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Major AML Gaps at Swiss Bank Reyl Led FINMA to Do a Deep Dive Investigation

Reyl Intesa Sanpaolo, a prestigious Swiss private bank, has recently found itself under intense scrutiny for its involvement in high-risk financial dealings, specifically concerning anti-money laundering (AML) compliance. While the bank has long claimed to offer superior wealth management services, recent investigations have revealed serious weaknesses in its ability to manage risks, particularly in terms of politically exposed persons (PEPs) and clients linked to authoritarian regimes and corruption. At the heart of this scandal are leaked communications between the bank and Switzerland’s Financial Market Supervisory Authority (FINMA), which raise significant concerns about Reyl’s approach to combating financial crime.

Switzerland’s banking sector has long been known for its privacy laws, which shield clients from much of the scrutiny that would typically be expected in other jurisdictions. However, as these leaks show, this culture of secrecy may have allowed financial institutions like Reyl to engage with clients whose wealth origins are murky or tied to criminal activities. The leaked letters reveal how FINMA raised serious alarms about the bank’s handling of high-risk clients, triggering a series of investigations that threaten to overshadow the bank’s reputation.

In light of this, the Reyl investigation offers a cautionary tale about the risks financial institutions face when they fail to properly assess the clients they serve, particularly when those clients are linked to corrupt regimes or criminal activities.

The investigation into Reyl’s AML practices began with a detailed inspection by FINMA in the summer of 2023. According to leaked letters obtained by OCCRP and Le Monde, FINMA raised serious concerns about the bank’s risk appetite, describing it as “very high.” The regulator’s findings were damning, revealing a pattern of negligence in Reyl’s procedures for identifying and mitigating risks associated with money laundering.

According to FINMA’s official correspondence with the bank, a series of weaknesses were discovered during the inspection, including poor management of suspicious transaction alerts, inadequate KYC reviews, and an overall lack of attention to the growing risks posed by politically exposed individuals. As part of its findings, FINMA noted that Reyl had failed to act promptly on red flags raised by suspicious activity monitoring systems. Many high-risk transaction alerts had been left unchecked for two months or more. Additionally, over 1,400 accounts were found to be overdue for KYC reviews, with some accounts having gone unreviewed for more than five years. These lapses suggest a systemic failure in the bank’s anti-money laundering framework.

Given these findings, FINMA deemed Reyl’s compliance measures unsatisfactory, and it escalated the matter to its enforcement division. The Swiss regulator warned the bank that failure to address these issues could result in severe penalties, including the revocation of its banking license. However, FINMA has yet to take formal enforcement action against Reyl, despite the severity of the findings.

In response, Reyl issued a public statement asserting that it was cooperating fully with FINMA and taking immediate steps to improve its compliance framework. The bank also emphasized its commitment to enhancing its internal processes and controls to meet regulatory expectations. However, this reassurance did little to quell the concerns surrounding its past dealings.

High-Risk Clientele and the Bank’s Risk Management Failures

Reyl’s clientele, which includes individuals with close ties to politically exposed figures, raises red flags for regulators and anti-money laundering experts alike. The investigation focused heavily on several high-risk clients, many of whom were linked to authoritarian regimes in Central Asia, Russia, and Azerbaijan. These individuals included the children of powerful autocrats, oligarchs, and former government officials, many of whom had amassed enormous wealth under questionable circumstances.

One of the primary subjects of concern was the relationship between Reyl and Dinara Kulibayeva, the daughter of Kazakhstan’s former president, Nursultan Nazarbayev. Kulibayeva’s accounts at Reyl, which contained tens of millions of francs, were placed under investigation in 2024 after Swiss regulators raised questions about the source of her wealth. While Reyl maintained that Kulibayeva’s wealth was legitimate, originating from her shares in Halyk Bank, a regulated financial institution in Kazakhstan, the ongoing investigation suggested otherwise.

The investigation revealed that Reyl had been aware of the risks associated with the Nazarbayev family, given the widespread corruption and political repression during Nazarbayev’s tenure. Despite this, the bank continued to do business with Kulibayeva for years, even as her accounts came under scrutiny from FINMA. The leaked documents show that Reyl was advised to investigate the sources of her wealth more thoroughly, yet the bank’s response appeared insufficient. As of May 2024, Reyl’s decision to freeze Kulibayeva’s accounts following a suspicious activity report raised further questions about the depth of the bank’s due diligence processes.

