Finance

Credit Suisse admits it defrauded investors to settle Mozambique charges

Credit Suisse Group AG agreed to pay $475m and forgive $200m Mozambique owes to investors in coordinated settlements with US and European authorities over loans the bank made in the country.

A subsidiary of the Swiss bank pleaded guilty to wire fraud conspiracy charges in New York federal court on 19 October. Credit Suisse, which previously had maintained it was a victim of rogue employees, admitted to defrauding investors who bought some of the debt and agreed to pay $275m to resolve both a criminal probe by the Justice Department and a civil investigation by the Securities and Exchange Commission.

The UK’s financial regulator fined the bank $200m and said the firm would forgive an additional $200m of debt owed to investors by Mozambique. Switzerland’s financial regulator, citing failings around the Mozambique lending, put restrictions on Credit Suisse’s ability to make new loans to financially weak or corruption-prone countries and companies. It will also review existing loans that meet those criteria.

The settlements draw a line under an eight-year-old scandal that has seen three former Credit Suisse bankers plead guilty for their roles in siphoning hundreds of millions of dollars that the bank helped raise for companies owned by the African country’s government. The UK regulator said the loans, arranged in 2013 and 2014 and first reported by The Wall Street Journal, were “tainted by corruption.”

READ Swiss regulator Finma reveals Credit Suisse spied on seven executives

New Credit Suisse Chief Executive Thomas Gottstein, who took over last year, has sought to clean up the bank’s reputation and resolve legal cases opened under his predecessors. A new chairman, António Horta-Osório, joined the bank in April and vowed to improve its risk management.

But problems keep piling up. In March, a financing partner, Greensill Capital, went out of business, putting at risk $10bn in investment funds it ran with Credit Suisse. Weeks later, the bank lost $5.5bn in a messy unwinding of stock trades it held with family office Archegos Capital Management. Swiss regulator Finma has opened enforcement proceedings over both matters.

And older issues still loom. The bank will go on trial in Switzerland in February for allegedly helping a Bulgarian crime ring launder money more than a decade ago. On 19 October, Swiss regulators released the findings of its investigation into corporate spying at Credit Suisse, finding the bank had violated the law in surveilling its own employees.

In the Mozambique case, Credit Suisse arranged a mix of bonds and loans for the companies in that country but didn’t disclose the loans to bond investors or public-sector lenders. The Journal’s reporting of the loans prompted the International Monetary Fund and others to freeze lending to Mozambique, causing “a severe financial crisis,” in the country, according to the indictment.

Much of the money was allegedly siphoned off by the Credit Suisse bankers, Mozambican government officials and a Lebanese shipbuilding company, according to an indictment filed by the Justice Department.

One of the bankers, Andrew Pearse, admitted taking bribes to lower fees and enlarge loans and pleaded guilty in US court in July 2019. Two of his former colleagues pleaded guilty to laundering illicit funds. A federal jury acquitted an executive of the Lebanese shipbuilder.

Emails obtained by US prosecutors showed the bankers, Mozambican officials and Privinvest Group, a shipbuilder owned by Lebanese billionaire Iskandar Safa, created front companies to pay themselves and others at least $200m in bribes and kickbacks, according to the indictment.

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Credit Suisse arranged a bond restructuring for one of the front companies in 2016. The bank knew but didn’t tell investors in the deal, that significant funds had been diverted, according to the SEC.

Prosecutors in Mozambique have indicted a former finance minister and the son of former President Armando Guebuza in a related trial that began in Maputo in August. The case drew parallels to Goldman Sachs Group’s billions of dollars in lending to Malaysian investment fund 1MDB. Goldman admitted it broke US corruption laws and agreed to pay billions of dollars to global regulators.

Credit Suisse still faces lawsuits in the UK from Mozambique’s attorney general and investors in the loan deals.

Write to Margot Patrick at mar[email protected], Matt Wirz at [email protected] and Dave Michaels at [email protected]

This article was published by Dow Jones Newswire

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