FINAL NOTICE

To:
Credit Suisse International
Credit Suisse Securities (Europe) Ltd
Credit Suisse AG (together “Credit Suisse”)

1.
ACTION

1.1.
For the reasons given in this Final Notice, the Authority hereby imposes on Credit

Suisse a financial penalty of £147,190,200.

1.2.
Credit Suisse agreed to resolve this matter and qualified for a 30% (stage 1)

discount under the Authority’s executive settlement procedures. Were it not for

this discount, the Authority would have imposed a financial penalty of

£210,271,800 on Credit Suisse.

2.
SUMMARY OF REASONS

2.1.
Fighting financial crime is an issue of international importance, and forms part of

the Authority’s operational objective of protecting and enhancing the integrity of

the UK financial system. Financial institutions in the UK are obliged to establish,

implement and maintain adequate systems and controls to counter the risk of

firms being used to facilitate financial crime; and must act with due skill, care and

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diligence to adhere to the systems and controls they have put in place, and to

properly assess, monitor and manage the risk of financial crime (which includes

the risk of fraud, bribery and corruption).

2.2.
Between 1 October 2012 and 30 March 2016 (“the Relevant Period”)- Credit

Suisse failed to meet these obligations, breaching Principle 3 (by failing to take

reasonable steps to manage and control its affairs), SYSC 6.1.1R (by failing to

maintain adequate policies and procedures to counter the risk it would be used to

further financial crime) and Principle 2 (by conducting its business without skill,

care and diligence).

2.3.
In the Relevant Period Credit Suisse failed to sufficiently prioritise the mitigation

of financial crime risks, including corruption risks, within its Emerging Markets

business. Credit Suisse lacked a financial crime strategy for the management of

those risks, (which was exemplified by the under-resourcing of its EMEA financial

crime compliance team and procedural weaknesses in its financial crime risk

management).

2.4.
These and other weaknesses were exposed by three transactions related to two

infrastructure projects in the Republic of Mozambique (“Mozambique”), one

relating to a coastal surveillance project and the other relating to the creation of

a tuna fishing industry within Mozambican waters (respectively, the First Project

and the Second Project). Credit Suisse arranged, facilitated and provided funds

for two loans to finance the First and Second Project (respectively, the First Loan

and Second Loan) amounting to over $1.3 billion.

2.5.
Credit Suisse’s inadequate consideration and approval of these transactions

continued over an extended period and involved senior individuals and control

functions. Accordingly, the Authority views the failings as extremely serious:

(1) Senior individuals, committees and control functions had information from

which Credit Suisse should have appreciated that there was a high risk of

bribery and corruption associated with the loans.
However, there was

insufficient challenge, scrutiny, and investigation in the face of various risk

factors and warning signs in the transactions, for example:

(a)
Mozambique was a jurisdiction where the risk of corruption of

government officials was high;

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(b)
These projects were not subject to public scrutiny and formal

procurement laws. The borrowers for both loans were newly-created

special purpose vehicles (SPVs) owned by Mozambican governmental

entities and directed by individuals (some of whom had military and

intelligence backgrounds);

(c)
Credit Suisse understood that the Mozambican government did not

provide a written opinion on the sovereign guarantee underpinning the

loan from its Attorney-General and was only willing to represent in

general terms that it had complied with its IMF obligations rather than

undertake to inform the IMF of the loans in question;

(d)
Credit Suisse did not conduct due diligence on individuals who

represented themselves as being involved in the establishment of the

First Project on behalf of the Mozambican government;

(e)
Allegations of ongoing corrupt practices in respect of a senior individual

at the shipbuilding contractor engaged by Mozambique on both projects,

who had faced formal criminal allegations in the past (which were

ultimately dropped), were identified in an external due diligence report

received by Credit Suisse before money was lent. A range of anonymous

sources described him as “a master of the kickbacks”, “heavily involved

in corrupt practices” and someone for whom “Ethics are at the bottom

of [their] list”;

(f)
As early as October or November 2012 a Credit Suisse senior manager

with knowledge of the Middle East region where the contractor was

based was consulted in connection with the deal about whether any

business relationship with the contractor was appropriate. They

expressed their serious reservations over the conduct risks posed by the

combination of the senior individual at the contractor and Mozambique,

but their views were not conveyed to Credit Suisse’s control functions

at the time and the senior manager left Credit Suisse before the First

Loan was structured and submitted for approval; and

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(g)
A Credit Ratings Agency did not rate the Loan Participation Notes (the

“LPNs”) issued in relation to the Second Loan as expected because the

Second SPV had refused to engage with its due diligence process.

