Credit Suisse Pays $76 Million for Sons and Daughters FCPA Violations in China (Part I of II)

Credit Suisse Group AG and its Hong Kong subsidiary settled FCPA charges with the Justice Department and the Securities and Exchange Commission.  The Justice Department announced that Credit Suisse’s Hong Kong subsidiary agreed to pay $47 million in exchange for a non-prosecution agreement (NPA) for FCPA violations involving hiring of friends and families of Chinese officials to win investment banking business (here).  The SEC announced that Credit Suisse agreed to pay nearly $30 million (in disgorgement and prejudgment interest) as part of civil administrative settlement for similar FCPA violations (here).

From approximately 2007 to 2013, Credit Suisse’s Hong Kong unit hired more than 100 employees in order to secure banking business and regulatory approvals from various state-owned enterprises and government agencies.  Credit Suisse leveraged the corrupt hiring of unqualified individuals to secure business worth approximately $46 million in profits.

Credit Suisse hired unqualified relatives of foreign officials, and the subsequently provided continuing benefits such as promotions, bonuses and high-profile work assignments in a continuing effort to secure additional business from various government officials.

Credit Suisse managers and senior officials were aware of Hong Kong’s practice of making “relationship hires” or “referral hires” as part of an arrangement with government officials who referred such relatives to Credit Suisse for hiring, promotion and compensation.

The Justice Department and SEC settlement documents outlined numerous instances where Credit Suisse officials communicated in emails the need to hire, retain, promote or compensate otherwise unqualified individuals in order to secure government business.  In practice, many of the hired relatives were unqualified, lacking in capabilities, and excused from training and performance requirements.  In a few cases, Credit Suisse employees drafted resumes for relatives to justify a hiring decision.

In reaching a settlement, DOJ outlined the following considerations under its FCPA Corporate Enforcement Policy:

  • Credit Suisse did not receive credit for voluntary disclosure because it did not make a voluntary and timely disclosure to DOJ.
  • Credit Suisse received partial credit for its cooperation, including conducting an internal investigation, factual presentations to DOJ, making foreign-based employees available for interviews in the United States, producing documents from foreign countries that did not implicate data privacy laws, providing translations of foreign language documents and collecting and presenting evidence to DOJ. However, Credit Suisse received only partial credit because its cooperation only occurred in response to DOJ’s investigation and had not been initiated prior to learning about DOJ’s investigation.
  • Credit Suisse received credit for remediation for the following measures: (a) adding new controls related to its hiring program; (b) implementing global controls to ensure anti-corruption vetting for all candidates referred for employment by government officials and SOEs; (c) requiring independent screening and validation of absence of connections to government officials, SOEs and politically exposed persons; (d) additional post-hiring controls to employees how may have links to government officials and SOEs, such as maintaining ethical walls to prevent identified employees from working on matters involving foreign officials and tracking of their performance; (e) conducting periodic reviews of hiring controls(f) conducting annual headcount reviews and confirming accuracy of data; and (g) requiring improved training on anti-corruption issues for all staff, as well as job-specific training for bankers, recruiters, human resources and compliance personnel.  Interestingly, Credit Suisse did not receive full remediation credit because it failed to discipline adequately employees who engaged in the misconduct and only noted policy infractions internally and notified only three employees.
  • Credit Suisse committed to enhance its compliance program and internal controls. Based on the state of its compliance program, its commitment to enhance its compliance program, its agreement to provide annual compliance program reports, DOJ declined to impose an independent corporate monitor.
  • Credit Suisse agreed to continue to cooperate in further investigations of related individuals.

Based on all of these considerations, the Justice Department agreed to enter into an NPA and apply a 15 percent discount from the bottom of the US Sentencing Guideline range.

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2 Responses

  1. Dennis Myhre says:

    Mr. Volkov,

    I was reading recently an open access publication found on entitled Laws that are Made to be Broken, authored by James Edwards, Associate Professor of Law at Oxford University. Prof. Edwards addressed the fact that certain criminal laws are made to be broken, with no compliance intended. While his focus is on this type of law, which demands conviction, he also mentions laws that are meant to be “followed,” the first example an intent of which is to reduce the incidence of wrongdoing. This is where “compliance” comes into play, and the FCPA is a prime example. Admittedly, this is also where the NPA’s and DPA’s really shine. No identifiable victim, but wrongdoing that must be enforced through a commitment of compliance and a monetary penalty.

    Where the crime fits the second definition, the fact it was made to be broken, relates to the State Street Corporation fraudulent activities. The problem I see with the State Street case is that the company was offered, and they accepted, a Deferred Prosecution Agreement with no restitution for the victims of the crime. Why the U.S. treasury and the SEC were entitled to monetary compensation, when the crime was against pensioners, defies reason.

    Many of us had hoped, perhaps expected, that with the “new” administration, such inequities would finally come to an end, but it is yet to happen. Now the oldest, and most culpable bank holding company in the world, impacting $33 Trillion in pension and 401k funds worldwide, has engaged, and most likely, continues to engage, in criminal conduct. Acting Assistant Attorney General Bitkower was quoted as saying that… “The bank fundamentally abused its clients’ trust and inflicted very real financial losses. The department will hold responsible those who engage in this type of criminal conduct.” And yet they get off with a DPA and a promise to never do it again?

    My point is that there are two types of crimes… the DOJ handled the Chinese fiasco correctly, but State Street was not. There MUST be a presumption by the DOJ that State Street continues to criminalize their activities within the corporate complex, and no Monitor will ferret out these crimes without an in-depth investigation by the DOJ. The DOJ shut the door on such investigation with the DPA, and in doing so ignored vital needs of millions of American retirement savers who deserve more accountability from our government.

    Dennis Myhre, AIC

  1. July 13, 2018

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