Ten years ago, HSBC was fined a then-record fine of nearly $2 billion levied by US regulators over the bank's work with Mexican drug cartels. The massive fine set banking analysts chattering about how megabanks would need to spend millions if not billions to try and beef up their compliance and KYC efforts. But unsurprisingly, that was just talk; little actually changed within the industry. And as a result, Credit Suisse, Switzerland's second-largest bank, is now facing a criminal trial in its home country over allegations that it provided banking services to a gang of Bulgarian cocaine traffickers.
In what Reuters described as the first criminal trial of a megabank in Switzerland, Credit Suisse is facing a potential fine of 42.4 million Swiss francs ($45.86 million) for not taking the necessary precautions to stop drug traffickers from laundering money with the bank between 2004 and 2008. Prosecutors have blamed both the bank and former relationship manager.
It's the latest scandal to shake Credit Suisse after a couple of rocky years for the Swiss banking giant. Just last month, the bank's chairman was pushed out by the rest of the board after less than a year on the job because he went to Wimbledon in violation of the bank's COVID rules.
The bank also faced a one-two punch early last year: the Archegos blowup saddled its prime brokerage desk with billions in losses, as did the collapse of Australia's Greensill, which resulted in losses for the bank's wealth management business and angered several of its major wealth management clients. And before that, an embarrassing corporate spying scandal cost former CEO Tidjane Thiam his job.
A 500-page indictment details how a convicted drug trafficker and Bulgarian wrestler Evelin Banev, along with several associates, placed "suitcases full of cash" in safe-deposit boxes at the bank. It also described how the unnamed CS banker - who is also facing criminal charges - helped to conceal the illicit origins of the money with seemingly legitimate transactions.
After being convicted in absentia in Italy and in his native Bulgaria, Banev was finally apprehended in - where else? - Ukraine, a haven for corruption (just ask Hunter Biden or his father) back in September. Additionally, one member of the drug-smuggling ring was killed when he was shot in the head outside a restaurant in the Bulgarian capital, Sofia.
Prosecutors also explained how the gang used a tactic known as "smurfing" to try and launder the drug proceeds without raising any red flags.
The former Credit Suisse employee brought at least one Bulgarian customer, who was an associate of Banev, with her when she joined Credit Suisse in 2004, prosecutors allege in the indictment.
The customer, who was later shot dead as he left a restaurant with his wife in Sofia, Bulgaria in 2005, had begun placing suitcases full of cash in a safe deposit box at Credit Suisse, the indictment says.
Prosecutors allege the gang used a practice known as smurfing, whereby a large sum of money is broken down into smaller amounts that are below the anti-money laundering alert threshold, to launder money, putting millions of euros in small-value bills into safety deposit boxes and later transferring them into accounts.
The defendants said this was standard practice at the time the deposits were made, although Swiss private banks have since adopted much tougher anti-money laundering know-your-client checks after international pressure.
Credit Suisse's lawyers maintain that their client reported suspicious transactions to Swiss prosecutors back in 2007, but was told not to freeze the customers' accounts to avoid tipping them off.
In June 2007, the prosecutors asked Credit Suisse for information on accounts held by Banev and his associates in response to a request from Bulgaria, the source added.
Noticing a series of withdrawals, the bank's compliance department asked prosecutors whether to freeze the accounts, but was told not to in order to avoid tipping the clients off, according to the source.
By the time prosecutors gave Credit Suisse the go-ahead, much of the money had been withdrawn.
The prosecutors' office declined to comment on Friday, saying the matter was in the hands of the court.
Fellow Swiss bank Julius Baer was mentioned in the indictment, but wasn't charged, although one of its former bankers was ensnared in the same indictment against Credit Suisse.
Switzerland overhauled its bank secrecy laws years ago amid pressure from the American IRS. But across the continent - and especially within the EU (of which Switzerland isn't a member) KYC and anit-money laundering controls are still seriously lacking. How many more billions in fines might it take for that to change?