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A Focus On The DOJ’s Enforcement Action Against Credit Suisse

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Yesterday’s post highlighted the SEC’s recent $99 million Foreign Corrupt Practices Act (and related) enforcement action against Credit Suisse in connection with financing various projects in Mozambique.

As alluded to in the prior post, the DOJ also announced an enforcement action based on the same core conduct and charged Credit Suisse and a U.K. subsidiary with conspiracy to commit money laundering. After crediting amounts paid to the United Kingdom’s Financial Conduct Authority, Credit Suisse agreed to pay $175 million to resolve the DOJ matter while also agreeing to pay $200 million to the U.K. FCA. Because the DOJ’s enforcement action against Credit Suisse was not an FCPA enforcement action, it will not be captured in FCPA statistics published on this site. (After all, if FCPA enforcement statistics are to mean anything – they should only capture actual FCPA enforcement actions).

Nevertheless, the DOJ enforcement action is summarized below.

The enforcement action involved this criminal information charging Credit Suisse with conspiracy to commit wire fraud resolved through this deferred prosecution agreement and this criminal information charging Credit Suisse Securities (Europe) Limited (CSSEL) with conspiracy to commit wire fraud resolved through this plea agreement.

Credit Suisse

Under the heading “Overview of the Fraudulent Scheme,” the information alleges:

“Credit Suisse and its co-conspirators used U.S. wires and the U.S. financial system to defraud U.S. and international investors in the EMATUM Securities. The co-conspirators used international and interstate wires to, from and through the United States, including wires through the Eastern District of New York, to transmit false and misleading statements to investors in the EMATUM Securities, transfer proceeds obtained from those investors and pay kickbacks to Credit Suisse bankers and bribes to Mozambican government officials.

Through a series of financial transactions during the relevant time period, three Mozambican government-owned entities—ProIndicus, EMATUM and MAM—borrowed in excess of $2 billion through loans to fund three maritime projects guaranteed by the Mozambican government. Credit Suisse was the primary arranger on the ProIndicus and EMATUM loans and sold the loans to investors worldwide. Credit Suisse also arranged the EMATUM Exchange. Another international Bank (“Investment Bank 1”) arranged the MAM financing, which Credit Suisse was aware of but in which it played no role. Credit Suisse, through its employees and agents, including Pearse, Singh, Subeva [all former employees of Credit Suisse or related entities] and others, among other things, knowingly and willfully conspired with others to defraud investors and potential investors in the EMATUM Securities through numerous material misrepresentations and omissions relating to, among other things: (i) the use of loan proceeds; (ii) kickback payments to Credit Suisse bankers and the risk of bribes to Mozambican officials; and (iii) the existence and maturity dates of debt owed by Mozambique, including the ProIndicus and MAM loans.

From the proceeds of the ProIndicus and EMATUM loans, Privinvest paid bribes totaling approximately $150 million to senior Mozambican government officials, including Chang [Mozambique’s Minister of Finance] and Do Rosario [an official in Mozambique’s governmental state intelligence and security service], and also paid kickbacks of approximately $50 million to Pearse and Singh.”

The criminal charge of conspiracy to commit wire fraud was resolved through a three-year deferred prosecution agreement (DPA). The DPA was based on the following facts and circumstances:

“a. the Company did not receive voluntary disclosure credit pursuant to the FCPA Corporate Enforcement Policy in the Department of Justice Manual § 9-47.120, or pursuant to the Sentencing Guidelines, because it did not voluntarily and timely self-disclose to the Offices the conduct described in the Statement of Facts;

b. the Company received partial credit for its cooperation with the Offices’ investigation, including, among other things: (i) collecting and producing voluminous evidence located in other countries; (ii) voluntarily making foreign-based employees available for interviews in the United States; (iii) making regular factual presentations and updates to the Offices; (iv) ultimately meeting requests from the Offices promptly; and (v) voluntarily providing information and making foreign-based employees available to testify at trial;

c. the Company did not receive full credit for its cooperation because the Company significantly delayed producing relevant evidence, including recorded phone calls in which the Company’s employees discussed concerns relating to conduct set forth in the Statement of Facts;

d. the Company ultimately provided to the Offices all relevant facts known to it, including information about the individuals involved in the misconduct;

e. the Company’s wholly-owned subsidiary, CSSEL, is pleading guilty pursuant to Federal Rule of Criminal Procedure 11(c)(1)(C) to conspiracy to commit wire fraud, in violation of Title 18, United States Code, Section 1349.

