Credit Suisse Troubles and Scandals: 2002 – 2023

Technical Staff

March 17, 2023

On March 14, 2023, the Daily Mail reported that Credit Suisse had acknowledged the existence of ‘material weaknesses’ in its financial reporting controls while also grappling with $120 billion in customer withdrawals resulting from a series of scandals, which have caused the bank’s shares to plummet to an unprecedented low. Over the past two decades, the Swiss bank has been involved in numerous scandals involving governance, internal control, corporate ethics, risk, and compliance, frequently making headlines. Due to space limitations, we will briefly comment on the latest bank scandal published by the Daily Mail below.

We believe the bank’s regulators and shareholders have failed to prevent it from engaging in inappropriate business practices, contributing to its failures in governance, internal control, and risk management. As a result, witnessing the bank’s repeated transgressions is not surprising.

Although this list of scandals involving banks is not exhaustive, it gives the reader a general idea of their nature and scale.

March 14, 2023: “Will Credit Suisse be next to need bail out? Bank admits ‘material weaknesses’ in financial reporting controls as it battles to shore up $120 billion in customer withdrawals following a string of scandals as shares sink to all-time low.“

If the SEC were not vigilant, the bank could have such failures go undetected. Note that the revision was in the cash flow statement! Many readers most likely do not know what a “material weakness” or material weakness in internal control over financial reporting means. It means, at least, the following:

1. The bank’s internal control is not effective. 

2. There is governance failure in the bank.

The board of directors is responsible for such failure. How would customers, creditors, and investors deal with a bank that admits its failure when caught by the SEC?

Note: According to AU-C Section 265, par.7, “Material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely basis.” 1

Will Credit Suisse be next? Bank admits ‘material weaknesses’

Credit Suisse’s ‘weakness’ was in the bank’s capability to design and maintain effective risk assessments in its financial statements, the delayed annual report stated.

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www.dailymail.co.uk

October 1, 2019 “Credit Suisse chief operating officer fired over spying scandal. Switzerland’s second-biggest bank has sacked its chief operating officer over an “extraordinary” James Bond-style corporate espionage scandal in which private detectives were hired to follow a senior executive through the streets of Zurich after a row with the organisation’s boss at a cocktail party.” 2

Credit Suisse chief operating officer fired over spying scandal

Bank condemns decision by Pierre-Olivier Bouée to put executive under surveillance

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www.theguardian.com

May 19, 2014: “Credit Suisse pleads guilty to U.S. criminal charge in tax probe. Swiss bank Credit Suisse on Monday pleaded guilty to a criminal charge for its role in helping Americans dodge taxes, U.S. Attorney General Eric Holder said, and will pay more than $2.5 billion as part of an agreement with U.S. authorities.” 3

Credit Suisse pleads guilty to U.S. criminal charge in tax probe

Swiss bank Credit Suisse on Monday pleaded guilty to a criminal charge for its role in helping Americans dodge taxes, U.S. Attorney General Eric Holder said, and will pay more than $2.5 billion as part of an agreement with U.S. authorities.

Read More

www.reuters.com

March 14, 2013. “Credit Suisse settles National Century Financial bonds case. Credit Suisse CSGN.VX said on Thursday it settled a lawsuit with bond investors in National Century Financial Enterprises, which went bankrupt in 2002. The settlement shaves 134 million Swiss francs ($141 million) off its fourth-quarter net profit, which the Swiss bank had already reported, cutting it to 263 million francs from 397 million.” 4

Credit Suisse settles National Century Financial bonds case

Credit Suisse said on Thursday it settled a lawsuit with bond investors in National Century Financial Enterprises, which went bankrupt in 2002.

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www.reuters.com

December 16, 2009: “Credit Suisse AG, a Swiss corporation headquartered in Zurich, has agreed to forfeit $536 million to the United States and to the New York County District Attorney’s Office in connection with violations of the International Emergency Economic Powers Act (IEEPA) and New York state law.” The forfeiture is the largest ever entered against an entity for IEEPA violations. The violations relate to transactions Credit Suisse illegally conducted on behalf of customers from Iran, Sudan and other countries sanctioned in programs administered by the Department of the Treasury’s Office of Foreign Assets Control (OFAC).” 5

Credit Suisse Agrees to Forfeit $536 Million in Connection with Violations of the International Emergency Economic Powers Act and New York State Law

The forfeiture is the largest ever entered against an entity for IEEPA violations.

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www.justice.gov

June 1, 2007: “Credit Suisse to pay $61.5 mln in Enron case. Credit Suisse Group Inc. CSGN.VX will pay Enron Corp. creditors $61.5 million to settle a lawsuit related to equity transactions, the successor to the bankrupt energy trader said on Friday.” 6

Credit Suisse to pay $61.5 mln in Enron case

Credit Suisse Group Inc. will pay Enron Corp. creditors $61.5 million to settle a lawsuit related to equity transactions, the successor to the bankrupt energy trader said on Friday.

Read More

www.reuters.com

Sources

1. CHRISTIAN OLIVER, Daily Mail. (2023). Will Credit Suisse be next to need bail out? Bank admits ‘material weaknesses’ in financial reporting controls as it battles to shore up $120billion in customer withdrawals following a string of scandals as shares sink to all-time low. Daily Mail. Available at: https://www.dailymail.co.uk/news/article-11857489/Will-Credit-Suisse-Bank-admits-material-weaknesses-financial-reporting-controls.html. [Accessed March 17. 2023].

2. Rupert Neate and Julia Kollewe, The Guardian. (2019). Credit Suisse chief operating officer fired over spying scandal. Available at https://www.theguardian.com/business/2019/oct/01/credit-suisse-spying-scandal-investigation. [Accessed March 17. 2023].

3. Aruna Viswanatha, Douwe Miedema, Karen Freifeld. Reuters. (2014). Credit Suisse pleads guilty to U.S. criminal charge in tax probe. Available at https://www.reuters.com/article/us-creditsuisse-investigation/credit-suisse-pleads-guilty-to-u-s-criminal-charge-in-tax-probe-idUSBREA4I0E620140519. [Accessed March 17. 2023].

4. Reuters. (2013). Credit Suisse settles National Century Financial bonds case. Available at: https://www.reuters.com/article/us-creditsuisse-settlement-idUSBRE92D09920130314. [Accessed March 17. 2023].

5. Department of Justice. (2009). Credit Suisse Agrees to Forfeit $536 Million in Connection with Violations of the International Emergency Economic Powers Act and New York State Law. [online] Justice.gov. Available at: https://www.justice.gov/opa/pr/credit-suisse-agrees-forfeit-536-million-connection-violations-international-emergency [Accessed March 17. 2023].

6. Jonathan Stempel. Reuters. (2007, June 1). Credit Suisse to pay $60.5 mln in Enron case. Available at https://www.reuters.com/article/us-enron-creditsuisse-idUSWNAS297220070601. [Accessed March 17. 2023].