Credit Suisse Group AG has discovered fraud at its international wealth
management business, two years after it was criticized by a regulator
in a similar case that rattled the bank and raised questions about
controls.
The Swiss lender dismissed a Zurich-based banker who forged
documentation on an over-the-counter contract for an African wealth
management client, according to people familiar with the matter. The
deception, uncovered earlier this year, led to a loss of about 10
million francs ($11 million) for the bank and also hurt other clients,
the people said, asking not to be identified as the matter is private.
The latest scandal follows a restructuring of the risk function at
Credit Suisse as chief executive officer Thomas Gottstein seeks to
bolster oversight. The bank’s reputation has taken a hit in recent
months after a damaging spying scandal and its involvement in deals
linked to failed companies including Luckin Coffee Ltd. and Wirecard AG.
“Credit Suisse confirms a case from the first quarter of 2020 in which a
small number of clients were affected by unauthorized actions of a
client adviser,” the bank said in a statement. “Credit Suisse took
appropriate legal measures and informed the affected clients and
relevant regulators.”
The fraud and losses were booked in the unit led by Raj Sehgal, which
serves the non-resident Indian community and sub-Saharan Africa. Clients
are in the process of being compensated, according to one of the
people.
Sehgal was named head of the Africa and non-resident Indian business
with a direct reporting line to ex-divisional chief Iqbal Khan two years
ago. He’s now chairman of that business after a shakeup that saw his
region merged into the Middle East unit led by Bruno Daher.
International wealth management which caters to Credit Suisse’s wealthy
clients outside of Switzerland and Asia, reported provisions for credit
losses of 74 million francs in the first six months.
The most recent fraud echoes a much bigger case when Patrice
Lescaudron, a former star private banker, was sentenced to prison after
he forged documents to cover mounting client losses. Lescaudron’s
activity went undetected by Credit Suisse and his clients for years
until a massive wrong-way bet on a Californian drugmaker in 2015 exposed
his behavior. Switzerland’s financial regulator later identified
deficiencies in the bank’s anti-money laundering controls and
shortcomings in its oversight.
Local media reported that Lescaudron has since died by suicide.
Wealth management head Philipp Wehle has been reviewing the business as
part of a wider revamp of the bank. The wealth business is reshaping
how it lends against hard-to-sell assets as well as its exposure to the
oil-and-gas industry and shipping, which have been hit hard by recent
market dislocations, Bloomberg previously reported.
Gottstein, who took over in February after the espionage scandal led to
the ouster of ex-CEO Tidjane Thiam, is working to restore calm after a
turbulent period during the coronavirus outbreak. In April, Credit
Suisse took a large hit in its Asian business, setting aside about $100
million for soured loans which mostly related to three cases, the
largest of which was Luckin, where the bank had organized a margin loan
for founder Lu Zhengyao.
The bank also helped sell $1 billion of Wirecard-linked securities last
year after questions were raised about the German company’s accounting,
months before it was exposed as a fraud. As part of a broader overhaul
at the bank announced last month, Gottstein promoted Lara Warner to
become Group Chief Risk and Compliance Officer. Lydie Hudson, who was in
charge of compliance, is taking on a new role in sustainability.
Patrice Lescaudron, the banker who used to manage assets of
rich Eastern Europeans at Credit Suisse in Geneva, and became embroiled
in a fraud scandal that still rages across the globe, has committed
suicide.
Patrice Lescaudron, 57, in May 2020 published posts on his LinkedIn-profile that suggested he was about to say farewell, as was noted by finews.com
at the time. The French banker complained about his inability to get a
new job, despite numerous attempts, and the fact that his residence
permit was due to expire, despite having paid more than 7 million francs
in taxes over a sixteen-year period. He concluded that he was due close
his LinkedIn account and quite probably leave Switzerland.
In July, Lescaudron committed suicide, according to «Handelszeitung». His death is another chapter in the long-running affair that involves a lot of money, fraud and requests for compensation.
Generating a Fortune for the Bank
The French banker, who used to work for Credit Suisse in Geneva, was
known as the bank’s man for Russia, earning huge fees for his employer
in his job as relationship manager. One of his charges was Bidzina Ivanishvili, an ex-prime minister of Georgia and oligarch.
Still, Lescaudron came under suspicion of having pocketed some of the
money he managed and it wasn’t small fry either: the sum in question
was well north of 100 million francs. This was also the reason why the
bank eventually got rid of him. The Frenchman subsequently was convicted
of fraud and a series of other related crimes.
Damning Verdict
The main component of the scandal is the money belonging to
Ivanishvili, who claims to have lost $550 million. Although the oligarch
aimed at Lescaudron in person, he really meant to hit the bank,
claiming that it hadn’t properly supervised the star employee.
The Swiss financial market regulator Finma concluded that that bank
indeed had been found wanting in its risk management and organization,
while the bank itself claims to be a victim of Lescaudron too.
The enforcement report by Finma will become part of the investigation by renowned Geneva prosecutor Yves Bertossa against the bank, «Handelszeitung» said.
