Credit Suisse reaches $475M global resolution in corruption case

According to Credit Suisse’s admissions and court documents filed in the U.S. District Court for the Eastern District of New York, between 2013 and March 2017, the bank, through its U.K. subsidiary, engaged in a global criminal conspiracy to defraud U.S. and international investors in connection with an $850 million fraudulent loan to a Mozambique state-owned entity for a purported tuna fishing project in Mozambique.

Credit Suisse, through its employees and agents, made “numerous material misrepresentations and omissions” relating to, among other things, the use of loan proceeds; kickback payments to Credit Suisse Securities’ bankers and the risk of bribes to Mozambican officials; and the existence and maturity dates of debt owed by Mozambique, according to the Justice Department.

Credit Suisse fraudulently represented to investors the loan proceeds would be used only for the tuna fishing project. Instead, the Justice Department cited, loan proceeds went to a contractor that supplied boats and equipment for Credit Suisse Securities who paid approximately $50 million in kickbacks to members of Credit Suisse’s deal team, including two managing directors, as well as bribes totaling approximately $150 million to Mozambican government officials, to secure the loans at more favorable terms.

Credit Suisse further admitted it identified significant red flags prior to and during the financing that were ignored. For example, the contractor engaged by Mozambique on the projects was described as a “master of kickbacks.”

Aspects of Credit Suisse’s fraudulent conduct were revealed beginning in April 2016, resulting in significant losses to investors.

Agreement terms

Credit Suisse will pay a $247 million criminal fine and entered a three-year deferred prosecution agreement with the Justice Department for conspiracy to commit wire fraud. The bank will pay approximately $175.5 million to the United States after payments credited to other authorities.

The Justice Department said it considered several factors in reaching its resolution with Credit Suisse, including the bank’s failure to voluntarily disclose the misconduct.

“Credit Suisse received only partial credit for its cooperation with the Department’s investigation because it significantly delayed producing relevant evidence,” the agency said. “Accordingly, the total penalty reflects a 15 percent reduction off the bottom of the applicable U.S. Sentencing Guidelines range.”

Credit Suisse agreed to continue to cooperate with the Justice Department, to enhance its compliance program and internal controls, and to provide enhanced reporting on its remediation and compliance program.

“Among other things, the enhanced reporting provisions require Credit Suisse to meet with the Department at least quarterly and to submit yearly reports regarding the status of its remediation efforts, the results of its testing of its compliance program, and its proposals to ensure that its compliance program is reasonably designed, implemented, and enforced so that it is effective in deterring and detecting violations of fraud, money laundering, the Foreign Corrupt Practices Act, and other applicable anti-corruption laws,” the agency stated.

Parallel resolutions

In a coordinated resolution, the U.S. Securities and Exchange Commission (SEC) found Credit Suisse violated the antifraud, internal accounting controls, and books and records provisions of federal securities laws. The bank agreed to pay disgorgement and interest totaling more than $34 million and a penalty of $65 million to the SEC.

Credit Suisse also reached a separate parallel resolution with the U.K. Financial Conduct Authority (FCA), which fined the bank more than £147 million (U.S. $201 million). Mark Steward, executive director of enforcement and market oversight at the FCA, said, “The fine reflects the impact of these tainted transactions, which included a debt crisis and economic harm for the people of Mozambique.”

Steward added the penalty “would have been higher,” if not for Credit Suisse agreeing to forgive $200 million of debt owed by the Republic of Mozambique and for agreeing to resolve its case with the FCA, qualifying it for a 30 percent discount in the overall penalty.

“The FCA will continue to pursue serious financial crime control failings by regulated firms,” Steward said.

Another related enforcement action by Switzerland’s Financial Market Supervisory Authority (FINMA) included the appointment of an independent third party to review the implementation and effectiveness of compliance measures to improve group-wide risk management and internal control systems at the bank. FINMA also imposed temporary restrictions for new Credit Suisse loans to financially weak and high-risk countries, with a deadline of June 30, 2022, for the bank to remediate its deficiencies.

Credit Suisse also will pay restitution to victims of its criminal conduct in an amount to be determined by the U.S. court.

Credit Suisse response

“Credit Suisse is satisfied with the completion of the proceedings by U.S., U.K., and Swiss regulatory authorities into the bank’s arrangement of loan financing for Mozambique state enterprises and can now draw a line under the observation matter,” the bank said in a statement. Credit Suisse noted it expects to take $230 million in charges in the third quarter of 2021 as a result of its resolutions.

Also Tuesday, FINMA concluded enforcement proceedings against Credit Suisse begun in September 2020 in the context of the bank’s observation activities of employees and third parties.

“The regulator criticized the bank’s decision-making, documentation, and supervision of the observations and the lack of internal regulations,” Credit Suisse stated, adding it has “already improved its governance and processes in the security area and has also taken steps to enforce the correct usage of electronic communication.

“FINMA considers these measures in principle suitable to remedy the deficiencies identified and complemented them with limited additional requirements,” which include the setup of a new internal reporting system and updated documentation standards.