Money-laundering rules globally have also been tightened significantly, but just like the tax-transparency deals, that doesn’t mean all bad people or accounts were instantly purged. The Swiss financial regulator, Finma, cracked down on Credit Suisse in 2018 for due diligence failings in relation to FIFA, world football’s governing body, and the national oil companies in Brazil and Venezuela. The bank was ordered to improve its control systems and processes in its wealth business.
At the end of 2019, Finma said money laundering remained one of the principal risks for Swiss banks. It said that shrinking margins in a world of low interest rates and greater transparency can cause banks to pursue risky business relationships with people, companies, governments or funds that can be involved in corruption or embezzlement.
It is clear that some of Credit Suisse’s business relationships should not have been started. In others, the bank has had opportunities to change its mind about clients—and not just in private banking. As recently as 2015, the bank reviewed its relationship with Bill Hwang and his Archegos family office after he had pled guilty to wire fraud in the U.S., settled insider trading allegations with the Securities and Exchange Commission and been banned from trading in Hong Kong for four years.
Credit Suisse’s report into the failings that led to its $5 billion loss in the collapse of Archegos said these risk reviews led to no additional scrutiny of the client and described the process as perfunctory. However, in the last year, Credit Suisse has gone through its clients again and cut loose some that it now deems risky.
Client relationships can turn sour because someone who starts out clean can turn bad or find themselves on the wrong side of local politics. Clients still bear the costs of keeping money offshore precisely to look after themselves or their families if their political fortunes decline.
Sometimes such people might enjoy international support; other times they might themselves be the problem. Swiss banks cannot control such situations, but they need to ensure they respond as swiftly as possible.
Money laundering is far from a solely Swiss problem, and it is becoming more complex. There are many ways to move and hide billions: From cryptocurrencies, to shell companies that buy high-end London property and the growing number of private trusts in South Dakota, for example.
But when your business is the global super-rich, you are more exposed to risks of politics and corruption than anyone else.
For Swiss banks, the greatest uncertainty today is probably China: It has been their most important growth market of the past decade and it is where the billionaire’s position is most precarious. Xi Jinping’s push for “Common Prosperity” has so far stopped at the gates of Chinese individuals onshore. But it is impossible to say that the government won’t in future go after the banks that have helped wealthy Chinese manage their offshore fortunes.
The latest storm around Credit Suisse does appear to be mostly historic, but the risks of banking billionaires will always remain high.
This article was provided by Bloomberg News.