f. the Company engaged in remedial measures, including: (i) implementing additional controls, procedures, and policies related to government-backed loans; (ii) disciplining or withholding compensation from certain employees involved in the conduct; and (iii) providing additional compliance training to current employees;

g. the Company has committed to continuing to enhance its compliance program and internal controls, including ensuring that the compliance program meets the minimum requirements set forth in Attachment C to the Agreement (Corporate Compliance Program);

h. based on the Company’s remediation and the current state of its compliance program and the Company’s agreement to report to the Offices as set forth in Attachment D to this Agreement (Corporate Compliance Reporting), the Offices determined that an independent compliance monitor was unnecessary;

i. the Company’s agreement to concurrently resolve (i) an additional investigation by the Securities and Exchange Commission (“SEC”) relating to the conduct described in the Statement of Facts by settling an Administrative Action and agreeing to pay $65 million in civil monetary penalties and $34,051,872 in disgorgement and prejudgment interest and (ii) an additional investigation by the United Kingdom’s Financial Conduct Authority (“FCA”) relating to the conduct described in the Statement of Facts by settling a Regulatory Action and agreeing to pay $200,664,504 in penalty an irrevocable undertaking of $200 million of debt relief to Mozambique;

j. the nature, seriousness and pervasiveness of the offense conduct, as described in the Statement of Facts, including, among other things, the involvement of executives and high-level employees of CSSEL in making materially false statements in offering documents, the diversion of loan funds that were used to pay substantial kickbacks to three CSSEL employees and bribes to senior Mozambican government officials over a period of years;

k. the Company has agreed to continue to cooperate with the Offices in any ongoing investigation …;

l. Accordingly, after considering (a) through (k) above, the Offices believe that the appropriate resolution in this case is a deferred prosecution agreement with the Company; a criminal monetary penalty of $247,520,000, which reflects an aggregate discount of fifteen (15) percent off of the bottom of the otherwise applicable Sentencing Guidelines fine range; disgorgement of $10,344,865; restitution in the full amount of victims’ losses as determined by the Court; and a guilty plea by CSSEL.”

The DPA sets forth an advisory Sentencing Guidelines fine range of $291.2 million to $582.4 million and states as follows:

“The Offices and the Company agree, based on the application of the Sentencing Guidelines to the misconduct, that the appropriate monetary penalty is $247,520,000 (the “Total Criminal Penalty”), $500,000 of which will be paid as a criminal fine by CSSEL pursuant to its plea agreement entered into simultaneously herewith, and that the appropriate forfeiture is $10,344,865 (the “Forfeiture Amount”). The Total Criminal Penalty reflects a 15 percent discount off the bottom of the applicable Sentencing Guidelines fine range. The Company and the Offices further agree that the Company will pay the United States $175,568,000, $500,000 of which will be paid as a criminal fine by CSSEL, to the United States Treasury within ten (10) business days of the sentencing hearing by the Court of CSSEL in connection with its plea agreement entered into simultaneously herewith.

The Offices agree to credit the remaining amount of the Total Criminal Penalty, up to a maximum of $47,200,000, and the total Forfeiture Amount, up to a maximum of $10,344,865, against the amount the Company pays to the SEC in connection with a parallel resolution entered into between the Company and the SEC and up to a maximum of $24,752,000 against the amount the Company pays the FCA in connection with a parallel resolution entered into between the Company and the FCA. The Company’s payment obligation to the United States under the Agreement will be complete upon the total payment of $175,568,000 as described [above], provided the Company pays the remaining amount of the Total Criminal Penalty and Forfeiture Amount to the SEC and FCA no later than one year from the beginning of the Term. Should any amount of such payments to the SEC and FCA not be made by the end of one year from the beginning of the Term or be returned to the Company of any affiliated entity for any reason, the remaining balance of the Total Criminal Penalty and Forfeiture Amount shall be paid to the United States Treasury.”

Pursuant to the DPA, Credit Suisse agreed to report to the DOJ annually during the 3 year term of the DPA regarding “remediation and maintenance of the compliance measures” described in the DPA.

CSSEL

The criminal information charging Credit Suisse Securities (Europe) Limited (CSSEL) with conspiracy to commit wire fraud is a near carbon copy of the Credit Suisse information. Pursuant to the plea agreement, CSSEL agreed to pay a $500,000 criminal fine and the parties agreed that this was “appropriate in light of the [Credit Suisse’s] DPA, which relates to the same conduct to which [CSSEL] is pleading guilty.”

