Credit Suisse Group has agreed to pay nearly US$475 million to US and UK authorities for fraudulently misleading investors and violating the Foreign Corrupt Practices Act (FCPA) in a scheme involving two bond offerings and a syndicated loan that raised funds on behalf of state-owned entities in Mozambique.
The penalty also includes nearly $100 million to also be paid to the Securities and Exchange Commission (SEC).
According to the SEC's order, these transactions that raised over $1 billion were used to perpetrate a hidden debt scheme, pay kickbacks to now-indicted former Credit Suisse investment bankers along with their intermediaries, and bribe corrupt Mozambique government officials.
The SEC's order finds that the offering materials created and distributed to investors by Credit Suisse hid the underlying corruption and falsely disclosed that the proceeds would help develop Mozambique's tuna fishing industry.
Credit Suisse failed to disclose the full extent and nature of Mozambique's indebtedness and the risk of default arising from these transactions.
Credit Suisse agreed to pay disgorgement and interest totaling more than $34 million and a penalty of $65 million to the SEC. As part of coordinated resolutions, the US Department of Justice (DOJ) imposed a $247 million criminal fine, with Credit Suisse paying, after crediting, $175 million.
The SEC's order also finds that the scheme resulted from Credit Suisse's deficient internal accounting controls, which failed to properly address significant and known risks concerning bribery.
A London-based subsidiary of Russian bank VTB separately agreed to pay more than $6 million to settle SEC charges related to its role in misleading investors in a second 2016 bond offering.
According to the SEC's order, the second offering as structured by VTB Capital and Credit Suisse allowed investors to exchange their notes in an earlier bond offering for new sovereign bonds issued directly by the government of Mozambique.
However, SEC found that the offering materials distributed and marketed by Credit Suisse and VTB Capital failed to disclose the true nature of Mozambique's debt and the high risk of default on the bonds.
The offering materials further failed to disclose Credit Suisse's discovery that significant funds from the earlier offering had been diverted away from the intended use of proceeds that was disclosed to investors.
Mozambique later defaulted on the financings after the full extent of "secret debt" was revealed.
The SEC's order against Credit Suisse finds that it violated antifraud provisions as well as internal accounting controls and books and records provisions of the federal securities laws.
Credit Suisse also agreed to pay over $200 million in a penalty as part of a settled action with the UK Financial Conduct Authority (FCA).
VTB Capital consented to an SEC order finding that it violated negligence-based antifraud provisions of the federal securities laws. Without admitting or denying the findings, VTB Capital agreed to pay over $2.4 million in disgorgement and interest along with a $4 million penalty.
In terms of loan financing for Mozambique, Credit Suisse Group has entered into a three-year deferred prosecution agreement with the DOJ and consented to the entering of a cease and desist order by the SEC.
Anita Bandy, associate director of the SEC's Division of Enforcement, says: "Credit Suisse provided investors with incomplete and misleading disclosures despite being uniquely positioned to understand the full extent of Mozambique's mounting debt and serious risk of default based on its prior lending arrangements.
She adds: “The massive offering fraud was also a consequence of the bank's significant lapses in internal accounting controls and repeated failure to respond to corruption risks."
In response to the fine, a spokesperson for Credit Suisse says: “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.”
They add: “Credit Suisse is satisfied with the completion of the proceedings into the bank’s arrangement of loan financing for Mozambique state enterprises and can now draw a line under the observation matter.”
