Credit Suisse and Tuna Bonds: Part 1 – Introduction | Thomas Renard
Last week, Credit Suisse Group AG settled a massive fraud action involving a non-existent Mozambican tuna fleet. While Texans have long held a special place in their hearts for our convicted con artist Billy Sol Estes, who defrauded the US federal government with millions of dollars with his stories of non-existent fertilizer reservoirs, bogus mortgages and bogus allocation of cotton areas; Billy Sol Estes was a piker compared to Credit Suisse bankers, the bank itself, and the utterly corrupt politician who ruled the country of Mozambique by creating and selling a loan ultimately totaling some $ 850 million for tuna boats that didn’t. have never existed. In future blogs, I will be examining Credit Suisse enforcement action involving the Department of Justice (DOJ), the Securities and Exchange Commission (SEC) and the Financial Conduct Authority (FCA) of the UK.
U.S. Attorney Breon Peace for the Eastern District of New York noted in the DOJ press release: in the United States, failing to disclose important information to investors, including millions of dollars in bribes wine to its bankers and a high risk of corruption, in connection with a fraudulent $ 850 million loan to a state-owned entity in Mozambique. According to Anita B. Bandy, associate director of the Division of Enforcement at the SEC, speaking in the SEC press release, âCredit Suisse has provided investors with incomplete and misleading information despite its unique position to understand the magnitude Mozambique’s growing debt and serious default risk based on its previous loan agreements. The fraud was also a consequence of the bank’s significant weaknesses in internal accounting controls and its repeated inability to respond to corruption risks.
This coercive measure has tarnished the shattered reputation of the Swiss banking giant. Three Credit Suisse employees had previously pleaded guilty to receiving bribes in connection with the fraud. The FCA noted in its press release: âThe entrepreneur secretly paid large bribes, estimated at over US $ 50 million, to members of Credit Suisse’s negotiating team, including two directors. general, in order to guarantee loans on more favorable terms. While these Credit Suisse employees have taken steps to deliberately cover up the bribes, the warning signs of potential corruption should have been clear to Credit Suisse’s oversight functions and senior committees. Time and time again, there was not enough challenge within Credit Suisse, nor scrutiny and investigation in the face of significant risk factors and warnings. The Republic of Mozambique subsequently asserted that the minimum total of bribes paid under the two loans was approximately $ 137 million.
The global settlement was for a total of $ 475 million paid to the DOJ, the SEC and the FCA and an additional forgiveness of $ 200 million of debt held by Credit Suisse against the country of Mozambique, which the FCA took over. account to determine its financial penalty. The Bank also agreed to a methodology for calculating immediate fraud losses for victims of its criminal conduct; the amount of compensation payable to victims will be determined in a future procedure. The DOJ press release also noted that âSwitzerland’s Financial Market Supervisory Authority (FINMA) has also taken enforcement action, which includes appointing an independent third party to review the implementation and effectiveness of compliance measures for companies carried out in financially weak and high-risk countries, subject to the administrative procedure of FINMA. This means that the bank will be ready for very high level supervision.
Likewise, the SEC order stated that monies paid to the SEC as part of its profit restitution penalty “will be distributed to aggrieved investors, if possible through a fair fund.” The Commission will hold the funds disbursed in accordance with paragraph IV.B [in the Order] into an account in the United States Treasury pending a decision on whether the Commission, at its discretion, will seek to distribute funds. If a distribution is found to be feasible and the Commission makes a distribution, after approval of the final distribution accounting by the Commission, all remaining amounts which are impossible to return to investors.
Credit Suisse also agreed to resolve his case with the FCA, which earned him a 30% discount on the overall penalty. Without the debt relief and this haircut, the FCA would have imposed a much larger financial penalty. However, Credit Suisse’s conduct with US executing agencies was certainly suboptimal. The DOJ noted that the bank did not voluntarily disclose the conduct to the department, the overall nature and seriousness of the offense, which included the involvement of bankers up to the CEO level. In addition, âCredit Suisse received only partial credit for its cooperation with the department’s investigation, as it significantly delayed the production of relevant evidence. As a result, the total penalty reflects a 15% reduction from the lower end of the applicable US sentencing guidelines. “
There is a lot to unpack in this business and I will do so in future blogs. In addition, the compliance practitioner has a lot to digest with the matter. From basics like due diligence, to internal controls, lines of defense and a comprehensive risk management protocol, this case has a lot to offer. All I can say is that if Billy Sol Estes was around, he would certainly view Credit Suisse and its toxic culture as a way to defraud a new set of investors with a stack of cash.
Join us tomorrow as we examine due diligence in concluding international agreements.