Credit Suisse unit found guilty of obstructing Japanese inquiry

A Credit Suisse unit was accused of manipulating financial products to help clients conceal losses Keystone Archive

A subsidiary of Credit Suisse has been found guilty by a Japanese court of obstructing an investigation into allegations that the bank helped clients to conceal losses. It is the first time a foreign bank has been found guilty of criminal charges in Japan.

A district court in Tokyo on Thursday fined Credit Suisse Financial Products (CSFP) 40 million yen (SFr555,000). CSFP is a London-based derivatives trading subsidiary of Swiss financial group Credit Suisse.

“The obstruction of the government inspection by the defendant bank involved the whole branch, and it was planned and it was systematic. It carries grave responsibility,” said Judge Masazo Ogura.

The court found that the bank had tried to hide documents from Japan’s financial watchdog, the Financial Supervisory Agency (FSA), when inspectors raided the bank’s premises in January 1999.

The FSA was probing allegations that CSFP was helping clients to conceal losses by selling derivatives. The agency has been cracking down on the practice in recent years.

CSFP denied that staff had been ordered to conceal documents and said any such actions were carried out on individuals’ own initiative. However, it said it accepted the court’s ruling.

“We are definitely not going to appeal,” said Tom Grimmer, a spokesman for the Credit Suisse group.

Inspectors from the FSA first raided the bank’s Tokyo branch in January 1999 in what was the first major inspection of a foreign financial institution.

“CSFP staff did not hand out some documents, though inspectors asked it to submit all documents. With the evidence submitted to the court, it is possible to conclude that CSFP tried to evade inspection,” Ogura said.

CSFP insisted in the hearings that staff, taken aback by the surprise raid, had shredded documents and a sent a large number of important papers to the bank’s London headquarters. But it denied having ordered any such action.

Prosecutors rejected the argument, citing testimony by a junior staff member that the head of the branch, Shinji Yamada, was present to select what could or could not be disclosed.

Yamada, who was also a member of CSFP’s board, was found guilty on criminal charges in the same case, and sentenced to four months in prison and two years of probation. He had previously received a retirement allowance worth about one billion yen upon leaving CSFP after the inspections.

In 1999, CSFP was stripped of its business licence in Japan.

Following Thursday’s court ruling, Credit Suisse said group intended to expand its investment banking and equity research business in Japan.

“We intend now to put this incident behind us and move ahead in further building our franchise in Japan,” the bank said in a statement.

Credit Suisse is not the only foreign bank to have fallen foul of Japanese financial regulators.

Last Tuesday, the Securities and Exchange Surveillance Commission recommended that the FSA take punitive action against the Tokyo branch of CIBC World Markets, the brokerage unit of Canadian Imperial Bank of Commerce.

It is suspected of selling derivative products to help clients hide losses.

Last May, the FSA banned Deutsche Securities from engaging in over-the-counter derivatives trade for six months after it broke the law by helping clients hide losses.

swissinfo with agencies