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The Downfall of Credit Suisse: Lessons Learned

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credit suisse collapse

Credit Suisse’s collapse is a jolt to a 167-year-old Swiss banking system. It was one of the biggest financial institutions in the world and the second-largest lender in Switzerland. It was classified as a global systemically important bank (GSIB), indicating its crucial role in the global financial system.

However, a series of regulatory issues, reputation, and financial losses resulted in its collapse and subsequent merger with UBS, the largest lender in Switzerland.

Timeline of Credit Suisse Collapse

Here are some important regulatory penalties and its compliance failure Timeline of Credit Suisse:

  • 2014: Credit Suisse pleaded guilty to helping US clients evade taxes and agreed to pay a penalty of $2.6 billion to the US Department of Justice.
  • 2016: Credit Suisse agreed to pay $5.3 billion to the US Department of Justice to settle claims that it had misled investors in the sale of mortgage-backed securities before the 2008 financial crisis.
  • 2018: Credit Suisse was fined $47 million by the Swiss financial regulator FINMA for failings in anti-money laundering controls in its foreign exchange business.
  • 2018: Credit Suisse agreed to pay a penalty of $10 million to the US Securities and Exchange Commission for violating anti-bribery and corruption laws in its investment banking business.
  • 2019: Credit Suisse was fined $135 million by the US Department of Justice and the New York State Department of Financial Services for violating sanctions against Iran and other countries.
  • 2020: Credit Suisse was fined £900,000 by the UK financial regulator for failings in its anti-money laundering controls.
  • 2021: Credit Suisse was fined $197 million by the Swiss financial regulator FINMA for failings in risk management and anti-money laundering controls in relation to the bank’s business with high-risk clients.
  • 2022: Fears of collapse caused a bank run, which led to significant losses. The 2022 financial statements recorded the worst loss since the global financial crisis.

Public confidence in Credit Suisse collapsed after the bank acknowledged “material weaknesses” in its bookkeeping practices. As a result, people began withdrawing their money, causing Credit Suisse’s stock to plunge by 30%. To maintain liquidity, Credit Suisse secured a $54 billion loan from the Swiss National Bank, but it was not enough to stop the “bleeding.” Eventually, UBS agreed to buy Credit Suisse for more than $3.25 billion.

Tax Evasion Services

The Credit Suisse Collapse highlights the negative power of bad risk management, transparency, and reputation. Credit Suisse’s troubles began with its involvement in allowing U.S. clients to evade taxes in 2014, which resulted in a hefty penalty.

Credit Suisse helped wealthy clients evade taxes by providing them with a range of services that allowed them to hide their assets and income from US tax authorities. Some of the methods used by Credit Suisse to facilitate tax evasion included creating sham entities and maintaining secret accounts.

One example of Credit Suisse’s involvement in tax evasion was the case of Roger Schaerer. He was a former Credit Suisse banker who pleaded guilty in 2014 to helping US clients evade taxes. He reportedly advised clients to carry cash in small amounts on trips to Switzerland. He helped deposit it into their Swiss bank accounts to avoid detection by US customs officials.

Schaerer’s actions were part of a broader pattern of behavior by Credit Suisse to help wealthy clients evade taxes.

Role in the Financial Crisis of 2008

In 2016, Credit Suisse agreed to pay a penalty of $5.3 billion to the US Department of Justice (DOJ) to settle claims that it had misled investors in the sale of residential mortgage-backed securities (RMBS) before the 2008 financial crisis. RMBS are securities that are backed by a pool of mortgages and were a significant contributor to the financial crisis.

The DOJ alleged that Credit Suisse had made false and misleading statements about the quality of the mortgages underlying the RMBS it sold, and had concealed the risks associated with those securities. These allegations included claims that Credit Suisse had knowingly sold RMBS containing loans that did not meet underwriting guidelines, and had provided inflated appraisals for the underlying properties.

The settlement represented one of the largest fines ever paid by a bank for misconduct related to the sale of mortgage-backed securities. In addition to the penalty, Credit Suisse also agreed to provide $2.8 billion in consumer relief to assist homeowners who were harmed by the conduct at issue.

The settlement was part of a broader effort by the DOJ to hold financial institutions accountable for their role in the financial crisis. Other banks, including JPMorgan Chase, Bank of America, and Goldman Sachs, also paid multi-billion dollar fines to settle similar claims.

The settlement highlighted the legal and reputational risks associated with misconduct in the sale of complex financial products and underscored the importance of robust due diligence, risk management, and compliance programs in the financial industry.

