 million, and the Swiss Federal Banking Commission began a full-scale inquiry into how and why the money had come to Switzerland. The regulator‚s report, issued in August 2000, was damning˜to banks. While five institutions had behaved according to Swiss money-laundering laws and procedures, six were sharply criticized for "serious omissions." Another six were reprimanded for "shortcomings."
Though the Nigerian dictator had also funneled some funds through Britain, the Financial Services Authority there published its Abacha findings without identifying the banks. But the Swiss named every institution it investigated and gave specific details in each case. It was all part of the policy of banking commission director Daniel Zuberbuehler that Swiss bankers dub naming and shaming. The commission's reasoning: "The fact in itself that significant funds from the entourage of the former Abacha regime were deposited in Swiss bank accounts is extremely regrettable and damaging to the reputation of Switzerland's financial sector."
The country's second-largest bank, Credit Suisse, got the biggest public slap. Together with two subsidiaries, Bank Hofmann and Bank Leu, Credit Suisse accepted funds totaling $214 million from two of Abacha's sons and failed to check if its customers were prominent political figures, the banking commission said. The other three major offenders were UBP Union Bancaire Privée and the Swiss subsidiaries of France's Crédit Agricole Indosuez and Germany‚s M.M. Warburg & Co.
At the time Switzerland's largest bank, UBS, was given a pat on the back for its compliance with Swiss regulations. However, in February of this year, UBS made a startling admission. As part of its ongoing internal control procedures, the bank said, it had stumbled upon a business relationship with Abacha's sons that dated back to 1996. A British citizen resident in London, who was a long-standing and reputable client, introduced to the bank a company in which he and two Nigerian partners held interests. The British citizen, who wasn't further identified, insisted the partners had no political ties. The accounts contained about $60 million. After further investigation, UBS suspected that at least part of the money belonged to Abacha's sons, and blocked the accounts.
The banking commission immediately launched an investigation. Instead of praising UBS for its honesty and forthrightness, it chided the bank for inadequate diligence and ordered an audit to ensure that internal procedures were up to scratch. According to the banking commission's report, published in July, two searches carried out by UBS between 1999 and 2001 failed to detect the Abacha connection because the bank didn‚t have all the names and aliases of the dictator's entourage. A third search failed because the bank was updating its record keeping from paper to an electronic system.
A bank spokesman says that transition is now over. According to Hans-Peter Bauer, a managing director in charge of regulatory affairs at UBS, the bank has established separate due-diligence officers for every geographic region as well as a small full-time intelligence team that checks account names against databases of politicians and criminals. "You can‚t totally prevent accidents, but you can systematize the risk," Bauer says. And for Swiss banks, touching hot money has certainly become a risk.