All About the “Leaked” Credit Suisse Secrets

"A different point of view is simply the view from a place where you’re not." — HSBC

For a bank which was later indicted and penalised for being a party to money laundering, it seems that the “different point of view” meant dirty money and the “place where you’re not” meant the Sinaloa cartel.

HSBC was not the first bank accused of funnelling illegal money and it certainly was not the last, as evident from recent events concerning Credit Suisse. A data leak of enormous proportions has revealed how the bank had ties to account holders involved in torture, drug trafficking, money laundering, corruption and several other crimes. [Link to the detailed investigative report]

The whistleblower revelations are drawing strong reactions from European regulators and threatening to damage Switzerland’s financial sector. Some in the EU Parliament are now raising the serious prospect of adding the country to a “money-laundering blacklist”.

Let’s break down the colossal details.

What are the “Suisse Secrets”?

It is a global journalistic investigation into a data leak from Credit Suisse. The leak includes the details of more than 18,000 bank accounts (out of the bank’s 1.5 million in total) that were leaked by a whistleblower to a Munich-based newspaper called Süddeutsche Zeitung.

The data was investigated in a project jointly coordinated by the newspaper, the Organised Crime and Corruption Reporting Project (OCCRP) and 48 media partners around the world including journalists from The New York Times, Le Monde, The Guardian, Miami Herald, NDR etc.

So far, all we know about the whistleblower is that he/she/they believe(s) that “Swiss banking laws are immoral”.

Following are the key details in focus from the leaked data:

• Almost 200 accounts in the data are worth more than 100m Swiss Francs (CHF) ($100m). More than a dozen are valued in billions.
• Account holders include many prominent entities like — King Abdullah II of Jordan, sons of the Egyptian dictator Hosni Mubarak, Pakistani intelligence chiefs, Yemeni spy officials implicated in torture, Venezualan offcials involved in corruption, a Serbian drug lord etc.
• Money funnelled through the bank went to — funding Mujahideen fighters in Afghanistan, accounts of oil smugglers alleged with torture, bribing members in the Venezuelan government etc.

The leak is almost Panama/Pandora/Paradise-sque in character given the cross-country and cross-media cooperation that went into investigating its details.

But here are some things which set it apart from the rest. One, the data disclosed doesn’t reveal any current operations of the bank, only details of accounts that were opened from the 1940s until late into the past decade. Two, the information contained includes clients from more than 120 jurisdictions but some of the world’s biggest countries — USA, Russia, China, India, Brazil — are not heavily represented.

Having said that, its revelations are startling enough to put Credit Suisse on its back.

The Souring Suisse Cheese

The 160-year-old Credit Suisse machinery has come to show multiple cracks over the past few years. For starters, the bank lost close to $10bn following the twin scandals — 1) the collapse of the British financier Greensill Capital, and 2) the default of the US-based hedge fund Archegos.

But let’s discount the errors in business decisions and profit-making for a moment and focus on the ethics side of things. Even here, Credit Suisse has been involved in a string of scandals and has been reported to promote a culture that encourages “maximum risk-taking”.

It began in the year 2000 when the Nigerian dictator Sani Abacha and his family members used the bank to siphon off $200m. After facing substantial fines by the Swiss Banking Association, Credit Suisse had pledged that it would accept “only those clients whose source of wealth and funds can be reasonably established to be legitimate”.

History would suggest otherwise.

Widespread failures of due diligence has become a norm for the bank which happens to be one of the largest private lenders in the world, employs more than 50,000 people, caters to 1.5 million clients and manages assets worth $1.6trn. Repeated pledges to improve itself have been rendered meaningless as the bank continues to harbour illicit funds from questionable clients, evidently still.

And what’s worse is that Credit Suisse isn’t the only culprit. Dirty money flows into Switzerland as fast as cheese gets exported out. Years and years of ironclad bank secrecy laws have made the country the most lucrative destination for people who are looking to hide their money. So, to be fair, the Suisse Secrets aren’t really secrets but rather an authentication.

It doesn’t stop there. Banks and financial service firms around the world continue to do business with dodgy clients who enrich themselves in countries with poor legal systems and lax oversight. Decades of vigilance and regulatory clampdowns haven’t been able to cure the pandemicity of banks influencing financial crimes. If only Pfizer could come up with a vaccine soon enough…

Reading Between the Credit Lines

High-risk and politically influential people aren’t prohibited from opening bank accounts. But it is the origin of wealth in their accounts that needs to be examined. Banks like Credit Suisse choose to disregard the need for such examination by calling into account the outweighed income from those accounts over due-diligence.

As for people who are convicted of corruption, feature on sanction lists or have outstanding Interpol notices against them, it’s another story altogether. In those cases, the balance of probability against money laundering is so high that the bank must make it a norm not to enlist accounts to begin with.

Another question to ask here is that for a bank of Credit Suisse’s size, what degree of responsibility should it assume when taking on clients through mergers. For instance, in March 2013, the bank took over $13bn in assets belonging to high net worth individuals from Morgan Stanley. Does the burden of due-diligence fall entirely on the acquirer?

Well… yes. There’s a reason why M&A departments of law firms and investment banks make a fortune and it is because of the billing hours that are put into long drawn-out exercises like due-diligence. Every single financial regulatory rulebook in the world outlines the importance of banking practices that are aimed at checking money laundering (AML), terror financing (CFT) and the like.

Despite that, every now and then, reports involving banking scandals are rife in the media — The Suisse Secrets, The FinCEN Files, NatWest gold dealings, Danske Bank, Swedbank scandal etc., to name a few.

About Blacklisting Switzerland

The prospect may have gained traction for the moment but it’s difficult to say how long it would hold momentum. The List was drawn up by 28 EU Finance Ministers in the aftermath of the Panama Papers and LuxLeaks to increase enforcement against tax evasion.

But in essence, it is hardly more than a “naming and shaming” exercise for the culprit countries by putting bare minimum sanctions and freezing them out of EU funding temporarily.

Big surprise: Switzerland has been on the list before. It was put on the list in 2017 for attracting dubious funds from abroad with the offer of sub-par taxation schemes. It was taken off of the list in 2019 after domestic legislations were enforced with changes in the taxation regime.

The blacklisting, therefore, would do little more than pile on diplomatic pressure on the country to amend its banking norms, the most important one being the expansion of Article 47 of Banking Act which dates back to 1934. This is the law that had introduced extreme secrecy regulations originally.

Here’s hoping that the Swiss neutralise their banking deficiencies with the same spirit as they neutralise everything else.

(Originally published February 24th 2022 in transfin.in)