Violation of AML Guidelines

FINMA’s investigation found that Credit Suisse had failed to adequately identify and document the beneficial owners of accounts, failed to monitor and report suspicious transactions, and lacked appropriate internal controls and risk management processes in its foreign exchange business.

These failings were deemed to be particularly serious given the significant risks associated with the foreign exchange business, including the potential for money laundering and terrorist financing.

It’s worth noting that foreign exchange transactions are often used in money laundering schemes due to the ability to transfer large sums of money across borders quickly and with minimal regulatory oversight. Therefore, financial institutions engaged in foreign exchange transactions are subject to heightened scrutiny and regulatory requirements related to combating money laundering and other financial crimes.

FCPA violations

Credit Suisse provided employment opportunities and other benefits to family members of foreign government officials in order to win business in the Asia-Pacific region. This practice was found to be in violation of the Foreign Corrupt Practices Act (FCPA), which prohibits companies from offering bribes or other inducements to foreign officials in exchange for business.

The SEC’s investigation found that Credit Suisse had failed to implement adequate internal controls to prevent unlawful payments and did not properly train its employees on FCPA compliance.

Sanctions Violations

According to the settlement agreement, between 2002 and 2008, Credit Suisse engaged in a scheme to process transactions involving Iranian and other sanctioned entities, using methods designed to conceal their involvement and evade detection by US authorities. The bank used a variety of techniques, such as removing or altering information in wire transfer messages and structuring transactions in smaller amounts to avoid triggering sanctions-related alarms.

The DOJ and DFS alleged that Credit Suisse’s conduct violated various US sanctions programs, including those related to Iran, Sudan, Libya, and Burma. The settlement also resolved claims that the bank had violated New York State law by failing to maintain adequate controls and procedures to detect and prevent such conduct.

Luckin Coffee Scandal

The 2019 accounting scandal at Luckin Coffee further damaged Credit Suisse’s reputation. In 2020, the bank’s covert surveillance operation led to the resignation of the CEO, which again impacted its reputation.

Archegos Capital

The collapse of the US hedge fund Archegos Capital in 2021 was the most significant financial loss for Credit Suisse. The bank lost $5.5 billion in the scandal, which resulted in executives’ resignations and significant changes to Credit Suisse’s risk management policies.

Credit Suisse Collapse & Rumors

However, despite these changes, fears of collapse caused a bank run in 2022, which further damaged Credit Suisse’s reputation and led to significant losses.

Credit Suisse’s collapse proves that no financial institution is “too big to fail.” It is essential to have effective risk management policies and to ensure transparency to maintain public confidence. Financial institutions must act in the best interest of their clients and maintain their reputations to avoid significant financial losses. The lessons learned from Credit Suisse collapse should serve as a warning to banks to prioritize risk management function.

Financial institutions must learn from Credit Suisse’s mistakes and take proactive measures to maintain public confidence and ensure long-term sustainability. Certified Bank Forensic Accountant course offered by Riskpro Learning covers the global banking crisis and its causes in its syllabus.

The Credit Suisse collapse also highlights the need for effective regulation to prevent banks from engaging in risky activities.

Combating Money Laundering with FATCA: Promoting Transparency and Global Cooperation

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FATCA

Money laundering is the process of concealing the proceeds of illegal activity and making them appear legitimate. It is a serious crime that has serious consequences for society, including funding terrorism, drug trafficking, and other criminal activities. Recently there has been a remarkable increase in the automated interchange the financial information between the tax administration.

Introduction to FATCA

FATCA stands for Foreign Account Tax Compliance Act, which is a United States federal law that was enacted in 2010 to prevent offshore tax evasion by U.S. taxpayers. The law requires foreign financial institutions to report information about financial accounts held by U.S. taxpayers to the Internal Revenue Service (IRS).

Under FATCA, foreign financial institutions (FFIs) must enter into agreements with the IRS to identify and report on their U.S. account holders. FFIs that fail to comply with FATCA may face a 30% withholding tax on certain U.S.-source payments.

The law also requires U.S. taxpayers to report their foreign financial accounts to the IRS on an annual basis, and failure to do so can result in significant penalties.

FATCA has had a significant impact on the global financial industry, as financial institutions around the world have had to implement new procedures to comply with the law’s reporting requirements. The law has also led to increased cooperation among tax authorities around the world, as many countries have signed intergovernmental agreements with the U.S. to facilitate compliance with FATCA.

