(Bloomberg) -- A trio of bankers at Julius Baer Group Ltd.’s UK unit tried to blame each other as they sought to reverse a proposed ban for enabling “corrupt” finders-fees on foreign exchange transactions.
The private bankers are facing a lifetime prohibition from working in UK finance from the Financial Conduct Authority, which said they acted recklessly by funneling fees to officials at Yukos companies. The three -- a relationship manager and two of her bosses -- have all rejected the FCA’s conclusions, but cast doubt on the levels of awareness of each other.
The bankers are fighting an 18-day London trial that is raking over the approval process for the fees over a decade ago. Julius Baer International Ltd., the bank’s UK unit, made regular use of finders to win new business, with almost one-third of its revenue coming from those introductions by 2012, the FCA said.
The firm was fined more than £18 million ($22 million) by the UK watchdog for systematic failings relating to the finders payments, in which commissions were paid to a Yukos employee and then transferred to another staff member as a “kickback.” Louise Whitestone, a Julius Baer banker who managed the relationship with the Yukos companies, knew the funds were being routed to employees, the FCA said.
Lawyers for Gustavo Raitzin, an executive board member who had regional oversight for countries in central and eastern Europe, said that Whitestone misled him over the true nature of the finders fees. Whitestone says she was naive and relied upon Raitzin’s approvals and those of another manager Thomas Seiler.
FX Transactions
Yukos, once one of Russia’s biggest oil companies before it was broken up and its assets seized by the government, has been embroiled in legal strife. In 2010, Julius Baer was notified that the defunct Yukos Capital was set to receive hundreds of millions of dollars following a successful Dutch ruling.
The firm was a “good example of the need for private banks,”Raitzin’s lawyer said in a court filing. “Any banker to Yukos would have to be willing to accept the hostility of the Russian Federation.”
To win the business, Julius Baer International would end up paying some $3 million in commissions through a series of “vastly inflated” foreign exchange transactions, the majority of which was paid to Yukos employee Dmitri Merinson and then his colleague to Daniel Feldman, according to the FCA.
“I was never a party to the FCA proceedings,” Feldman said in a LinkedIn message. “I can state definitely that I never received a kickback of any kind, from Julius Baer or anyone else.”
Lawyers for Merinson didn’t immediately comment on the investigation.
For her part, Whitestone said she didn’t have the professional or life experience “to recognize the warning signs in the relationship with Mr. Merinson and Mr. Feldman,” according to the FCA. “She accepts that she was naive.”
Whitestone had to suffer a series of delays and missteps in the FCA’s investigation, her lawyer said. “A responsible regulator staffs its case properly and moves its cases along expeditiously.”
Seiler’s lawyers said the banker recognized that the finder fees were “unusual” but that it was not credible for the FCA to assert that he turned a blind eye to the risks. Seiler didn’t even know that Merinson was a Yukos employee.
“Mr. Seiler had nothing to gain, and everything to lose from acting as the authority alleges he did,” they said.
In November 2017, Julius Baer International decided to no longer accept clients in the UK that are introduced by finders.
“We deeply regret the serious failings and apologize for the shortcomings that occurred at JBI between 2009 and 2014,” David Durlacher, chief executive officer of Julius Baer International, said. “We have taken full responsibility for these historical failings and made complete restitution to our client.”
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