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Iranian Dealings Lead to a Fine for Credit Suisse

Published: December 15, 2009

Credit Suisse is expected to pay a fine of $536 million to settle accusations by the United States government and New York State authorities that it violated sanctions by helping Iran and other countries secretly funnel hundreds of millions of dollars through American banks, people involved in the negotiations said Tuesday.

Investigators found that the bank, the second-largest in Switzerland, removed information from American-bound wire transfers that would have signaled that the money originated in Iranian banks, according to a law enforcement official briefed on the case.

Two of the organizations that Credit Suisse facilitated transactions for, the official said, were the Atomic Energy Organization of Iran and the Aerospace Industries Organization, both of which are designated as proliferators of weapons of mass destruction by the United States Office of Foreign Assets Control. Both are barred from doing business with the United States.

In a statement released Tuesday, Credit Suisse confirmed that it would most likely pay $536 million in a settlement. The release did not provide details about the case, other than to say that it involved dollar payments from 2002 through April 2007 for “parties that are subject to U.S. economic sanctions.”

Credit Suisse said it began an internal investigation into the situation in December 2005 and had since changed its practices, including termination of all business with organizations that have been subject to sanctions by the Office of Foreign Assets Control, closing an office in Tehran and appointing a global sanctions compliance officer.

An official settlement, which will allow Credit Suisse to avoid prosecution, is expected to be announced on Wednesday, but late Tuesday, the bank issued a statement confirming the fine.

In October, Robert M. Morgenthau, the Manhattan district attorney, announced that his office, the Justice Department and the Federal Reserve were working on a case against a large international “mainstream bank” for allowing illicit financial transactions with Iran, which has long been subject to sanctions by the United States government.

In the weeks that followed, Credit Suisse officials negotiated the amount of the fine with federal and state authorities.

Mr. Morgenthau declined to comment Tuesday. His office is expected to split the settlement amount evenly with the federal authorities. Under a new state law, Mr. Morgenthau’s office would then disburse his office’s share — $268 million — equally between New York City and the state. The $268 million would be the largest financial settlement that the Manhattan district attorney’s office has ever secured.

The fine imposed on Credit Suisse comes at a time of heightened tension between the United States and Iran. The Obama administration recently signaled its intention to push for a new set of sanctions that could further restrict Tehran’s economic and commercial activities unless Iran agrees to bring its nuclear activities under stricter international supervision.

Federal and state authorities reached a similar settlement in January with Lloyds TSB, a London-based bank now under British government control. In that case, Lloyds agreed to pay $350 million to settle accusations that it had removed identifying information from transactions originating in Iran, Libya and Sudan.

But in the Lloyds case, the authorities were not able to identify specific Iranian organizations that were carrying out the transactions or what was being purchased.

The authorities identified more than 7,000 illicit transactions that Credit Suisse facilitated, worth about $700 million, a law enforcement official said. Investigators found an additional $1.1 billion in transactions that had been manipulated, but they have not deemed them as violating sanctions in this case, the official said.

Investigators found that Credit Suisse’s employees violated both state and federal laws by falsifying outgoing dollar payment messages that involved Iran. The bank’s employees removed reference to Iran or its banks, a practice called stripping.

Not only did Credit Suisse employees strip the wire transfers, but they also advised the Iranian banks on how to format their transfers to avoid detection, according to the official. As a result, investigators say, Iranian banks like Bank Saderat and Bank Melli were able to use Credit Suisse to send more than a billion dollars through New York banks.

The Atomic Energy Organization is said to have ties with Iran’s nuclear weapons program, while Aerospace Industries works with long-range missiles, the authorities said. Law enforcement officials said they thought the organizations had been buying materials for their programs. The sellers, most of whom were outside the United States, wanted dollars, and so the money passed through Manhattan banks, law enforcement officials said.

But in some cases, a law enforcement official said, the money was used for purchases from United States companies. But the Iranian organizations concealed their identities from the American sellers by setting up shell companies, law enforcement officials said.

Credit Suisse also facilitated smaller transactions for banks in other sanctioned countries, including Cuba, Sudan, Burma and Libya, the official said.

It has not been a good year for Swiss banks in the United States. In February, UBS was fined $780 million by the Justice Department for helping about 50,000 wealthy Americans evade taxes.

UBS admitted criminal wrongdoing in selling offshore banking services that the I.R.S. said it suspected had been used by Americans to avoid taxes. Six months later, in August, UBS turned over the names of about 4,450 of those clients. That move contributed to the decision by 14,700 Americans to join an I.R.S. amnesty program and disclose their previously secret foreign bank accounts.

In the fall, UBS received a $5.3 billion capital injection from the Swiss government in return for a 9 percent stake. It was allowed to dispose of up to $60 billion of illiquid securities and impaired assets. The Swiss government offered Credit Suisse a similar deal, but the bank opted to raise money from private investors.

Claudio Gatti is an investigative reporter for Il Sole 24 Ore. He is based in New York. Graham Bowley contributed reporting.