FCA Fines Julius Baer for FX Kickback Scheme

The UK’s Financial Conduct Authority (FCA) has fined Julius Baer International (JBI) GBP 18 million for a scheme under which the bank generated excessive returns from FX transactions and used a proportion of the proceeds to pay “improper” finder’s fees to an employee of the counterparty for introducing the business.

The FCA has also issued three banning orders against former JBI employees – 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, however all three have appealed to a tribunal for a reversal.

The three are alleged to have agreed to pay an employee of the Yukos Group of companies, Dimitri Merinson, a finder’s fee for introducing the bank to group entities, who would then place large sums with Julius Baer. The FCA says Merinson received commission payments totalling nearly $3 million that were generated by FX transactions in 2010 and 2011 by Yukos Group companies that JBI executed at disadvantageous rates to the firm to enable it to pay the commission and retain sufficient profits for itself.

Effectively, to make the required commission, the FX market (trades involving Cable and EUR/USD) were involved had to have a suitably wide range and then the trade with the Yukos entity was placed close to, but not at, the high or low of the day. The Cable trade was for GBP 275 million, the two EUR trades were for $68 million and EUR 7 million. “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,” the FCA states.

The Uk regulator adds that JBI failed to have adequate policies and procedures in place to identify and manage the risks arising from the relationships between itself and finders, including 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, it adds.

Finally, the FCA says JBI became aware of the nature of these transactions – including the commission payments to Merinson – in 2012 and suspected that a potential fraud had been committed, but did not report these matters to the FCA until July 2014.

“There were obvious signs that the relationships here were corrupt, which senior individuals saw and ignored,” says Mark Seward, director of enforcement and market oversight at the FCA. “These weaknesses create the circumstances in which financial crime of the most serious kind can flourish.”