By Mark McSherry — The UK’s Financial Conduct Authority (FCA) said it has fined Julius Baer International Limited (JBI) £18 million “for failing to conduct its business with integrity, failing to take reasonable care to organise and control its affairs and failing to be open and cooperative with the FCA.”
The FCA said it has also decided to ban 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.
The three individuals are appealing the decision.
“The FCA has concluded that JBI facilitated finder’s arrangements between BJB and an employee of a number of Yukos Group companies, Mr Dimitri Merinson,” said the FCA.
“Under these arrangements, BJB paid finder’s fees to Mr Merinson for introducing Yukos Group companies to Julius Baer.
“This was done on the understanding that the Yukos Group companies would then place large cash sums with Julius Baer from which Julius Baer could generate significant revenues.
“In particular, uncommercial FX transactions were made in which the Yukos Group companies were charged far higher than standard rates, with the profits being shared between Mr Merinson and Julius Baer.
“Mr Merinson received commission payments totalling approximately $3m USD as a result of these arrangements.
“These fees were improper and together with the uncommercial FX transactions showed a lack of integrity in the way in which JBI was undertaking this business.
“Additionally, JBI failed to have adequate policies and procedures in place to identify and manage the risks arising from the relationships between JBI and finders (external third parties that introduced potential clients to Julius Baer in return for commission).
“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.
“Finally, JBI became aware of the nature of these transactions – including the commission payments to Mr Merinson – in 2012 and suspected that a potential fraud had been committed.
“However, it did not report these matters to the FCA immediately as required or at all until July 2014.”
Mark Steward, FCA Executive Director of Enforcement and Market Oversight, said: “There were obvious signs that the relationships here were corrupt, which senior individuals saw and ignored.
“These weaknesses create the circumstances in which financial crime of the most serious kind can flourish. The FCA’s decisions on the individuals whom the FCA alleges were involved in these failures will now be reviewed in the Upper Tribunal.”
The FCA said that JBI agreed at an early stage to settle all issues of fact and partially agreed liability — but not penalty — and therefore qualified for a 15% to 30% discount under the FCA’s executive settlement procedures.
Were it not for this discount the FCA would have imposed a fine of £24.5 million.
“This was a challenging investigation which required evidence to be obtained from Switzerland, including interviews,” added the FCA.
“As well, while the investigation was completed before Covid lockdowns, publication of the firm’s Final Notice was prevented by an Order of the Tribunal, which has recently been discharged.
“The Upper Tribunal proceedings relating to Thomas Seiler, Louise Whitestone and Gustavo Raitzin’s Decision Notices commenced on 28 November 2022.”
Julius Baer said in a statement: “Julius Baer International (UK) (JBI) confirms that it accepts the decision set out in the Final Notice published today by the Financial Conduct Authority.
“The Final Notice details serious failings that occurred at JBI between 2009 and 2014 in relation to a finder’s-fee arrangement for one of its clients.
“JBI co-operated fully with the FCA in its investigation, accepted its decision and has paid a fine in the amount of £18.0 million, as previously disclosed in the 2022 Julius Baer Group Half-Year Report.
“JBI deeply regrets and apologises for the events and shortcomings that led to today’s Final Notice. As the Notice sets out, senior management at JBI informed the client in question and agreement was reached on full restitution.
“JBI also established an independent investigation into the event. This independent investigation informed the FCA’s findings and has led to significant changes to the company’s leadership, governance, systems and processes, including that JBI no longer accepts any finders’ business.
“JBI notes that the FCA’s criticism of individuals was limited to three former employees.
“In response to this specific event and as a result of its continuous review of regulatory requirements and developments, JBI has introduced additional safeguards to ensure clients are fully protected.
“All client relationships are regularly reviewed and appropriately managed. JBI is satisfied that it now has effective compliance and risk management controls, procedures, and policies in place to detect and prevent any similar conduct.”
Julius Baer International CEO David Durlacher said: “We deeply regret the serious failings and apologise for the shortcomings that occurred at JBI between 2009 and 2014.
“We have taken full responsibility for these historical failings and made complete restitution to our client. Since this wrongdoing took place, we have implemented significant organisational changes.
“With a reformed governance structure, a new management team and a remodelled risk and compliance function, our clients can trust we will always safeguard their interests.
“JBI continues to move from strength-to-strength in the UK as we continue to grow. We are focused on building our capabilities to provide our clients with the specialist, bespoke services they need and value.”