Introduction
Credit Suisse is one of the renowned multinational investment bank and financial services companies founded in 1856 in Switzerland. With its headquarter in Zurich, Switzerland, Credit Suisse provides a wide range of services such as banking, asset management and financial services across the continent. Established as a Swiss Credit Institutions, the financial institution has evolved into a global banking and financial service group.
UBS Group AG acquired Credit Suisse in March 2023 for USD 3.3 billion to prevent the collapse of one of the global banking systems and to safeguard assets under management worth USD 1.75 trillion.
Credit Suisse Failure
Credit Suisse was “too big to fail”. The failure of this bank seriously raised concern about the global banking reforms made during the financial crisis of 2007-2008. The downfall of Credit Suisse bank also questioned the credibility of progressive Swiss banking sector. The bank survived the financial crisis of 2007-2008 but it couldn’t survive the economic crisis of post-COVID.
A series of events over time brought the bank to the brink of collapse due to a history filled with scandals, malpractices, fraudulent activities, and mismanagement. Some of the significant scandals and controversies that led to the failure of the bank are:
Tax Evasion Scandal
The bank was accused of assisting many U.S. clients to hide their assets from Internal Revenue Services (IRS). This was the case of offshore tax evasion and this scandal was worth billions of dollars.
U.S. authorities took legal action for this, and the bank had to pay a penalty of approximately $2.6 billion, which was one of the largest penalties ever paid by a bank for a similar kind of evasion. The media highlighted this incident in 2014. This compromise of the bank’s brand led to a sharp decline in the stock price of the company. Together with this, the bank had to provide the information of its U.S. based clients to the U.S. authorities. Also, this incident dragged down different other Swiss banks into investigation.
Similarly, in 2011, Credit Suisse had to pay 150 million Euros to settle the tax evasion allegation of more than 1000 German clients. Also, the bank settled similar allegations with Italian authorities by paying 109.5 million Euros in 2016. The bank was involved in hiding clients funds, dodging taxes through complex insurance policies etc.
Money Laundering
Credit Suisse bank was found guilty in a money laundering trail linked to an alleged cocaine trafficking gang. The bank and its employees laundered millions of euros between 2004 and 2008. The bank settled 238 million Euro in a money laundering and fraud case with French Prosecutors in 2022.
Similarly, the Brazilian police arrested one of the managers of Credit Suisse in Rio De Janeiro for helping the illegal money transfer scheme. He was charged with money laundering, tax evasion and fraudulent banking.
Spying Scandal
The bank went for a corporate espionage. The bank admitted to hiring private detectives to spy on former executives. Credit Suisse was involved in seven different operations between 2016 and 2019 which was against the Swiss rule. The then CEO had to resign for entertaining the ill practice. Former wealth manager of Credit Suisse, Mr. Iqbal Khan, was under private supervision after he left and joined the archrival company UBS.
Mortgage and Investment Misconduct
Credit Suisse faced the trading loss of $ 5.5 billion after Archegos Capital Management collapsed with $ 20 billion in loss. Regulators questioned the risk assessment of Credit Suisse for associating with Archegos Capital Management. US and UK regulators fined $ 388 million for the bank’s unsafe and unsound credit risk management practices.
Credit Suisse promoted the invoice securities worth $10 billion issued by Greensill Capital which later collapsed in 2021 after the credit insurer of Greensill withdrew the support. This also questioned the supervisory role of the bank. Promoting investment of Greensill Capital as a safe asset without due procedure. With the collapse of the capital, the investment made by the bank was in a risky position.
Corruption and Illegal Affiliation
Different regulatory bodies fined and reprimanded Credit Suisse for its illegal affiliation and corruption incidents with different countries across the world. There was involvement of bank in transferring the money stolen, worth $ 5- $10 billion, by Philippine dictator Ferdinand Marcos during his third term as president. In 1995, Zurich court ordered the bank to return $ 500 millions of funds to the Philippines.
Similarly, The bank had an association in destroying the documents and evidences, which showed its affiliation with companies concealing losses. For this, the Japanese authorities fined and revoked the license of the company in 1999.
The Swiss authorities objected to the bank for accepting and facilitating the corruption fund worth $ 214 million from Nigerian Military Dictator Sani Abacha in the 90s. (The Guardian)
