Presumably, although he denies it, Brady Dougan considered resigning as chief executive of Credit Suisse this week when it became the first global financial institution since Crédit Lyonnais in 2003 to plead guilty to criminal felony in the US. In any case, he stayed.
It was the wrong decision. While Mr Dougan was not personally in charge of its rogue private bankers, he is responsible for Credit Suisse itself. Instead, having professed his “deep regret”, he made the $2.6 billion (CHF2.5 billion) settlement sound more like a parking fine than the kind of catastrophe that brought down Arthur Andersen and Drexel Burnham Lambert.
If there were ever an occasion for an honourable resignation at the top to atone for an institutional failure, this was it. Instead, Credit Suisse shares rose 2% as Mr Dougan calmly told analysts that a criminal conviction would have “no material impact”. It could hand over the cash and move on, with nothing more to worry about.
Call me old-fashioned but that is a grossly inadequate response. If a criminal conviction means little more than a civil offence - you pay a fine and turn the page - it means nothing. In their eagerness to prove that no bank is “too big to jail” while avoiding a loss of confidence in Credit Suisse, prosecutors have devalued the notion.
Despite admitting to what Eric Holder, the US attorney-general, described as “an extensive and wide-ranging conspiracy” that “spanned decades”, the directors and senior executives are keeping their jobs. Seven employees have been indicted for aiding tax evasion but Urs Rohner, its chairman, says he and Mr Dougan “have clean hands”.
Compare this with Crédit Lyonnais, which admitted a crime in the Executive Life scandal, and paid a total of $770 million. The US did not stop there. It indicted several of the bank’s executives, and in 2006 Jean Peyrelevade, its former chairman, was given five years of probation, fined $500,000, and banished from the US for three years.
Credit Suisse’s board thought Mr Dougan might have to resign if it asked the Swiss government for help in the form of a legal waiver from the country’s secrecy laws, letting it satisfy the US authorities by releasing the names of 13,000 account holders. It did not release the names, and the US did not demand resignations, so the chief executive survived.
The other defence of Mr Dougan, an investment banker who became chief executive in 2007, is that he had little to do with the group’s Swiss private bank until then, although he joined the executive board in 2003. These offences largely predated his time at the top and he has fought to clean them up since 2008, when the UBS private bank scandal erupted.
Oswald Grübel, Mr Dougan’s predecessor, ran the private bank between 1998 and 2001, when some of these activities were taking place. Having retired from Credit Suisse, he was brought in to stabilise UBS after the 2008 financial crisis and resigned after its rogue trading scandal in 2011. Mr Grübel has not been accused of any misconduct.
There is no evidence anyone in the senior ranks knew of the Credit Suisse scheme to help US citizens evade tax, but tax avoidance was a Swiss tradition. I remember a Swiss banker telling me two decades ago that the country’s private banks no longer made their money by helping customers to dodge tax - that was in the past. This was transparently (or non-transparently) false.
Mr Holder insisted on a criminal admission rather than a deferred prosecution agreement - a device often used since Arthur Andersen’s collapse - to dig himself out of a hole. He needed to disprove his own statement last year that “the size of some of these institutions becomes so large that it does become difficult for us to prosecute”.
To make Credit Suisse co-operate, the US government dissuaded regulators from withdrawing its banking licences and did not insist on senior executives leaving. But, as Mr Holder told the Senate judiciary committee last year: “The greatest deterrent effect is to prosecute the individuals in corporations that are responsible for those decisions.”
Without this, a criminal conviction of a corporation has a surreal quality, like the symbolic trials in ancient Greece of inanimate objects that caused harm, including a javelin and a glacier. As the indictment waiver with the bank put it: “Credit Suisse has been accused of an offence punishable by imprisonment for more than one year.” This does not wholly discredit the idea of a corporate indictment, which has a history dating back to a 1909 case involving the New York Central & Hudson River Railroad Company. In cases of persistent and systemic malfeasance, criminality fairly extends to organisations.
To have real meaning, though, the people who run these organisations must be held responsible, not merely shareholders. As Richard Epstein, a New York University law professor, wrote in an influential critique of deferred prosecution agreements: “At bottom, corporations are just individuals tied together by an elaborate network of contracts.”
Mr Dougan has done a solid, low-key job at Credit Suisse since 2007 and does not deserve to be prosecuted himself. But he runs an organisation that went badly wrong for many years, without any senior executive being held to account. Once again, a bank expresses general regret for the excesses of the past while diffusing blame.
A criminal conviction is, or should be, a serious matter. Credit Suisse has failed to acknowledge the gravity of its offence but its chief executive still has the chance.
Copyright The Financial Times Limited 2014