Credit Suisse Blocks Prosecutor Using Critical Finma Report

(Bloomberg) --

Credit Suisse Group AG has acted to block Geneva prosecutors from using details of a critical report by the country's financial regulator into the bank's failure to prevent fraud at its wealth management unit.

The bank asked Geneva prosecutor Yves Bertossa to seal the report, which he is legally required to do after a request, a spokesman for the prosecutor's office said. Bertossa has now asked a court to lift the order in a bid to get access to the documents as part of an ongoing investigation into Patrice Lescaudron, the spokesman said.

Credit Suisse, which is a party to the case, is relying on a clause in the Swiss legal system designed to prevent self-incrimination during a criminal investigation. Swiss law prevents evidence from being “examined or used” by prosecutors as long as it's under seal. In making its case, the Zurich-based bank also invoked the right to keep confidential bank data secret.

Lescaudron is a former Credit Suisse wealth manager who dipped into client accounts to cover up millions in trading losses. While he was convicted in early 2018 and released in November of that year, numerous victims have appealed parts of the verdict, meaning the criminal case remains open. Victims of the former wealth manager have long maintained that the bank should have more liability for his crimes.

Bidzina Ivanishvili, his biggest former client, said in an interview last month that he still didn't believe that Lescaudron acted alone. Geneva prosecutors have started a probe into allegations of forgery not covered in the original case and have been ordered by a court to re-examine claims from another client about Lescaudron's past behavior.

Officials at Credit Suisse and Finma declined to comment. A spokesman for Geneva prosecutors confirmed the order and the appeal, declining to give more details.

While a decision on whether to lift a seal order is supposed to be made within 30 days, such cases can often linger for months, as happened with a long-running bribery case involving Royal Dutch Shell Plc and Eni SpA.

Finma scolded Credit Suisse in a September 2018 report for numerous “deficiencies” in its money-laundering detection efforts in the case of Lescaudron, and how it managed assets tied to scandals at soccer's global governing body FIFA, oil-producers Petrobras in Brazil and Venezuela's PDVSA. The bank wasn't fined, but was ordered to make a number of changes to bolster its compliance practices.

That full report wasn't publicly released, but the regulator issued a press release last year that summarized the findings.

Instead of disciplining Lescaudron for repeatedly breaching the bank's compliance rules, “the bank rewarded him with high payments and positive employee assessments,” Finma said in the press release. Credit Suisse has since adopted several measures to strengthen its compliance and combat money laundering, Finma said.

Codename ‘Dino'

Finma's report, codenamed Dino, was considered sensitive enough by the bank that it wrote to the federal bank watchdog six weeks later, requesting that the financial regulator put it under seal, according to three people familiar with the correspondence.

To share it with Swiss prosecutors, the bank argued, would be neither fair nor consistent with Article 248 of the Swiss Criminal Code, which dictates how and when documents can be sealed or should be returned to their original owners.

Any disagreements about the possible release of the report seemed to have died down for at least a year. But on Sept. 11, Finma sent a copy of the report to the Geneva Prosecutor's Office, two of the people said, who didn't want to be named discussing an ongoing investigation.

When the bank learned of this, a lawyer for Credit Suisse wrote to prosecutor Bertossa on Oct. 4 demanding, once again, that the report be put under seal, the people said.

The report contains confidential information about bank management, the lawyers argued, which could do harm to the bank's interests if revealed in a criminal investigation, according to the people.

An earlier version of this story was updated to correct the process of sealing the documents.

To contact the reporter on this story: Hugo Miller in Geneva at hugomiller@bloomberg.net

To contact the editors responsible for this story: Anthony Aarons at aaarons@bloomberg.net, Christopher Elser

©2019 Bloomberg L.P.