Short on Money, Cities Around the World Try Making Their Own
Fans of “complementary currency” are betting that
this Depression-era idea for keeping towns alive by printing local money
can prove its worth as pandemic relief.
Peter Yeung
Mayor
Wayne Fournier of Tenino, Washington, displays $25 in wooden money. The
city recently revived a Depression-era economic recovery tactic:
printing its own local currency on planks of wood.
Photographer: Jason Redmons/AFP via Getty Images
In a back room of the Tenino Depot Museum, a modest sandstone
building in a city of less than 2,000 in Washington State, there is a
rickety old machine that officials believe could help save the community
from looming economic collapse: With it, money is literally being made
from trees.
Printed
on postcard-sized sheets of planed maple veneer by Tenino’s only
resident expert using an antique 1890 Chandler & Price letterpress,
these “wooden dollars” are being handed out to locals suffering
financial hardship. Pegged at the rate of real U.S. dollars, the
currency can be spent everywhere from grocery stores to gas stations and
child care centers, whose owners can later exchange them.
“We want this to be a symbol of hope,” says Tenino’s mayor,
Wayne Fournier, of the City Hall-funded program. “We preach localism and
investing in our local community, and the idea with this scheme is that
we’ll stand together as a community and provide relief to individuals
that need it while fueling consumption. It’s in our city’s DNA.”
Indeed, the wooden currency is a reboot of a Tenino program
that dates back to the darkest days of the Great Depression. The logging
city’s only bank at the time had closed, and local businessmen decided
to establish a wood-based scrip to allow commerce to continue. Tenino’s 1931 program was the first of its kind in the the U.S.
“It worked perfectly,” says Fournier, whose new scheme offers Tenino
residents who demonstrate they are experiencing economic difficulties
caused by the pandemic a stipend of up to $300 a month in wooden
dollars.
Since the launch in May, cities from Arizona to Montana and
California have been in contact with Tenino for advice about starting
their own local currencies. “We have no idea what is going to happen
next in 2020,” adds Fournier. “But cities like ours need to come up with
niche ways to be sustainable without relying on the larger world.”
Such
so-called complementary currencies — a broad term for a galaxy of local
alternatives to national currencies — have been around for
centuries; according to research published in the journal Papers in Political Economy
in 2018, 3,500 to 4,500 such systems have been recorded in more than 50
countries across the world. Typically they are localized currency that
can only be exchanged among people and businesses within a region, town,
or even a single neighborhood. Many are membership programs limited to
those who have signed up for the scheme; they typically work in
conjunction with rather than replace the official national currency.
They
take many different forms. Relatively few are based on paper
money; many are now purely digital or are exchanged via smart cards.
Their goals also can span multiple economic, social and environmental
objectives. Some complementary currencies aim to
protect local independent businesses. Some promote more equal and
sustainable visions of society. Others have been founded in response to
economic crises when traditional financial systems have ground to a
halt. As the coronavirus pandemic brings on a wave of social and
economic tumult, all three challenges appear to be in play at once.
In Tenino, Washington, restaurant owner Juan Martinez displays a sign saying he’ll accept the city’s wooden money.
Photographer: Jason Redmond/AFP via Getty Images.
“In
times of crisis like the one we are jumping into, the main issue is
lack of liquidity, even when there is work to be done, people to do it,
and demand for it,” says Paolo Dini, an associate professorial research
fellow at the London School of Economics and one of the world’s foremost
experts on complementary currencies. “It’s often a cash flow problem.
Therefore, any device or instrument that saves liquidity helps.”
For
local money boosters, this all adds up to a golden opportunity for a
complementary currency resurgence. “The era of the regular economy being
prosperous is coming to an end,” says Stephen DeMeulenaere. The technology lead of the Netherlands-based Qoin Foundation,
a nonprofit that advocates for community currencies, he argues that the
failures of global capitalism, exacerbated by the coronavirus pandemic,
make a stronger case for local money now. “There’s a structural failing
in the way money is being introduced, through policies like
quantitative easing,” he said. “Simply printing more money does not mean
that it will circulate. If someone is having a heart attack, do you
give them a blood transfusion, or CPR?”
Like Tenino’s wooden dollars, Switzerland’s WIR was
rolled out in reaction to the scarcity of money. Created in 1934, it’s
now the world’s longest-running complementary currency. WIR offers loans
to small and mid-sized businesses for transactions with other
businesses that accept WIR francs, which are pegged to the value of the
Swiss franc. It currently boasts more than 60,000 members — including a
fifth of all Swiss businesses. “WIR is based on a strong network, which
is more important than ever,” says Volker Strohm, a spokesperson.
Often these programs emerge when mainstream economies contract, as happened in Argentina in the early 2000s, or Greece last decade,
and this mutual exchange has evolved into another kind of currency,
known as a mutual credit network. Boosters of complementary currencies
say that, when combined with government funding, they can also be an
effective way of keeping dollars flowing within a community, and, by
eliminating capital flight, they create a powerful multiplier effect.
