Credit Suisse found guilty in cocaine laundering case

BELLINZONE, Switzerland, June 27 (Reuters) – Credit Suisse (CSGN.S) was convicted by the Swiss Federal Criminal Court on Monday of failing to prevent money laundering by a Bulgarian gang of cocaine smugglers during the first the country’s criminal lawsuit against one of its major banks. Read more

A former employee was convicted of money laundering in the trial, which included testimony about murders and money stuffed into suitcases and is seen as a test case for prosecutors who are taking a tougher line against the country’s banks.

The move marks a new headache for Switzerland’s second-largest bank, which has been reeling from billions in accumulated losses due to risk management and compliance errors.

Federal prosecutor Alice de Chambrier hailed the verdict as “good for transparency.”

Credit Suisse and the former employee had denied any wrongdoing.

Credit Suisse said it would appeal the conviction. Read more

Judges considered whether Credit Suisse and the former employee did enough to stop the cocaine smuggling gang from laundering profits through the bank from 2004 to 2008. read more

The court said on Monday that it had found shortcomings within Credit Suisse both in terms of managing customer relations with the criminal organization and in terms of monitoring the application of anti-money laundering rules.

“These breaches allowed the withdrawal of the assets of the criminal organization, which was the basis of the conviction of the former bank employee for aggravated money laundering,” the court said.

“The company could have prevented the infringement if it had fulfilled its organizational obligations”, declared the president of the court in delivering the verdict, adding that the hierarchical superiors of the former employee had been “passive”.

Credit Suisse said the case stemmed from an investigation that dated back more than 14 years.

“Credit Suisse continuously tests its anti-money laundering framework and strengthens it over time in line with evolving regulatory standards,” the bank said.

“Generating business growth in line with legal and regulatory requirements is essential for Credit Suisse.”

Credit Suisse was fined 2 million Swiss francs ($2.1 million). The court also ordered the confiscation of assets worth more than 12 million francs that the drug gang held in accounts at Credit Suisse and ordered the bank to forfeit more than 19 million francs – the amount that could not be confiscated due to internal deficiencies at Credit Suisse.

The court sentenced the former employee, who cannot be named under Swiss privacy laws, to a 20-month suspended prison sentence and a fine for money laundering.

The presiding judge said she had failed in her role as the bank’s “first line of defence”.

The former banker’s lawyer said she would appeal the “unfounded and unfair decision”, noting that she had made no financial gain.

“This judgment places the responsibility for money laundering on people without any training or serious experience,” said his lawyer.

Shares of Credit Suisse closed up 0.4%, while the European banking sector index (.SX7P) rose 0.3%. They are down more than 40% over the past year.

LEGAL ACTION

Corruption and money laundering experts say the fact that Switzerland has taken legal action against a global banking player like Credit Suisse could send a powerful message in a country famous for its banking sector.

“This could be a watershed moment for Switzerland,” said Mark Pieth, a money laundering expert at the University of Basel, on the eve of the trial.

“What is significant in this case is that Switzerland is taking legal action against a company and not just any company – Credit Suisse is one of the jewels in the Swiss crown.”

Swiss private banks have adopted tougher anti-money laundering controls after an international regulatory crackdown to prevent money laundering.

Under Swiss law, a company can be held liable for inadequate organization or for failing to take all reasonable measures to prevent a crime from occurring.

In the Credit Suisse case, prosecutors alleged that the former relationship manager helped conceal the criminal origins of clients’ money through more than CHF146 million in transactions, including CHF43 million in cash, some of which stuffed into suitcases. Read more

The relationship manager, who left Credit Suisse in 2010, was not in the courtroom on Monday.

During court hearings in February, the former relationship manager said Credit Suisse had been made aware of murders and cocaine smuggling believed to be linked to the Bulgarian gang, but continued to handle the money that became the subject of the trial.

The former banker told the hearings that she informed her officials of the events, including two murders, associated with the clients, but they nevertheless decided to prosecute the company.

Credit Suisse disputed the illegal origin of the money, saying a former Bulgarian wrestler and his entourage operated legitimate construction, rental and hospitality businesses.

($1 = 0.9594 Swiss francs)

Reporting by Paul Carrel, additional reporting by Brenna Hughes Neghaiwi and John O’Donnell; Editing by Michael Shields and Jane Merriman

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