Credit Suisse's Secret Deals

Friday, December 18, 2009Last Update: 7:25 AM PT Credit Suisse to Pay $536M to Avoid Charges
By JONATHAN PERLOW
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MANHATTAN (CN) - Credit Suisse AG agreed to pay $536 million to avoid criminal charges that it secretly helped customers in Iran and other sanctioned countries gain access to U.S. banks.
Credit Suisse helped funnel hundreds of millions of dollars illegally through banks in Manhattan and helped its customers skirt U.S. sanctions, according to the U.S. District Attorney's Office.
It allegedly disguised payments from Iran, Sudan, Libya, Burma and Cuba. The bank also processed more than $700 million in fraudulent transactions and an additional $1.1 billion in payments from Iranian customers, which may or may not have been illegal, prosecutors said.
Its London-based subsidiary, Credit Suisse Asset Management Group, illegally invested more than $150 million in funds belonging to banned-banks in Libya and Sudan, according to prosecutors.
"This case shows what happens when a prominent bank ignores sanctions and moves money for a dangerous and repressive regime," District Attorney Robert Morgenthau said. "Banks should know that if you violate sanctions and deal with Iran, you're going to pay a severe penalty."
Credit Suisse agreed to pay $536 million, with $268 going to New York and the other half to the Department of Justice, which conducted a parallel investigation.
Attorney General Eric Holder called the scheme "simply astounding" in its scope and complexity.
"At one point, the company even developed a pamphlet for its Iranian clients, explaining how to fill out payment messages so as not to trigger U.S. filters," Holder said. "They created a 'how-to' book on committing a crime - and it worked well for years."
The Swiss bank established a successful business model for rogue investors who sought access to U.S. markets.
To ensure its customers' payments weren't held up, the bank replaced their names with the phrase "By order of a customer," according to the DA's office.
It allegedly schooled the Iranian banks in how to format payment messages that would avoid Foreign Assets Control filters. Morgenthau said Credit Suisse assured its Iranian clients that it would manually review every payment before it went through to the United States.
The payments were processed by Lloyds Bank and others.
Lloyds settled similar claims earlier this year by agreeing to forfeit $350 million.
Both cases stemmed from the DA's investigation into the Alavi foundation and its connection with Bank Melli Iran. The Islamic foundation had its Manhattan office building seized by federal authorities and is suspected of having ties to the Iranian bank. DA staffers found evidence of wire payments from Bank Melli to people associated with Alavi, according to Morgenthau.
The 90-year-old district attorney said he remembers a time when obtaining a settlement like this would have been far more difficult. He said it was "unprecedented" for a Swiss bank and the Swiss government to provide the kind of access to its data and records that made the settlement possible.
"The standards of transparency have come a long way since I first began investigating financial crime in the 1960's," the 35-year veteran said. "From secret Swiss and Liechtenstein accounts then, to the conduct of BCCI in the 1990's, to this year's actions involving Iranian banks, the standards of transparency have risen, and we expect more from institutions today than ever before."
He gave the bank credit for cooperating with the investigation.
"The message to other banks involved in similar practices should be clear: If you are engaged in sanction-busting misconduct, you should self-report, clean up your shop, and give us full accounting," Morgenthau said. "This is what we should expect and demand from major international banks."

DECEMBER 17, 2009, 12:12 A.M. ET.Credit Suisse's Secret Deals

Bank Gave Iran, Other 'Rogue' Players Access to U.S. Dollars; $536 Million Settlement.ArticleComments (7)more in Law ».EmailPrinter

Text .By AARON LUCCHETTI And JAY SOLOMON

U.S. Attorney General Eric Holder said Credit Suisse Group helped clients in Iran and elsewhere conduct financial transactions in secret, saying Wednesday that the Swiss bank "established a business model to allow these rogue players access to U.S. dollars."

Mr. Holder and Manhattan District Attorney Robert Morgenthau detailed a decadelong effort by the bank to carry out transactions from Iran, Libya, Sudan, Burma and Cuba.

The men announced a $536 million settlement by Credit Suisse, one of several banks accused in a long-running case that has netted roughly $1 billion in fines. The bank, which paid the biggest of the fines, reached a 24-month deferred prosecution agreement, meaning it could face criminal prosecution if further problems occur.