As
in Tenino, the Brazilian city of Maricá, in Rio de Janeiro state,
combines a local currency with a basic income program. Around 80,000
residents, nearly half of the population, receive 130 reais ($35) each per month, without any conditions about how they can spend the money. Launched in 2014, the money is distributed in “Mumbuca,” the city’s local currency, which is not accepted in the rest of Brazil.
“This can become a model on how a city can efficiently
disburse social benefits during the pandemic, supporting poor families
while they stay at home and also small business during the crisis,” says
Eduardo Diniz, professor of banking and technology at the São Paulo
School of Business Administration, who has been researching public
policies using community currencies since 2014.
In May 2020,
Maricá residents spent 30 million reais worth of Mumbuca, according to
Diniz. The key to the success of Mumbuca has been strong participation
of local government. “Historically, it was a very poor city,” says
Diniz. “The decision to invest this money through the currency means
they have been able to build schools and hospitals with it. The same
money is passed through the economy again and again.”
Other research has demonstrated the value of keeping cash flowing close to home: One study in
Canada showed that independent retailers recirculate 2.6 times more
money into their communities than chains. In addition to encouraging
people to shop locally, complementary currencies
can incentivize positive or philanthropic patterns of behavior.
Inspired by blockchain technology, England’s northern city of
Hull created the world’s first digital-only local currency in 2018,
providing discounts of up to 50% on goods and services for those that
did voluntary work with local organizations. A similar Dutch project, Samen Doen, rewards those who carry out socially beneficial activities such as caring for the elderly.
The
Bristol Pound, founded in 2012, has come to be considered one of the
most influential complementary currencies: Residents of the U.K. city
can use the local bills to pay for a bus ride, a cup of coffee, or even
their taxes. However,
despite the £5 billion ($6.5 billion) worth of Bristol Pounds spent
since 2012, its economic impact on the region remains in dispute. A
2017 study concluded
that it had not driven localization because the availability of British
pound sterling made it too easy to switch out of Bristol Pounds. Such
easily convertible currencies means that there is “financial leakage
from local regions into global circuits,” the researchers concluded.
Bristol Pound notes in use in the U.K. city of Bristol in 2017.
Photographer: Matt Cardy/Getty Images Europe
One
problem that has troubled some complementary currencies is finding a
suitable way to cover operating costs. The WIR solves this via a
transaction fee — 0.06% for members and double for non-members — paid in
Swiss francs, plus interest on loans taken out in WIR. Canada’s Calgary Dollar funds itself by paying its employees partly in Calgary Dollars, as well as receiving fees from government and businesses.
Several
U.S. community-based currencies have struggled to overcome this
challenge, among others. Philadelphia’s Equal Dollar, which pays locals
in exchange for goods, services and labor, shuttered in 2014 after a 19-year run due the annual $300,000 cost of maintaining the program. Founded in 1991, the Ithaca HOURS program was once the longest-running regional currency in the U.S.; it faded after two decades, not long after founder and local-money activist Paul Glover moved away from the upstate New York college town.
Limited
uptake among businesses has also proved to be a stumbling block for
other defunct programs: The local value exchange system LOVES, based in Yamato, Japan,
paid residents in local currency by volunteering and bringing their own
bags to the supermarket. Though many residents signed up, not enough
shops participated, and the five-year-old program ceased in 2007.
The
slow fade of physical cash as e-commerce and electronic payments take
over is yet another factor that can bring
down alternative currencies. Diana Finch, managing director of the Bristol Pound,
says that even before coronavirus hit, the circulation of paper money
in the area dropped by about 60%. “The purpose of the Bristol Pound was
to encourage independent businesses to create a vibrant economy based on
a diversity of smaller human-scale businesses,” she says. “But we were
limiting ourselves and couldn’t achieve high enough scale.”
To say afloat, the Bristol Pound is now shifting towards a business model based on electronic transaction charges known as Bristol Pay,
set to launch later this year. The goal of Bristol Pay will be to
capture 50% to 80% of the transactions in the city, a small fee charged
for each, with earnings then invested into social and environmental
projects.
As an uncertain era of coronavirus recovery begins, the
need for such work will be significant, in Bristol and beyond. Finch
sees complementary currencies as a tool that can make cities more
resilient in the face of this economic strife, as well as help
them become more equitable.
“I’m not even sure that growth is necessarily what we want,”
she says. “This is a different experiment. It’s not about helping local
businesses who are having liquidity problems to do business. This is
much more about trying to change the nature of the culture and to create
more resilient, self-sustaining communities.”
- It all started with the announcement of the discovery of a “novel coronavirus,” a microbe that was said to be the cause of severe illness and many deaths in a small part of China. The world health authorities soon declared that this microbe was the cause of a “pandemic” that needed to be contained, that there was no effective treatment for it, and that it would cause millions to die. Thus began the Dark Ages of the Corona Bank, and CBDC, that lasted a thousand years.
