According to the Financial Conduct Authority (FCA), the U.K. subsidiary of one of Switzerland’s oldest private banks also failed to take reasonable care to organize and regulate its activities, or to be transparent and cooperative with the FCA.
The FCA also banned three former Julius Baer employees for their alleged activities: Gustavo Raitzin, former Regional Head for Bank Julius Baer (BJB); Thomas Seiler, former BJB Sub-Regional (Market) Head for Russia and Eastern Europe and JBI non-executive director; and Louise Whitestone, former relationship manager on JBI’s Russian and Eastern European Desk, according to a statement. The authority did not detail about the measures against them.
Between 2009 and 2014, the JBI allegedly brought together BJB and Dimitri Merinson, an employee of a number of the defunct Yukos Group companies – once the largest Russian oil conglomerate.
“Under these arrangements, BJB paid finder’s fees to Merinson for introducing Yukos Group companies to Julius Baer,” according to the FCA.
That was done with the idea that the Yukos Group would thereafter lodge huge amounts of money with Julius Baer, from which the bank would gain significant profit.
Uncommercial Foreign Exchange (FX) transactions – in which one party purchases an agreed amount in one currency in exchange for selling an agreed amount in another currency to the other party – were carried out. The FCA alleged that in this case Yukos Group companies were charged significantly higher-than-normal rates, ith profits split between Merinson and Julius Baer.
“Merinson received commission payments totalling approximately $3 million as a result of these arrangements,” according to FCA.
The watchdog also stated that the fees were inappropriate and, when combined with the uncommercial FX transactions, demonstrated a lack of integrity in the way JBI conducted business.
The FCA said JBI also failed to have proper policies and processes in place to identify and manage risks associated with its connections with finders.
“This included having no policies which defined the rules surrounding the use of finders within JBI until after June 2010. Policies introduced after that date were inadequate,” the FCA claimed.
The FCA further alleged that JBI became aware of the nature of these transactions – including the commission payments to Merinson – in 2012 and feared a possible fraud had occurred, but did not immediately report it to the FCA as required.
“There were obvious signs that the relationships here were corrupt, which senior individuals saw and ignored,” said Mark Steward, FCA Executive Director of Enforcement and Market Oversight.
He warned that such omissions create the conditions for serious financial crime to thrive.
Whitestone, Seiler, and Raitzin, the three former Julius Baer former executives, have referred their Decision Notices to the Upper Tribunal – a superior court of record, where they will present their cases, upon which the court will determine whether to dismiss or support the FCA allegations.
JBI has not appealed the FCA’s decision to the Upper Tribunal, but agreed to settle the deal, according to FCA.
The company has also apologized and expressed deep regret for the events that led to FCA’s decision.
“We deeply regret the serious failings and apologize for the shortcomings that occurred at JBI between 2009 and 2014,” said David Durlacher, CEO of Julius Baer International.
He emphasized that JBI accepted full responsibility for its failures and provided full restitution to its clients.
JBI said it also established an independent investigation into the event and informed the FCA about the findings.
According to JBI, the internal investigation resulted in significant changes to the company’s leadership, governance, systems, and procedures, including the fact that JBI no longer accepts finders’ business.
