On Thursday 19 October the Financial Conduct Authority announced that Credit Suisse had been fined £147m and undertaken to forgive $200m of debt owed to it by Mozambique following an investigation into matters which became known as the Tuna Bonds scandal.
Simon Newman of 1 Chancery Lane assisted the FCA with the investigation from February 2019 until its conclusion, he was the only external counsel retained throughout this period to assist with the day-to-day progress of the investigation.
The final Decision Notice can be found here.
The outcome was part of a global resolution involving the FCA, U.S. Department of Justice, U.S. Securities and Exchange Commission and the Swiss Financial Markets Supervisory Authority (FINMA); as a result of which, in addition to the $200m of debt relief to be provided, Credit Suisse are required to pay a total of over $475m of fines and penalties. In calculating its penalty the FCA applied a 30% settlement discount, without which the FCA would have imposed a penalty in excess of $285m.
Credit Suisse has been fined for breach of the FCA’s Principles for Business and Senior Management Arrangements, Systems and Controls, specifically:
(i) Principle 2 “skill, care, and diligence” requiring it to conduct its business with due skill, care and diligence;
(ii) Principle 3 “Management and Control” requiring Credit Suisse to take reasonable care to organise and control its affairs responsibly and effectively; and
(iii) SYSC 6.1.1R “Adequate policy and Procedures” requiring the firm to establish, implement and maintain adequate policies and procedures sufficient to ensure compliance with its obligations under the regulatory system and for countering the risk that the firm might be used to further financial crime.
The breaches relate to Credit Suisse’s failure to manage the risk of financial crime in respect of transactions involving state-guaranteed loans to state-owned SPVs for purported infrastructure projects that were not subject to public scrutiny or formal procurement, including the establishment of a Tuna Fishing Fleet.
The transactions involved high corruption risk including at the project contractor, where one senior individual had been described to Credit Suisse in a due diligence report it had commissioned as the ‘master of kickbacks’; and in the Government of Mozambique, itself a high-risk jurisdiction. Three bankers at Credit Suisse have pled guilty to criminal charges in the United States and admitted to receiving over $50m of kickbacks in respect of the transactions, whilst others in Mozambique (including the former Finance Minister who is fighting extradition) and at the Contractor have also been indicted.
The projects were financed by loans totalling $2bn, provided by Credit Suisse and paid to the project contractor which was subsidising the costs of the financing. Those loans were either syndicated to sub-participant banks, or packaged up and sold down as Loan Participation Notes which were latterly converted by Mozambique into a Eurobond. $1.4bn of these loans were hidden from investors and the IMF. Their discovery led to a debt crisis in Mozambique, bilateral donors withdrew aid and the populace suffered from currency devaluation and inflation, which were also attributed as factors in Mozambique’s difficulty providing effective relief to its people from natural disasters such as cyclones and drought.
The investigation involved the analysis of complex debt instruments, including high value loan facilities, loan participation notes, syndicated lending and a Eurobond; and engaged interesting issues as to attribution, the scope of and breadth of FCA principles including in their prudential context and the application of its penalty policy.
By far the most significant feature of the outcome is the undertaking sought by the FCA for Credit Suisse to provide debt relief to the Republic of Mozambique. The Final Notice makes clear that this was sought by the FCA and had a very material bearing on the penalty imposed on Credit Suisse. It is hoped this provides some relief to the citizens of Mozambique most affected by the debt crisis that these transactions precipitated and provides a strong example of remedial or restorative regulation.
Simon Newman assisted the FCA with the case from February 2019 until its resolution, including with the analysis of case materials and evidence, the drafting of Information Requirements, the conduct of compelled witness interviews, the drafting of the Decision Notice and the calculation of the Penalty.
Whilst this brings proceedings to an end with the FCA, the DoJ, the SEC and FINMA it is not entirely the end of the road for Credit Suisse. They continue to face complex multi-party claims in the High court in respect of the financings which are not expected to be heard until 2023 at the earliest.
For early press reports on the conclusion of the FCA’s investigation and the penalty and debt relief see:
 The FCA’s Press Release can be found here: https://www.fca.org.uk/publication/final-notices/credit-suisse-2021.pdf
 The DoJ’s Press Release can be found here: https://www.justice.gov/usao-edny/pr/credit-suisse-resolves-fraudulent-mozambique-loan-case-547-million-coordinated-global
 FINMA press release publishing the findings of its investigation can be found here: https://www.finma.ch/en/news/2021/10/20211019-mm-cs-mosambik/
 See paras. 6.18 – 6.21 of the Final Notice