EFGXY EFG International AG (PK)

ZURICH—BSI SA, a Swiss bank embroiled in the legal controversy surrounding Malaysian state investment fund 1Malaysia Development Bhd., or 1MDB, said on Thursday that it is appealing "flawed" actions taken against it by Switzerland's financial regulator.

The Swiss regulator, Finma, issued a sternly-worded statement in May, saying that BSI had committed "serious" breaches of money laundering regulations in its dealings with the Malaysian fund, 1MDB, and had executed a number of large transactions for the fund "despite clearly suspicious indications." Finma ordered BSI to pay 95 million Swiss francs ($99 million) in profits tied to its business with 1MDB to Switzerland's public coffers.

Finma also said it was starting enforcement proceedings against two unidentified former managers at the Lugano-based bank.

On Thursday, BSI said Finma's communication about actions taken against the bank "has severely harmed the reputation of the bank and its employees." BSI added that it "challenges Finma's assessment of the facts, and holds that the measures [Finma] ordered are unlawful and disproportionate."

BSI said it has lodged its appeal with the Swiss Federal Administrative Court. A BSI spokesman declined to comment further on what remedies the bank is seeking.

A Finma spokesman said only that its decisions can be challenged and are subject to judicial review, and declined further comment.

Finma's action against BSI in May corresponded with related action taken by authorities in Singapore—which was the locus of BSI's business with 1MDB, as The Wall Street Journal has previously reported. Singapore's central bank revoked BSI's local banking license, and asked prosecutors to investigate some of the bank's senior employees. BSI said later its local subsidiary continues to operate normally, adding that its license would only be pulled in the future as BSI is absorbed by acquirer EFG International.

Finma's action also came alongside an announcement from Switzerland's Office of the Attorney General that it was opening criminal proceedings against BSI. The attorney general's office said its decision was based on evidence it had gathered as part of its investigation of 1MDB, and on issues raised by Finma.

Investigators gathering evidence about 1MDB in at least seven countries believe that as much as $6 billion was siphoned from the fund, which was established several years ago by Malaysian Prime Minister Najib Razak to spur economic development.

Mr. Najib has denied any wrongdoing, and 1MDB has denied wrongdoing and said it is cooperating with investigations in Malaysia and abroad.

Finma has said that BSI failed to adequately monitor its relationships with clients who had ties to 1MDB and maintained about 100 accounts at the bank. Much of the money believed to have been siphoned from 1MDB was funneled through BSI's Singapore office, according to court records, documents, and people familiar with probes of the fund, The Wall Street Journal has reported previously.

Malaysian businessman Jho Low, who had close ties to 1MDB, opened more than 50 accounts at BSI's Singapore subsidiary, including 18 separate accounts on a single day in October, 2014, the Journal has reported. Such accounts held by a so-called "politically exposed person" with connections to a public investment fund normally receive close scrutiny from compliance staff at banks, experts say.

BSI said on Thursday that all of its client relationships related to 1MDB were closed in early 2015. Since the fall of 2013, the bank said, it had been "in continuous and transparent contact with Finma relating to…1MDB and related matters."

"BSI acknowledges certain internal shortcomings in the past," the bank said. "Where deficiencies have been recognized, BSI has taken, and continues to take corrective measures."

Write to John Letzing at john.letzing@wsj.com

(END) Dow Jones Newswires

June 23, 2016 07:35 ET (11:35 GMT)

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