In addition to Kulibayeva, Reyl also managed accounts for other individuals linked to corrupt regimes, including figures from Russia, Uzbekistan, and Azerbaijan. These individuals included the son-in-law of Uzbekistan’s former strongman, Islam Karimov, as well as the children and associates of Azerbaijani President Ilham Aliyev. These connections highlight Reyl’s willingness to engage with clients who presented significant reputational and financial risks, calling into question the bank’s commitment to anti-money laundering practices.

FINMA’s Escalating Scrutiny of Reyl’s AML Efforts

As the investigation into Reyl’s AML practices progressed, FINMA escalated its scrutiny of the bank’s internal controls and compliance mechanisms. In a letter dated January 2024, FINMA formally transferred the case to its enforcement division for further investigation, citing concerns about Reyl’s ongoing business relations with clients connected to high-risk regions, particularly Russia.

The leaked communications show that FINMA had serious concerns about Reyl’s failure to follow through on its due diligence processes with clients connected to Russia. This was particularly concerning given the geopolitical context at the time, as many Russian nationals had been subject to international sanctions. Despite these risks, Reyl appeared to have continued its business relationships with certain Russian clients, some of whom had been flagged for their involvement in illicit activities.

Reyl’s response to these concerns was a mix of assurances and vague statements about improving internal processes. The bank stated that it was committed to enhancing its compliance efforts and that it had already implemented a series of internal reforms. However, the lack of concrete details on the actions taken raised doubts about the effectiveness of these reforms. In particular, Reyl’s decision to continue doing business with politically exposed persons from high-risk regions suggested that its efforts to address AML weaknesses might be insufficient.

The Role of Secrecy Laws in Protecting Criminal Activity

One of the most significant challenges facing Swiss regulators is the country’s strict banking secrecy laws. These laws, which date back to the 1930s, protect the privacy of bank clients by preventing financial institutions from disclosing information about their clients’ financial activities, even in the case of suspected criminal activity. While these laws have long been a cornerstone of Switzerland’s banking system, they have also made it difficult for regulators to fully investigate financial crimes, including money laundering.

The Reyl investigation highlights the tension between Switzerland’s banking secrecy laws and the need for transparency in the fight against financial crime. While Swiss authorities have claimed that the country’s AML regulations are robust, the continued existence of banking secrecy provisions complicates efforts to enforce those laws. This dynamic is especially problematic when dealing with high-net-worth individuals connected to corruption or criminal activity, as they can often exploit the legal protections offered by Swiss banking laws to shield themselves from scrutiny.

In the case of Reyl, the lack of transparency surrounding its client base and the sources of their wealth underscores the challenge regulators face in policing the banking sector. Despite attempts to enhance transparency, including pressure from international organizations, Switzerland’s banking secrecy laws continue to shield individuals who may be involved in illicit activities. The Reyl investigation is just one example of how these laws can hinder efforts to hold financial institutions accountable for their role in enabling money laundering.

Conclusion: A Wake-Up Call for Swiss Banks

The ongoing investigation into Reyl Intesa Sanpaolo serves as a stark reminder of the risks associated with high-risk clients, particularly those with connections to corrupt regimes. It also highlights the significant weaknesses in the Swiss banking system, which has long been resistant to regulatory changes due to its focus on banking secrecy. For Reyl, the investigation is a major blow to its reputation, as it becomes clear that the bank failed to implement adequate safeguards against money laundering and corruption.

The key takeaway from this investigation is the importance of adopting a robust, risk-based approach to anti-money laundering compliance. Financial institutions must be vigilant in their due diligence processes, especially when dealing with high-risk clients who may be linked to corruption or criminal activity. Moreover, regulators must continue to push for greater transparency and cooperation within the Swiss banking system to ensure that financial institutions are not complicit in facilitating illicit financial activity.

While Reyl has made efforts to reform its compliance practices, the damage to its reputation may prove difficult to repair. As regulators continue to scrutinize the bank, the broader Swiss banking sector will also face increased pressure to implement stronger AML measures and move toward greater transparency.