Sunday, 10 February 2008

Regulators have blocked an application by UBS for a banking licence in India, dealing a second significant setback to the Swiss bank in the country in three months, as authorities investigate an alleged $8 billion (£4 billion) money-laundering racket.
The Reserve Bank of India (RBI) said yesterday that preliminary approval for a rare branch licence that was granted to UBS last year and would have laid a foundation for a big new wealth-management business had been “put on hold pending an investigation”.
It is understood that the Indian Finance Ministry is behind the move and blocked UBS because of what it sees as the bank’s lack of co-operation in an investigation of alleged money-laundering by Hasan Ali Khan, a controversial businessman best known for his passion for racehorses. Mr Khan is accused of breaching India’s currency controls on a huge scale.
A source close to the process said: “There is a political imperative to bring Mr Khan to book.”
In June the ministry’s enforcement directorate registered a case against Mr Khan under India’s Prevention of Money Laundering Act. Investigators claimed to have uncovered documents showing that Mr Khan, a man of apparently relatively modest means, held as much as $8 billion in illicit cash in accounts purportedly registered at a Zurich branch of UBS. Officials said that they had sought confirmation — or “direct evidence” — from UBS by writing to the Swiss authorities, a request at odds with Switzerland’s banking privacy laws. A spokesman for UBS said it was co-operating fully with the Indian authorities.
Mr Khan, who could not be contacted yesterday, is said to have denied that he held a Swiss account.
The effective revoking of its only Indian branch licence — even before the branch had opened — is the second regulatory slapdown for UBS in India since December, when the group failed to gain clearance for its bid to buy part of Standard Chartered Bank’s mutual funds business. At that time, the RBI effectively counted down the clock on the $118 million deal in a move also thought to be linked to the Khan investigation, sources said. A senior Bombay banker said: “It’s not unknown for Indian regulators to be agenda-driven.”
Standard Chartered said its contract with UBS had expired and that it was moving on to find a new purchaser. "With the recent set backs that UBS has encountered this past year, this can only compile their problems." said Michael Hearns an anti money laundering specialist.
UBS is reeling from $18 billion in writedowns linked to the sub-prime crisis in the United States, from which it has emerged as the worst-hit of Europe’s banks. UBS, which runs a brokerage and investment banking in India, first applied for a branch licence in 2004.



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