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A sign stands above the Casino du Lac in Geneva, Switzerland, on Wednesday, March 7, 2018.(bloomberg)
(Bloomberg) -- The Bellagio it’s not.
Shoehorned into a windowless space two floors below ground near Geneva’s airport, the Casino du Lac doesn’t pulse like Las Vegas. On a recent weekday visit, one man nursed what looked like a large gin-and-tonic at the bar while just three gamblers played the slot machines on the blue spiral-carpeted floor.
Yet the allure of the casino motivated a wealth manager at HSBC Holdings Plc’s Swiss private bank to allegedly steal 3 million Swiss francs ($3.2 million) from rich Turkish clients to fuel a losing habit, according to two people familiar with the affair. The former banker, who can’t be identified under Swiss law, allegedly took money from customers by forging client signatures and enlisting the help of a boyhood friend, said the people who asked not to be named because the investigation is ongoing.
The one-time wealth manager, who has been charged with criminal mismanagement and forgery, is one of many people in the financial industry keeping Swiss prosecutors busy. The case is at least the fourth of a local banker in the past six months accused or convicted of breaking the rules to recoup client losses, pocket some cash, or both. That’s not good for the reputation of Geneva, depicted in films like “The Wolf of Wall Street” as a place where financiers are willing to help rich clients hide money from tax authorities.
“It’s bad news for Geneva and Switzerland -- definitely,” says Patrick Haack, an assistant professor of business ethics at HEC Lausanne business school. “There’s a negative spillover because of the wrongdoing of a few individuals on Geneva and the whole Swiss brand.”
The HSBC banker’s theft went undetected for two years as he often took less than 10,000 Swiss francs ($10,650), sometimes with the excuse that he was withdrawing cash for a client visiting from Turkey, according to one of the people. As soon as HSBC had suspicions, it opened an internal investigation, dismissed him and informed the authorities, bank spokesman Michael Spiess said when the case first emerged in late January.
“The case is about a former employee engaging in misconduct for his personal financial gain,” Spiess said. He referred back to the comments when contacted for this story.
A lawyer for the banker declined to comment.
Banking has a long history in Geneva. The first lenders were established here in the late 18th century after the Calvinists relaxed the Catholic ban on usury two centuries earlier, sparking an influx of foreign financiers.
Two centuries later, the industry’s aggressive culture may be partly to blame for bankers breaking rules around the world, says Sebastien Mena, a senior lecturer in management at London’s Cass Business School.
But there is also a long history of Swiss banking secrecy -- “discretion” as it’s marketed to clients -- which doesn’t help when things go wrong, says Mena, who is Swiss.
“There are hidden forces that keep this under the surface, that prevent this from bubbling up,” he says.
That culture of secrecy may have contributed to the fate of Patrice Lescaudron, an ex-Credit Suisse Group AG banker convicted last month on fraud charges. He told the court that he took money from client accounts to cover up losses because of a “gnawing fear” of being discovered.
A Geneva judge disagreed, saying the Frenchman’s “motivations were essentially egotistical, driven by the lure of profits’’ as he incurred more than $100 million in losses while pocketing $30 million in hidden commissions. Credit Suisse says that Lescaudron hid his crimes from the bank and two years of investigations never indicated his colleagues knew what he was up to.
Then there is the case of two former Credit Suisse bankers, who set up a firm called TG Investment after they left the Zurich bank. The pair, who then secured a contract from the lender to manage assets for Turkish clients, were first accused in 2016 of faking signatures and orders to hide some $150 million in trading losses.
A lawyer for one of the men said his client never intended to profit from the transactions and was only trying to cover up deficits, while a lawyer for the second hasn’t returned messages seeking comment.
“The criminal investigation is directed against representatives of TG Investment and two former Credit Suisse employees, and not against Credit Suisse,” the bank said in a statement.
Geneva’s private banks already face stiff competition from Singapore and Hong Kong as well as pressure from U.S. prosecutors pursuing rich Americans who’d stashed undeclared assets in Switzerland. The number of bankers in Geneva has fallen 12 percent over the past five years to 18,341 in 2017.
Fraudsters have been caught at smaller Geneva banks too. A former banker at Bordier & Cie. was given a 2-year suspended sentence in November for cheating clients to fuel her lifestyle and move up the career ladder. Bordier declined to comment. Her misdeeds, which were intended to flatter her performance and impress her clients and bosses, lasted some eight years and included repeated falsification of signatures, according to Le Temps.
A steady stream of convictions may actually be positive, showing that “at least some aspects of the regulatory framework are operating tolerably well,” says Chris Cowton, a professor of financial ethics at the University of Huddersfield in England. “I would be far more worried about a banking system in which nobody is ever convicted.”
Cass’s Mena says that may be little comfort as “for clients, it’s definitely a big problem.”
(Adds details on convicted Bordier banker in paragraph below chart.)
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