Objectives of FATCA

FATCA has imposed encumbrances on the monetary payers to protect the US Tax Base.  The primary objectives of the Foreign Account Tax Compliance Act (FATCA) are to:

  • Identify and prevent offshore tax evasion by U.S. taxpayers

One of the main goals of FATCA is to prevent U.S. taxpayers from hiding assets and income in offshore accounts in order to evade taxes.

  • Promote transparency and global cooperation in tax matters

FATCA aims to promote greater transparency and cooperation among countries in the area of tax enforcement. The law has led to increased information sharing between the U.S. and other countries, as many countries have signed intergovernmental agreements with the U.S. to facilitate compliance with FATCA.

  • Level the playing field for U.S. taxpayers who comply with their tax obligations

FATCA aims to ensure that U.S. taxpayers who comply with their tax obligations are not put at a disadvantage relative to those who seek to evade their taxes by hiding assets offshore.

  • Increase revenue collection for the U.S. government

By identifying and reporting on the financial accounts of U.S. taxpayers held abroad, FATCA is expected to increase revenue collection for the U.S. government.

The importance of anti-money laundering (AML) procedures in combating financial crimes

Anti-money laundering (AML) procedures are put in place to prevent, detect and report money laundering activities. The importance of these procedures in combating financial crimes cannot be overstated, as they are essential for maintaining the integrity of the financial system and preventing the funding of illegal activities.

One of the key benefits of AML procedures is that they help to identify the source of funds and ensure that they come from a legitimate source. This can prevent money laundering at the source and reduce the risk of other illegal activities being funded by the proceeds of crime.

AML procedures also help to detect suspicious activities and transactions. This is done through the implementation of customer due diligence measures, which require financial institutions and businesses to identify and verify the identities of their customers, and transaction monitoring, which involves the tracking of financial transactions to detect unusual patterns or activities.

Technology has also played an important role in the development of AML procedures. Advances in artificial intelligence and machine learning have enabled financial institutions.

In conclusion, FATCA is an important tool in the global fight against money laundering. By increasing transparency in the financial system, providing law enforcement agencies with important information, and requiring FFIs to implement AML procedures, FATCA is helping to combat money laundering and other forms of financial crime.

Impact of FATCA on Combatting Money Laundering

One of the ways that FATCA is combatting money laundering is by increasing transparency in the financial system. By requiring FFIs to report information about U.S. taxpayers’ accounts, it is making it more difficult for individuals to hide their money in offshore accounts. This increased transparency is particularly important in the fight against money laundering, which often involves complex networks of offshore accounts and shell companies.

Therefore, FATCA has had a significant impact on combatting money laundering by promoting greater transparency, global cooperation, and compliance with AML procedures.

By increasing the detection and reporting of suspicious activities,it has helped to prevent the funding of illegal activities such as drug trafficking and terrorism. The law has also created a level playing field for U.S. taxpayers who comply with their tax obligations and increased revenue collection for the U.S. government.

Overall, FATCA is a vital tool in the fight against money laundering and financial crimes, and its importance cannot be overstated in maintaining the integrity of the financial system and protecting society from the harms of illegal activities.

The Costly Consequences of 3 Global Banking Failures

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global banking failures

Silicon Valley Bank triggered the global banking failures in 2023. This time the cause of banking failures is the rising interest rates. However, in the world of finance, the failure of a bank can have catastrophic consequences for the global economy. In recent history, there have been several instances of global banking failures that have resulted in significant economic and financial crises. In this article, we will explore the costly consequences of three global banking failures.

The Asian Financial Crisis of 1997

The Asian Financial Crisis of 1997 was a significant economic and financial crisis that originated in East Asia. The crisis was triggered by a combination of factors, including a rapid increase in foreign investment in the region, an overheated property market, and high levels of debt.

As the crisis unfolded, several major banks in the region failed, including the Thai Danah Bank and the South Korean Hanbo Bank. The crisis also had a significant impact on other countries, including Indonesia, Malaysia, and the Philippines.

The consequences of the Asian Financial Crisis were significant. The crisis led to a significant decrease in economic growth in the region, resulting in a loss of investor confidence and a decrease in foreign investment. The crisis also had a significant impact on the global economy, leading to a decrease in the value of the stock market and other financial instruments.

The Latin American Debt Crisis of the 1980s

The Latin American Debt Crisis of the 1980s was another significant economic and financial crisis that had global consequences. The crisis was triggered by a combination of factors, including high levels of debt, high inflation rates, and a decrease in the value of commodities.

As the crisis unfolded, several major banks in the region failed, including the Banco Nacional de Mexico and the Banco de Credito del Peru. The crisis also had a significant impact on other countries, including Brazil and Argentina.

