Credit Suisse unit indicted by Japan prosecutors

In the strongest action ever against a foreign financial firm doing business in Japan, Tokyo prosecutors said on Wednesday they had indicted the London headquarters of Credit Suisse Financial Products. But CSFP denied having obstructed an audit.

In the strongest action ever against a foreign financial firm doing business in Japan, Tokyo prosecutors said on Wednesday they had indicted the London headquarters of Credit Suisse Financial Products (CSFP) for violation of the nation’s banking laws. But CSFP denied having obstructed an audit.

The prosecutors also indicted Shinji Yamada, former head of CSFP’s Tokyo branch, who was arrested last month on suspicion of obstructing an inspection by the Financial Supervisory Agency (FSA), a government watchdog. CSFP is a unit of the Credit Suisse Group.

The prosecutors said in a statement that Yamada had conspired with two other unidentified company employees early this year to hide documents in a room, the existence of which they concealed from authorities, despite demands from inspectors to hand over the papers.

Yamada was also accused of instructing employees to destroy transaction records and shred documents involving a number of clients. Eight employees linked to obstructing the audit, including Yamada, have already been fired.

In Zurich, Credit Suisse Group issued a statement saying that the “isolated conduct” of some former employees may have delayed the audit but did not obstruct it. The statement underlined that the company itself discovered the misconduct and informed the FSA.

“The Group is unable to reconcile such an unprecedented decision with its understanding of the facts,” the statement said of the indictment.

CSFP had its banking licence revoked in July for offering inappropriate products to clients and obstructing official investigations.

The probe by the FSA had been looking into whether Credit Suisse Group firms in Tokyo were engaged in irregular transactions to help clients conceal losses by bouncing them from one account to another, possibly by using derivatives transactions.

If the company itself is found to have been systematically involved in blocking the FSA probe, it could face a fine of up to 200 million yen ($1.95 million).

The FSA has cracked down on several foreign financial firms since it was set up in June 1998, moves which industry officials say underline its resolve to promote transparency in Tokyo markets.

Previously, the Finance Ministry had inspected only Japanese banks. In October, the FSA ordered U.S. investment bank Lehman Brothers to improve business practices of securities unit Lehman Brothers Japan Inc after inspections of its Tokyo operations.

The FSA ordered the Tokyo branch of U.S. securities firm Cresvale Group to halt operations from November 1 to January 14 after checking claims it gave kickbacks to corporate clients.

Some analysts have said that financial authorities in the past turned a blind eye to the behaviour of foreign financial firms’ units in Japan but that the FSA moves show they are no longer granting foreign firms special treatment.