(2) Credit Suisse conducted due diligence, including enhanced due diligence, on

the relevant entities and individuals related to the transactions, and other key

functions and committees were involved in reviewing and approving the

transactions. However, Credit Suisse’s consideration of the above risk factors

was inadequate because it gave insufficient weight to the risk factors

individually and failed to adequately consider them holistically. Credit Suisse

failed to recognise that a corruption ‘red flag’ will often be – rather than direct

evidence of corruption or bribery – apparent from the context of the

transaction, sector, jurisdiction and counterparty. Instead of aggregating

relevant risks, it considered them in isolation. For example:

(a)
In concluding that the contractor concerned was an “acceptable

counterparty” Credit Suisse relied heavily on reports that the contractor

dealt with a number of European governments and navies. Insufficient

consideration was given to the added risks of this contractor doing

business in a jurisdiction with elevated corruption risk such as

Mozambique; and

(b)
Credit Suisse proceeded with the loans despite the risks posed by the

contractor and paid the loan funds directly to the contractor rather than

the borrower SPVs. While payment directly to a contractor can mitigate

corruption risk in some circumstances, and payment to Mozambican

entities was considered a risk factor by Credit Suisse in this context,

Credit Suisse failed adequately to consider this in the context of the

corruption risk relating to the contractor itself.

(3) Moreover, a lack of engagement by senior individuals within the Emerging

Markets business, including one such individual not reviewing the external due

diligence reports commissioned before the First Loan, despite being aware of

criminal allegations in relation to the individual at the contractor, and

inadequately considering this together with obvious risk factors such as

Mozambique being a high-risk jurisdiction, was symptomatic of Credit Suisse’s

failure to sufficiently prioritise the mitigation of financial crime risk.

(4) Separate to the above, and unknown to Credit Suisse at the time, three Credit

Suisse employees (including two Managing Directors) with conduct of the First

Loan and one of whom had conduct of the Second Loan accepted kick-backs

from the contractor in exchange for agreeing to help secure approval for the

loans at more favourable terms for the contractor. These Credit Suisse

employees (including former employees) took advantage of weaknesses and

the lack of effective challenge in Credit Suisse’s approval processes, including

by concealing material facts from their Credit Suisse colleagues.

(5) The three employees benefitted from kick-backs of around $53 million from

the contractor. Mozambique has subsequently claimed the minimum total of

bribes that were paid in connection with the contractor’s corrupt scheme was

around $137m. For the sake of clarity, the Authority does not assert that any

other employees at Credit Suisse were aware of any bribes being paid to the

three individuals, or that any employees at Credit Suisse were aware of any

other bribes.

(6) After the money was lent, it was clear by January 2014 that the IMF already

had concerns about a lack of transparency in the use of the Second Loan

funds, and $350m of those funds – at the behest of the IMF – had been

allocated in December 2013 by the Mozambican Parliament to its defence

budget to provide “coastal protection”. This had been the purported purpose

of the First Loan, which was still not public knowledge. Despite this, individuals

in Credit Suisse’s Emerging Markets business continued to discuss future

business with the contractor.

(7) From mid-2015 to April 2016, Credit Suisse was engaged on arranging an

exchange whereby holders of LPNs relating to $850 million of the debt arising

out of the Second Loan were invited to exchange their existing holdings for

government bonds of a different maturity (“the LPN Exchange”). This arose

because the fishing project for which the money had been sought was failing.