The consequences of the Latin American Debt Crisis were also significant. The crisis led to a decrease in economic growth in the region, resulting in a loss of investor confidence and a decrease in foreign investment. The crisis also had a significant impact on the global economy, leading to a decrease in the value of the stock market and other financial instruments.

The Global Financial Crisis of 2008

The Global Financial Crisis of 2008 was a significant economic and financial crisis that had global consequences. The crisis was triggered by a combination of factors, including a rapid increase in housing prices, a high level of debt, and a decrease in the value of financial instruments.

As the crisis unfolded, several major banks in the United States failed, including Lehman Brothers and Washington Mutual. The crisis also had a significant impact on other countries, including the United Kingdom and Iceland.

The consequences of the Global Financial Crisis were severe. The crisis led to a significant decrease in economic growth, resulting in a loss of investor confidence and a decrease in foreign investment. The crisis also had a significant impact on the global economy, leading to a decrease in the value of the stock market and other financial instruments.

Causes of Global Banking Failures

Certified Bank Forensic Accountant course discusses the global banking crises in depth. Some of the causes highlighted in the training manual are noteworthy.

Global banking failures can be caused by a combination of factors, including economic, political, and regulatory issues. Here are some of the most common causes of global banking failures.

  1. Economic Recession

One of the primary causes of global banking failures is a global economic recession. During a recession, the demand for loans decreases, resulting in a decrease in profits for banks. This can lead to a decrease in the value of bank stocks and a loss of investor confidence. If the recession persists for an extended period, banks can fail due to their inability to recover their loans.

  1. Fraud and Mismanagement

Fraud and mismanagement are also significant causes of global banking failures. In some cases, banks may engage in fraudulent activities, such as misrepresenting their financial statements or engaging in insider trading. In other cases, banks may be mismanaged, resulting in poor investment decisions and the misallocation of resources. These activities can lead to significant losses for the bank, resulting in its failure.

  1. Corruption

Corruption is another significant cause of global banking failures. In some countries, corruption is rampant, and banks may engage in corrupt activities to secure loans or to obtain government contracts. This can result in a loss of investor confidence and can lead to the failure of the bank.

Conclusion

The failure of banks can have severe consequences for the global economy. The Asian Financial Crisis of 1997, the Latin American Debt Crisis of the 1980s, and the Global Financial Crisis of 2008 are examples of how the failure of banks can lead to a significant economic and financial crisis.

To prevent these types of crises from occurring in the future, tighter regulation, increased transparency, and improved risk management practices are necessary. These measures can help prevent the failure of banks and minimize the costly consequences of global banking failures

Mahesh Gali

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Mahesh Gali CFCS, CAMS, CDCS

Mahesh Gali is a highly experienced mentor who teaches the Certification in International AML Guidelines course on our platform. As a Certified Anti-Money Laundering Specialist (CAMS) and Certified Financial Crime Specialist (CFCS), Mahesh Gali has a wealth of knowledge and expertise in conducting compliance-related training using a variety of instructional techniques and delivery methods.

Mahesh Gali is a highly experienced Certified Anti-Money Laundering Specialist (CAMS) and Certified Financial Crime Specialist (CFCS) who is passionate about educating and training individuals on the importance of international AML guidelines. With over 17 years of experience in the field, Mahesh has worked with several national and international organizations including HSBC, EY, Standard Chartered Global Business Services, and JP Morgan Chase Services.

Experience of Mahesh Gali

Throughout his career, Mahesh has made significant contributions to knowledge-sharing sessions by conducting orientation to the Anti-Money Laundering process. He has also actively implemented CAMS training, having imparted training to over 150 candidates globally in the past two years. Mahesh is known for his expertise in conducting compliance-related training using a variety of instructional techniques and delivery methods.

As an SME in the area of CAMS Training, Mahesh has a strong understanding of the course content to be delivered. This has widened his functional knowledge and has provided him with the skill to contribute to the growth and further enhancement of the candidates. Mahesh’s passion for making a difference in the world and his desire to live and work in a communal setting have made him an exceptional mentor to his students.

Mahesh Gali’s training courses are designed to provide a solid foundation and rich experience in driving change and bringing transformation efforts to promote a learning environment across the globe. His courses are highly sought after by individuals who want to learn from highly experienced and knowledgeable experts in the field of AML and financial crime prevention.

Mahesh Gali’s experience in multiple countries and with various organizations has provided him with a unique perspective on the importance of international AML guidelines. He understands the complexities of the AML process and is committed to imparting this knowledge to his students in an engaging and informative manner.

