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Credit Suisse in crime spotlight again with nearly $80 million FCPA penalty for ‘princeling program'

Saturday, July 7, 2018   (0 Comments)
Posted by: Brian Monroe
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By Brian Monroe
bmonroe@acfcs.org
July 7, 2018

Switzerland’s second largest bank and a Hong Kong subsidiary will pay U.S. federal authorities nearly $80 million to settle corruption charges that it improperly awarded choice employment spots to the family and friends of Chinese government officials to influence and, eventually gain, new business.

The U.S. Department of Justice (DOJ) and U.S. Securities and Exchange Commission (SEC) Thursday levied penalties of $47 million and $30 million respectively against Credit Suisse (Hong Kong) Limited and its Zurich-based parent, Credit Suisse Group AG, for “awarding employment” to the relatives and close associates of Chinese politically-exposed persons (PEPs) to capture new revenues, a clear violation of the U.S. Foreign Corrupt Practices Act (FCPA).

The penalty is yet another financial crime compliance foible for Credit Suisse, which has already paid multiple federal agencies and regulators billions of dollars in recent years for failures in nearly every area of counter-crime compliance, including anti-money laundering (AML), sanctions violations for dealing with blacklisted regimes, like Iran, tax evasion, and now, corruption.

 “Credit Suisse (Hong Kong) Limited engaged in a corrupt scheme to win business with Chinese state-owned entities by hiring friends and family of Chinese government officials, generating the bank at least $46 million in profits,” said Acting Assistant Attorney General Cronan. “These ‘relationship hires’ often lacked necessary technical skills, and offered fewer qualifications and significantly less relevant banking experience than other candidates for the jobs.”  

Penalty documents note that “several senior Credit Suisse managers in the Asia-Pacific region sought to win business by hiring and promoting individuals connected to government officials as part of a quid pro quo arrangement.” 

What’s worse, employees in other Credit Suisse subsidiaries and affiliates “were aware of it and in some instances approved these ‘relationship hires’ or ‘referral hires,’” according to the SEC, adding that over a six-year period, the bank offered to hire more than 100 individuals referred by or connected to foreign government officials, resulting in nearly $50 million of business revenue.

The bank has tallied more than $9 billion in various penalties for a host of issues, including AML, sanctions and tax tactics, according to Violation Tracker.

The sanctions penalty of $536 million was among the largest in the 2009 crop of similar penalties that led a fusillade against foreign banks and their illicit dealings with blacklisted regimes, including Iran, North Korea, Sudan and others, according to Reuters.


Penalty snapshot - Financial institution corruption connections:

·         JPMorgan Chase - The largest US bank paid more than $260 million to settle federal charges it sought to corruptly influence Chinese officials into giving it preferential treatment in regional business and finance deals by awarding jobs and internships to their relatives and friends. (11/2016).

·         Las Vegas Sands - The casino and resort company agreed to pay $9 million to settle charges that it failed to properly authorize or document millions of dollars in payments to a consultant facilitating business activities in China and Macao. (4/2016)

·         BNY Mellon - SEC charged the global investment company with violating the FCPA by providing valuable student internships to family members of foreign government officials affiliated with a Middle Eastern sovereign wealth fund. BNY Mellon agreed to pay $14.8 million to settle charges. (8/2015)

·         Och-Ziff Capital Management - The New York hedge fund entered into a deferred prosecution agreement and paid $412 million in combined penalties for bribing government officials in Libya, the Democratic Republic of Congo, and other African nations. (9/2016)

·         Qualcomm - The San Diego-based company agreed to pay $7.5 million to settle charges that it violated the FCPA when it hired relatives of Chinese officials deciding whether to select the company's products. (3/2016)


 

Institutionalized corruption 

Credit Suisse Hong Kong Limited (CSHK) bankers “discussed and approved the hiring of close friends and family of Chinese officials in order to secure new business,” according to penalty documents.  

For example, one government official, or state-owned entity (SOE) executive, emailed a senior CSHK banker to refer a candidate who had a “very good and close relationship” with senior management at the SOE, and wrote that hiring the referral hire would “bring [CSHK] the big surprise in the near future if [CSHK] could … arrange a position in CS team in Beijing.” 

The senior CSHK banker “later told a colleague about an impending deal that the SOE was pursuing and explained that the referring SOE official “‘was focused on having us make a relationship hire and said it was very important for us to win future business with [the SOE].’” 

In another email to colleagues, a CSHK employee explained that “[r]elationship hires have to translate to $” or “the relationship is worthless to our organization,” according to penalty documents.

“Credit Suisse Hong Kong’s practice of employing friends and family members of Chinese government officials as a quid pro quo for lucrative business opportunities was both profitable and corrupt and now the company will pay the price for that corruption,” said U.S. Attorney Richard Donoghue.


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