Former Bankers Allegedly Concealed “Master of Kickbacks” from Internal Compliance Department

A detailed indictment unsealed on January 3 in the Eastern District of New York alleges that former Credit Suisse bankers, a Lebanese businessman, and former top officials in Mozambique, including the former Minister of Finance, participated in a $2 billion corruption, fraud, and money laundering scheme (“the Indictment”).

The defendants, including three former members of Credit Suisse’s Global Financing Group, face charges of conspiracy to commit money laundering, wire fraud, securities fraud, and Foreign Corrupt Practices Act (“FCPA”) violations. As we will discuss, the former bankers are alleged to have thwarted Credit Suisse’s compliance department by circumventing internal controls and hiding information in order to convince the bank to fund the illicit investment projects at issue.

The Indictment represents another example of DOJ using the money laundering statutes to enforce the FCPA, as we have blogged repeatedly: defendant Manuel Chang, the former Minister of Finance of Mozambique, has been charged with conspiracy to launder the proceeds of FCPA violations, but not with violating the FCPA itself – because the FCPA provides that it cannot be used to directly charge foreign officials themselves. The Indictment is also another example of the DOJ using the money laundering and FCPA statutes to prosecute conduct, however reprehensible if proven, committed entirely by non-U.S. citizens operating in foreign countries and involving alleged corruption by foreign officials, with an arguably incidental connection to the U.S. Although the Indictment alleges that certain illicit loans were sold in part to investors located in the U.S., the Indictment again recites now-familiar allegations that the illegal monetary transactions at issue, including bribe and kickback payments, in part flowed through U.S. correspondent bank accounts as the money traveled from one foreign country to another.

Ultimately, the alleged scheme highlights the bribery, kickback, and money laundering risks that financial institutions must consider when vetting and funding international projects. And, it starkly illustrates that internal controls may not always be sufficient to protect institutions from fraud when internal bad actors conspire to circumvent the processes.

According to the Indictment, the defendants used three companies owned by the Mozambican government (including companies named Proindicus and EMATUM) to obtain more than $2 billion in state-backed loans to fund supposed projects meant to benefit the country of Mozambique. The companies were to perform coastal surveillance, tuna fishing, and shipyard projects. Prosecutors allege that the defendants instead “created maritime projects that conducted little to no legitimate business activity to funnel at least $200 million in bribes and kickbacks to themselves, Mozambican government officials and others.”

The Indictment alleges that beginning in or around 2013, representatives of Credit Suisse (referred to as “Investment Bank 1”) and Investment Bank 2 arranged the government-backed loans. The companies then entered into contracts with, and paid nearly all of the loan proceeds to, Privinvest, a United Arab Emirates-based holding company that was to serve as the contractor on the maritime projects. Prosecutors further allege that only a small portion of the loan proceeds went to maritime projects, and that “[i]n furtherance of the scheme, Privinvest charged inflated prices for the equipment and services it provided, which were then used, at least in part, to pay bribes and kickbacks.” The companies then defaulted on the loans.

The Bankers’ Efforts to Circumvent Internal Controls

Prosecutors note that Credit Suisse had internal anti-money laundering (“AML”) and other anti-fraud and anti-corruption controls addressing “the prevention of bribery of and by [Bank] employees; the prevention of money laundering and other financial crimes; conflicts of interest; outside employment; and the use of intermediaries in financial transactions.” The Credit Suisse compliance department was responsible for overseeing and enforcing these internal controls. Per the Indictment, the former Credit Suisse banker defendants received regular training on these internal controls.

According to the Indictment, in or around 2012, co-conspirators recruited the banker-defendants to work for the benefit of Privinvest. It is further alleged that the bankers conspired to circumvent Credit Suisse’s internal controls for the benefit of the fraud, enrich themselves, and win business for the bank. The banker defendants were not low-level employees: the indictment describes Andrew Pearse, a citizen of New Zealand, as a former managing director and the Head of the bank’s Global Financing Group (“GFG”); Surjan Singh, a citizen of the United Kingdom, as a former managing director within the GFG; and Detelina Subeva, a citizen of Bulgaria, as a former Vice-President within the GFG.

The banker defendants were on the bank’s “deal team” assigned to the transactions. They first arranged financing to a company named Proindicus for a coastal surveillance project. Red flags regarding potential corruption surfaced early, such as the fact that Privinvest had been selected through “high level connections” between the firm and the Mozambican government, rather than a competitive bidding process. Prosecutors allege that the bankers conspired to ignore red flags and hide information from the bank’s compliance department, including:

• When the review process identified an individual, referred to “Privinvest Co-Conspirator 2” involved in the transaction as an “undesirable client” and “master of kickbacks,” the bankers endeavored to “structure him out of the picture” and failed to relay the identified concerns to the bank’s compliance department.

• Secretly selecting a due diligence firm to pre-screen the individuals proposed to serve as Proindicus’s officers and directors.

• Failing to disclose to the compliance department that one of the proposed directors was identified as having previously been involved in fraudulent conduct.

• Secretly pre-screening a second group of proposed directors.

• Presenting the pre-screened second group of directors to the due diligence firm selected by the compliance department without disclosing that two separate groups of directors have been researched by a different firm.

• Removing the conditions the bank had imposed on the loan, such as obtaining an opinion from the Attorney General of Mozambique and informing the IMF, in an effort to avoid exposing the fraudulent scheme.

After obtaining approval from the compliance department, the bank arranged and executed a $372 million syndicated loan.

Prosecutors further allege that shortly after the bank funded the loan, the loan agreement was amended to allow the company to borrow additional funds. The bankers submitted a memorandum to the bank’s Credit Risk Management team representing that Privinvest required funds for additional equipment even though the company had not conducted any operations. Based upon this memo, the bank funded an additional $100 million to Privinvest.

Per the Indictment, the bankers then conspired to obtain an additional loan agreement from the bank for another company, EMATUM, and a fraudulent tuna fishing project. Prosecutors allege that the bankers conspired to conceal their involvement in the transaction from the bank’s internal controls by using their personal email accounts—in violation of the bank’s policies—and removing references to themselves from documents and creating false bid information that was submitted to the bank. Based upon the false and incomplete information, the bank entered into a loan agreement for the EMATUM project and funded $500 million in loan proceeds.

Prosecutors allege that the bankers were rewarded with kickback payments made out of the loan proceeds totaling more than $50 million for their roles in the fraud.