Mahesh’s training courses cover various aspects of AML and financial crime prevention, including but not limited to, AML regulations, KYC, customer due diligence, transaction monitoring, and suspicious activity reporting. His courses are designed to provide a comprehensive understanding of the AML process and equip his students with the skills and knowledge necessary to combat financial crime.

Mahesh’s training style is highly interactive and engaging, making his courses both informative and enjoyable. His expertise in conducting compliance-related training using a variety of instructional techniques and delivery methods has helped him to create a learning environment that is conducive to knowledge retention and skill development.

 

Sameer Khatu

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Sameer Khatu

Sameer Khatu is a certified KYC expert and an exceptional mentor who specializes in customizing his courses as per specific requirements. His multi-regional linguistic ability makes him an ideal teacher for regional small banks/NBFc or big banks and organizations. With years of experience in the field of legal and compliance, Sameer has proven experience in handling regulatory matters, operational risk management, fraud prevention, financial crime compliance (AML Regulations, Anti-Bribery Controls), FATCA-CRS Regulatory Compliance, and data privacy issues.

Sameer’s courses are designed to provide comprehensive knowledge and practical skills required for a successful career in KYC. His courses are tailored to meet the specific needs of his students and ensure they receive a personalized learning experience. Sameer’s multi-regional linguistic ability makes him an excellent mentor for students from various regions, as he is well-versed in different languages and cultures.

As a Legal and Compliance professional, Sameer has extensive experience in handling regulatory matters and liaising with regulator-appointed monitors and attorneys. He is well-versed in operational risk management and has a strong track record of implementing effective fraud prevention strategies. Sameer’s expertise in financial crime compliance, including AML Regulations and Anti-Bribery Controls, has made him a highly sought-after mentor in the field.

Sameer’s courses cover various aspects of KYC, including customer identification, verification, and due diligence. He also provides training on how to manage and mitigate KYC-related risks effectively. Sameer’s practical approach to teaching ensures that his students are equipped with the skills and knowledge required to succeed in the industry.
Sameer’s dedication to providing a personalized learning experience for his students has earned him a reputation as a mentor who goes above and beyond for his students. His ability to tailor his courses to meet the specific needs of his students has helped many individuals achieve their career goals and excel in the field of KYC.

Nikhil Parulkar

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Nikhil Parulkar, MFAcc,CFE,CAME,CVIE

Nikhil Parulkar is one of the most experienced mentors on our platform for the courses of Certified Anti-Money Laundering Expert (CAME) and Certified Bank Forensic Accounting (CBFA). With a diverse exposure of 20+ years in the banking and financial services industry and risk consulting, he is a forensics and fraud risk professional with in-depth domain expertise in consumer and wholesale banking, specializing in areas like assets, liabilities, corporate lending portfolios related to operations and risk management within fraud and compliance.

Nikhil has also taken exposure on the other side of the industry in risk consulting, where his domain expertise lies in forensics and fraud risk management, including fraud, compliance, and operational aspects. He has set up and developed modules on forensic and fraud risk management with respect to different sectors and trained internal and external stakeholders, clients, and senior management, thereby creating risk awareness in ever-changing market scenarios within forensic and risk domains.

Nikhil is a keynote and guest speaker and guest faculty at various anti-fraud seminars and conferences, including IIM-Raipur, Vishwakarma Institute of Management, Sinhagad Institute of Management, and National Insurance Academy (Pune). He is also an honorary “subject matter expert” at the National Forensic Sciences University for FS NFSU Certified Fraud Examination Professional, a visiting faculty at Welingkar’s Institute of Management WeSchool for “Fraud and Risk Analysis,” and a visiting faculty at BSE Institute Ltd for Forensic Accounting Training.

Nikhil holds several certifications, including a Certified ISO27001-LA (ISMS) since October 2010, a Certified Fraud Examiner from (ACFE) since February 2009, a Certified AML expert from India Forensic Research Foundation since March 2008, and a Certified Vigilance and Investigation Expert (CVIE) since 2018 from India Forensic Research Foundation.
With his specialities in executing effective risk management (fraud, compliance, and operational), forensic accounting, fraud risk assessments, corporate investigations, law enforcement liaison, cyber law, KYC, integrity due diligence, whistleblower investigations, and AML/CTF investigations, Nikhil has a diverse exposure in the banking sector, risk consulting, and BPO. He also has domain expertise in consumer (retail)/wholesale banking, assets and liabilities, insurance, capital markets, and e-commerce.

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