WASHINGTON/ZURICH (Reuters) - U.S. and Manhattan prosecutors detailed on Wednesday a “decades-long scheme” by Credit Suisse to hide thousands of transactions on behalf of clients in Iran, Sudan, Libya and other nations, and said the Swiss bank had agreed to pay $538 million in fines.
More than $1.6 billion was moved through the U.S. financial system through the transactions, prosecutors said.
Manhattan District Attorney Robert Morgenthau told a news conference that other banks were being investigated for similar transactions.
“There will be other prosecutions,” he said. “Not only of financial institutions, which carry the money, but also of the suppliers.”
In Zurich, a source who declined to be identified, said nine banks were involved and that four had settled, including Lloyds TSB Group of Britain and Credit Suisse.
While the majority of the transactions involved Iran, other transactions violated U.S. sanctions against Sudan, Libya, Myanmar, Cuba, and the former Liberian regime of Charles Taylor, the U.S. Treasury Department said in a statement.
The department called the settlement the “most significant” in the history of its Office of Foreign Assets Control and said the penalty could have been “substantially higher” had the bank not cooperated with the government over the past two years and agreed to take remedial action.
A “BLIND EYE”
“Credit Suisse turned a blind eye to indicators that should have led to these practices ending much sooner,” Treasury Under Secretary for Terrorism and Financial Intelligence Stuart Levey said in a statement.
“Credit Suisse learned that another international bank had ceased to handle Iranian banks’ U.S. dollar clearing business. Instead of perceiving potential risk, Credit Suisse saw a business opportunity and sought to take over the business,” Levey said.
U.S. Attorney General Eric Holder called the Credit Suisse’s misconduct “simply astounding.”
“Credit Suisse’s decades-long scheme to flout the rules that govern our financial institutions robbed our system of the legitimacy that is fundamental to it success,” Holder said during a press conference.
“We cannot let this stand, and today’s settlement sends a strong message that we will not let it stand.”
U.S. prosecutors alleged, among other things, that Credit Suisse removed Iranian references from payment messages and used elaborate procedures to ensure the involvement of sanctioned countries was not apparent to other banks involved in the transactions.
The Swiss bank may have begun evading U.S. sanctions as early as 1986, when sanctions on Libya were first imposed, according to court documents.
Credit Suisse confirmed on Tuesday that it was in settlement discussions with the U.S. Justice Department, the Manhattan District Attorney’s Office and other U.S. authorities.
The bank, which avoided state aid and emerged from the financial crisis as one of the banking sector’s winners, said the settlement would likely result in an additional 445 million Swiss franc ($428.3 million) fourth-quarter charge, or about 360 million francs.
The charge goes beyond provisions booked in previous periods.
COOPERATION WITH REGULATORS
Credit Suisse said it had undertaken an extensive investigation into the practices relevant to the five-year-long U.S. probe and that it had worked closely with regulators and U.S. authorities.
The bank said in a statement on Wednesday that it was committed to the highest standards of integrity and took “this matter extremely seriously.” It said it had ended business with the sanctioned countries by 2007.
Credit Suisse has entered into a deferred prosecution agreement, essentially a contract between the bank and the government. The settlement was approved by U.S. District Judge Royce Lamberth on Wednesday.
The bank has to pay the $536 million within five business days, according to the court documents.
The settlement, which includes $268 million in forfeited funds to the U.S. government and $268 million under a separate agreement with the Manhattan District Attorney’s office, is subject to court approval.
Prosecution of the bank will be deferred for two years in exchange for the company’s cooperation, the documents stated.
Separately on Wednesday, the Federal Reserve issued a consent cease and desist order against the bank requiring it to set up a global regulatory compliance program.
Credit Suisse shares closed up 4.75 percent at $50.52 on the New York Stock Exchange.
The settlement is the second reached by a Swiss bank with U.S. authorities this year. Swiss banking group UBS AG agreed in February to pay $780 million to avoid criminal charges for helping about 50,000 Americans evade taxes.
Earlier this year, Lloyds TSB agreed to forfeit $350 million to U.S. authorities in connection with charges that it faked records so clients from Iran, Sudan and elsewhere could do business within the U.S. banking system. That case was similar to the one involving Credit Suisse.
Credit Suisse first disclosed the probe in 2007.
Analysts in Europe said the settlement would have a short-term impact on the Swiss bank, but other banks could now be in the line of fire.
Royal Bank of Scotland Group Plc and Barclays Plc are among banks that have in the past disclosed potential risks resulting from dealing with countries under U.S. economic sanctions.
After strong interim earnings this year, Credit Suisse’s fourth-quarter results were expected to be weak due to the charge and an expected slowdown in private bank inflows because of an Italian tax amnesty, said Mathias Bueeler, an analyst with Kepler Capital Markets.
“While we are a bit surprised about the size of the amount, this is a one-off payment that should have no further implications on Credit Suisse’s business or franchise,” Bueeler said.
Additional reporting by Juan Lagoria and Grant McCool in New York, Steve Slater, Sam Cage and Rupert Pretterklieber, and Clara Ferreira-Marques in Zurich and London; editing by Simon Denyer, Steve Orlofsky, Toni Reinhold
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