Manhattan District Attorney Robert Morgenthau, left, discusses Wednesday an investigation into allegations Credit Suisse hid bank dealings by Iran.
.Mr. Holder said Credit Suisse built a business based on actively helping its clients avoid detection by U.S. authorities on their financial transactions. The bank produced a pamphlet titled, "How to transfer USD payments" and told Iranian clients that bank employees would check each message individually to make sure it would avoid detection.

The bank also circulated images of payment applications showing how to properly format them to avoid detection. "The settlement we announce today ensures that Credit Suisse will not flout the law again for its own financial gain," Mr. Holder said.

The Credit Suisse fine comes as the U.S. is intensifying efforts to use the global financial system to pressure Iran into giving up its nuclear program and international terrorism.

President Barack Obama has pledged to enact new economic sanctions on Iran at year end if Tehran doesn't respond to international calls for negotiations on the nuclear arms question.

Banks and other companies that help Iran and other sanctioned countries skirt sanctions will face a "severe penalty" because they risk "destabilizing not only the Middle East but the entire world," said Mr. Morgenthau.

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.Credit Suisse exited the business in question, which employed several dozen people, in 2005. It did its own investigation and cooperated with authorities. The firm said it "takes this matter very seriously," and "has enhanced its procedures to prevent practices of this type from occurring." By 2007, the firm closed its Tehran office and terminated business with all parties sanctioned by the U.S. Department of the Treasury's Office of Foreign Asset Control.

The fine was among the largest ever for Credit Suisse, which survived the credit crisis better than many competitors and has been gaining ground in trading and banking businesses in the U.S. It also comes after an effort by U.S. tax authorities to get Swiss banks to name Americans using the banks to evade taxes.

The investigation started in 2006 by the Manhattan district attorney's office showed that Credit Suisse processed more than $700 million in payments that violated U.S. sanctions between 2002 and 2006. It also processed $1.1 billion in payments manipulated to hide their Iranian origin, often manually reviewing trades, an official in Mr. Morgenthau's office said.

A London-based Credit Suisse asset-management unit also illegally invested $150 million on behalf of a banned state-affiliated bank in Libya and one in Sudan, the agreement said.

The bank "accepted and acknowledged responsibility for its criminal conduct in violating the International Emergency Economic Powers Act," the Justice Department said. The $536 million to be forfeited by Credit Suisse will be split by the U.S., New York state and New York City. It was the largest forfeiture on record for violations of the act, government officials said.

"More than a handful" of other banks are being investigated, Mr. Morgenthau said. The investigation was jointly conducted by the Manhattan district attorney's office and the Justice Department, with assistance from the New York Fed and OFAC, among others.

Mr. Morgenthau's office has become a key front in the financial campaign against Iran. Last year, a Manhattan federal court secretly froze $2 billion allegedly held on behalf of Iran in Citigroup Inc. accounts in what appeared to be the biggest seizure of Iranian assets since the 1979 Islamic revolution. London's Lloyds TBS earlier this year agreed to pay $350 million in New York for aiding Iran and Sudan in evading U.S. sanctions.

Attorney General Eric Holder, left, talks with Assistant Attorney General Lanny Breuer of the Justice Department's Criminal Division on Wednesday.
.In November, U.S. federal authorities also seized roughly $500 million in real-estate and bank deposits from the Alavi Foundation, a New York organization that Washington alleges facilitated financial and intelligences activities for the Iranian government. Investigators also noted connections between the foundation and Bank Melli, an Iranian bank that had transactions processed through Credit Suisse and other banks.

U.S. officials said the Obama administration has finished tailoring a new round of economic sanctions on Iran that could be enacted early next year. The new penalties seek to hobble Tehran's oil and gas industry by blacklisting Iranian energy, insurance and shipping firms. The U.S. strategy also seeks to target the economic assets of Iran's elite military unit, the Revolutionary Guards Corps, which is believed to oversee the country's nuclear program.

U.S. officials said international deliberations over new Iran sanctions could begin at the United Nations Security Council within the next month. These officials said they believed Iran's political turmoil following a disputed June election could make Tehran more vulnerable to sanctions.

"We think there's a narrower power base there," said a senior U.S. official.

—Carrick Mollenkamp contributed to this article.
Write to Aaron Lucchetti at aaron.lucchetti@wsj.com and Jay Solomon at jay.solomon@wsj.com