In the DOJ’s release, Assistant Attorney General Kenneth Polite Jr. stated:

“Credit Suisse Group AG, through its U.K. subsidiary CSSEL, defrauded U.S. and international investors in connection with a lending project in Mozambique. Among other things, Credit Suisse Group AG, CSSEL, and their co-conspirators deceived investors by hiding information about the risk that loan proceeds were used for illegal purposes in connection with the restructuring of the loan. Today’s coordinated resolution with the U.S. Securities and Exchange Commission and the Financial Conduct Authority in the United Kingdom shows that the department will not tolerate fraud by international financial institutions and is committed to working in parallel to domestic and foreign authorities to use all tools at our disposal to hold corporate wrongdoers accountable.”

U.S. Attorney Breon Peace for the Eastern District of New York stated:

“Over the course of several years, Credit Suisse, through its subsidiary in the United Kingdom, engaged in a global criminal conspiracy to defraud investors, including investors in the United States, by failing to disclose material information to investors, including millions of dollars in kickbacks to its bankers and a high risk of corruption, in connection with an $850 million fraudulent loan to a Mozambique state-owned entity. This coordinated global resolution demonstrates this Office’s commitment to working across borders with our global law enforcement partners to root out abuse and fraud by financial institutions in order to protect investors here in the United States.”

In this release Credit Suisse stated in pertinent part:

“In terms of loan financing for Mozambique, Credit Suisse Group has entered into a three-year Deferred Prosecution Agreement (DPA) with the United States Department of Justice (DOJ) and consented to the entering of a Cease and Desist Order by the United States Securities and Exchange Commission (SEC). Under the terms of the DPA, Credit Suisse will continue its compliance enhancement and remediation efforts, report to the DOJ on those efforts for three years, and undertake additional measures, as outlined by the resolutions. In addition, Credit Suisse Securities (Europe) Ltd. (CSSEL) has pled guilty to one count of conspiracy to violate the US federal wire fraud statute. CSSEL will be bound by the same obligation as Credit Suisse under the DPA. The total monetary aspect of the DOJ and SEC settlements, taking into account various credits for overlapping penalties, is approximately USD 275 million.

In the resolution with the United Kingdom Financial Conduct Authority (FCA), Credit Suisse agreed that in respect of these transactions with Mozambique between 2013 and 2016, its UK operations had failed to conduct its business with due skill, care and diligence and to take reasonable care to organize and control its affairs responsibly and effectively, with adequate risk management systems. Credit Suisse will pay a penalty of approximately USD 200 million, and the bank has also agreed with the FCA to forgive USD 200 million of debt owed by Mozambique.

As a result, the Group expects to take USD 230 million in charges in the third quarter 2021.

In its ruling, the Swiss Financial Market Supervisory Authority (FINMA) noted that Credit Suisse violated the duty to file a suspicious activity report (SAR) as the filing in 2019 was considered too late. It also noted that Credit Suisse did not pay enough attention to the risks arising from specific sovereign lending transactions, and has ordered the bank to remediate all deficiencies identified by June 30, 2022. FINMA has imposed a business restriction until an Implementation Auditor has reviewed and approved all measures taken based on the current ruling.

Credit Suisse also noted [an] announcement by FINMA that it has concluded its enforcement proceedings against the bank related to past observation activities. In addition to the known observation of two former Executive Board members, a small group of former executives within the bank planned and mostly executed five further observations of former employees or third parties, all outside Switzerland, between 2016 and 2019. The majority of the additionally conducted observations served to protect the physical safety of employees. The regulator criticized the bank’s decision-making, documentation and supervision of the observations and the lack of internal regulations. The deficiencies in documentation were partially due to the fact that communication took place via external channels that were not authorized by the bank.

As stated previously, Credit Suisse condemns any unjustified observations and has adopted a series of measures, with observations prohibited unless required for compelling reasons such as threats to the physical safety of employees. The bank 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.

The bank also regrets that it initially failed to ensure all relevant information was readily available and hence provided to the regulator in a complete manner.

Credit Suisse is satisfied with the completion of the proceedings by US, UK 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.”

Paul Hastings attorneys Matthew Herrington and Tom Best along with Kirkland & Ellis attorneys Mark Filip and Brigham Cannon represented Credit Suisse.

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