Banking regulators have ordered an on-site audit of UBS after Switzerland’s largest bank was reprimanded for its handling of funds possibly linked to Sani Abacha, the former Nigerian dictator.

The move comes just four months after UBS, one of the leaders in the international fight against dirty money, blocked a $60m account thought to be linked with the family of Abacha, accused of looting up to $3bn from Nigeria during the 1990s.

The bank reported its suspicions to the Swiss Federal Banking Commission and the Money Laundering Reporting Office.

The banking regulator, which has been investigating the matter since February, said it concluded that UBS had failed to fulfil its duty to collecting detailed information and reviewing the economic background for unusual business relationships relating to the opening of an account in 1996.

The account related to a new corporate client at UBS whose owners included an existing UK client as well as his two Nigerian business partners.

The regulator said that apart from the UK client’s explanation that the two Nigerians were friends and business partners, the bank knew nothing about them. It had been assured by the UK client that the Nigerians had no political background or interests.

The Swiss Federal Banking Commission ruled that UBS had failed to exercise due diligence regarding the business relationship.

It also ruled that UBS did not conduct its search for potential business links to the Abacha family with due care and diligence.

However the Swiss Federal Banking Commission said that its investigation had revealed that the bank has since undertaken significant efforts to strengthen its internal regulatory framework and controlling mechanisms for identifying and monitoring unusual business relationships.

The move comes three years after Credit Suisse, the second-largest Swiss bank, was reprimanded by Swiss bank regulators for failing to exercise due diligence when accepting some $660m of money linked to the Abacha family.

UBS has headed the campaign for tighter rules for international banks which led to last year’s publication of a set of guidelines named after the UBS Wolfsberg training facility where they were first agreed.

The bank’s decision to go public with its suspicions in February is in marked contrast with the past, when Swiss banks have traditionally remained silent about their business relationships with suspect clients.

Its decision to announce it was blocking the accounts is a sign of the growing effort by the Swiss banks to improve their tarnished international reputation.

Jane Croft, Financial Times, July 15, 2002