FINMA Confiscates CHF 10 Million From Julius Baer Over AML Failings

The Swiss Financial Market Supervisory Authority (FINMA) concluded enforcement proceedings against private bank Julius Baer recently, finding serious breaches of supervisory requirements, particularly those related to risk management and the prevention of money laundering. The case is the fifth enforcement proceeding FINMA has concluded against Julius Baer in less than 10 years.

FINMA said the clients linked to the two Russian PEPs presented a high level of risk, but Julius Baer did not adequately verify and question the origin of their assets over several years. The bank also failed to sufficiently assess negative media reports and suspicious client behaviour and breached its reporting obligations under Switzerland’s Anti-Money Laundering Act.

A particular concern involved a KYC exception made in 2019. Julius Baer allowed an exception to its internal Know Your Customer policy after one of its employees recommended the PEP client. FINMA said the bank failed to properly challenge the decision, even though the employee had close personal connections to the client’s family.

The enforcement case also covered wider risk-management weaknesses connected to Julius Baer’s private-debt business. FINMA found that the bank had inadequate internal rules, controls and staffing for this business and had ignored several warning signs. The bank eventually discontinued its private-debt business and reduced its lending activities.

As part of the enforcement action, FINMA will confiscate approximately CHF 10 million in profits that Julius Baer generated in violation of supervisory requirements through the two Russian PEP client relationships. The regulator also requires the bank to hold CHF 250 million in additional capital until the relevant risk-reduction process is completed.

Julius Baer must further provide FINMA with reports on its risk, error and compliance culture and related measures through 2032. Payments to shareholders, including dividends, must also receive prior approval from FINMA during the relevant period.

The bank has already strengthened its control functions, revised its risk appetite, changed its remuneration system and begun broader governance and cultural reforms. FINMA has acknowledged these steps and lifted or relaxed some earlier restrictions. The regulator has also opened proceedings against three former Julius Baer employees who may be responsible for breaches of supervisory requirements or internal rules.

Implications for Compliance Teams

The case highlights that PEP screening alone is not enough. Compliance teams need effective ongoing due diligence, particularly around source of wealth, source of funds, adverse media and unusual customer behaviour. KYC exceptions should also be independently reviewed and documented, especially where employees have personal or commercial connections to high-risk customers.

The action also shows the importance of strong escalation and suspicious-transaction reporting processes. For banks and wealth managers, effective AML controls must operate throughout the customer relationship and remain independent from commercial interests.