Credit Suisse Suspected of Failings in Wealth-Manager Probe

(Bloomberg) -- A Credit Suisse Group AG unit is suspected by Geneva prosecutors of systematically neglecting basic compliance rules and failing to prevent alleged money-laundering by a Turkish asset manager it worked with.

The bank was named as an “accused,” suspected of wrongdoing under articles of the Swiss criminal code that cover money-laundering offenses and corporate liability as the investigation into the affair widened in November, according to a spokesman for the Geneva prosecutor’s office.

While four current and former employees of the bank have already been accused of complicity in fraud and money laundering by Geneva Prosecutor Johan Droz, it’s the widespread nature of the suspected failings that prompted Droz to investigate the bank as well, according to people familiar with his strategy.

This is the second fraud case in recent years in the Swiss city involving client assets at Credit Suisse. Patrice Lescaudron was sentenced to five years in prison in February after admitting that over a 10-year period at the bank he ran up losses for wealthy Russian clients and then tried to cover them up with forgeries and fake orders. The bank repeatedly said that it knew nothing of Lescaudron’s subterfuge.

While Droz’s case is focused on TG Investments, a Geneva asset manager handling money for Credit Suisse clients, both investigations have put an uncomfortable spotlight on the bank’s compliance practices. At least eight Credit Suisse employees’ alleged repeated violation of anti-money-laundering rules designed to flag suspicious trades ended up masking the money manager’s purportedly fraudulent behavior, Droz concluded, according to two people familiar with the case who asked not to be named while discussing an ongoing investigation.

‘Vigorously Defend’

The Zurich-based bank said it has not been charged or indicted with any crime and “will vigorously defend itself against the allegations with all available means.”

Saverio Lembo, a lawyer for a bank employee who was suspended in 2015 and later fired, said his client “feels betrayed by the unsuspected and sophisticated fraud” by the two TG partners. Lembo said his client was at the lower end of the management chain with no decision-making power.

David Bitton, a lawyer for another of the accused, said the case against her is “hasty and contradicts the facts” of the case. “My client never met the clients of TG, never met the TG partners and was not in charge of this relationship with Credit Suisse,” he said. Lawyers for a third staffer said “our client strongly contests any liability.” A lawyer for the fourth declined to comment.

‘Prevenue’

Under the Swiss Criminal code, an accused or “prevenue” is suspected, accused or charged of criminal offenses as the investigation advances. Until their conviction, the case against them can be dropped at any time.

Droz is widening the scope of the more than two-year-old investigation by tapping Article 102, a corporate liability clause rarely used in the first decade after it was added to the Swiss Criminal code. But that may be changing. Swiss Attorney General Michael Lauber signaled in a 2016 interview his determination to employ it more to “encourage businesses to report dysfunctional behavior within their organizations.”

In addition to the bank employees, the two founding partners at TG Investments have already been accused of fraud and money-laundering offenses. Both men, who can’t be identified under Swiss privacy laws, left Credit Suisse in 2008 to set up TG Investments to manage money for rich Turks.

The two men are accused of forging signatures and faking orders to try to cover losses of at least 150 million Swiss francs ($150 million). Gregoire Rey, a lawyer for one of the two TG partners, has acknowledged that his client made the trades but has previously said that his client never intended to profit from the transaction and was only trying to cover unexpected losses. Ilir Cenko, a lawyer for the other partner, declined to comment.

Corporate Liability

Article 102 allows Swiss prosecutors to go after a company or bank if it can’t attribute wrongdoing to an individual suspect. If the alleged wrongdoing includes money-laundering, however, then the employer can be “penalized irrespective of the criminal liability” of any employee’s role.

The number of corporate liability cases is growing and there are now 10 federal cases being pursued by the Swiss Attorney General’s office. Federal prosecutors have secured six convictions since 2011 and the cases currently open include proceedings against Falcon Private Bank and BSI SA, acquired by EFG International AG in 2016, because of their involvement in the 1MDB corruption scandal in Malaysia. A spokesman for Falcon said he couldn’t comment with the case still open, while a spokesman for EFG didn’t have any immediate comment when reached by phone.

Still, it remains an open question as to whether Droz will end up indicting Credit Suisse when he wraps up his investigation, or be able to secure a conviction.

As recently as 2016, the country’s appeals courts overturned the conviction of Postfinance AG, a state-owned savings bank with 3 million customers. The case hinged on whether a compliance officer failed to make sufficient checks when a client sought to withdraw 4.6 million Swiss francs.

But when proceedings against the individual suspects were dropped, the appeals court said that the bank conviction could no longer stand.

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