By this time Credit Suisse was aware that there appeared to be a significant

disparity (running to hundreds of millions of US$) between the value of the

fishing vessels to be supplied to Mozambique and the amount borrowed to

fund the project (a “valuation gap”).

(8) While Credit Suisse eventually took some steps to investigate or clarify these

circumstances, including physical inspection of some of the vessels, obtaining

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two expert valuations, and seeking further information from the Second SPV

(its client), these steps were inadequate. As a result of its unresolved concerns

about the valuation gap, Credit Suisse decided not to approve $150 million of

“new money” requested by the Second SPV.

(9) In the face of this information which further indicated a heightened risk that

the money lent in 2013 had been used (in part) to pay bribes, or had otherwise

been misapplied or misappropriated, Credit Suisse again failed to sufficiently

prioritise the mitigation of financial crime risks by challenging and scrutinising

the information it had. The information of which Credit Suisse was aware

when proceeding with the LPN Exchange included:

(a)
Its continuing awareness that Mozambique was a jurisdiction where the

risk of corruption of government officials was high;

(b)
Allegations post-dating the deals from Mozambican opposition

politicians and reports by investigative journalists that the funds from

the Second Loan had been used to enrich senior Mozambican officials;

(c)
Reports post-dating the deals alleging that loan proceeds had been

spent on military as opposed to fishing infrastructure, and the budgetary

reallocation by the Mozambican Parliament – at the insistence of the

IMF – of up to $500m of the funds borrowed to the defence budget;

(d)
The due diligence report it had received in 2013 referring to allegations

of past and current bribery and corruption by a senior individual at the

contractor;

(e)
Explanations
from
the
contractor
and
representatives
of
the

Government of Mozambique that knowledge of the First Loan should be

kept out of the public domain because of “security concerns” and the

opacity of the tender process for and the pricing of the underlying assets

that were to be supplied in consideration for the Second Loan;

(f)
Its own lack of understanding of how the proceeds of the Second Loan

had been applied and whether proper value had been given by the

contractor;

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(g)
Reports
indicating
that
the
Mozambique
sovereign
guarantee

underpinning the Second Loan may have been signed by a member of

the Mozambican government in excess of budgetary limits set by the

Mozambican Parliament; and

(h)
An independent valuation which had calculated a ‘valuation gap’ on the

Second Loan of between $279 million and $408 million for which Credit

Suisse could find no concrete explanation, hampered in part by the

refusal of the contractor to allow Credit Suisse to physically inspect

certain of the vessels which were delivered as part of the second project.

2.6.
By the time of the LPN Exchange the cumulative effect of the information known

to Credit Suisse constituted circumstances sufficient to ground a reasonable

suspicion that the Second Loan may have been tainted either by corruption or

other financial crime. Although the LPN Exchange was considered extensively by

financial crime compliance, the Reputational Risk function, senior individuals and

a senior business committee, Credit Suisse again failed to adequately consider

important risk factors individually and holistically, despite its unresolved concerns.

As a result, it failed to take appropriate steps (including informing relevant

authorities) before proceeding with the LPN Exchange. This increased the risk of

any bribery or other financial crime continuing and the beneficiaries of any

previous corruption retaining the fruits of their participation in the corruption.

2.7.
In the circumstances the Authority hereby imposes a financial penalty of

£147,190,200 on Credit Suisse.

3.
DEFINITIONS

“the Act” means the Financial Services and Markets Act 2000;

“the Authority” means the body corporate previously known as the Financial

Services Authority and renamed on 1 April 2013 as the Financial Conduct

Authority;

“BACC” means Credit Suisse’s Bribery Anti-Corruption Compliance team;

“EIBC” means Credit Suisse’s European Investment Banking Committee;

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“EMG Deal Team” means the Credit Suisse deal teams which had conduct of the

First and Second Loans

“Exchange Deal Team” means the Credit Suisse deal team which had conduct of

the LPN Exchange;

“FCC” means Credit Suisse’s Financial Crime Compliance function;

“First SPV” means the Special Purpose Vehicle which took out the First Loan;

“LPN Exchange” means the transaction by which the LPNs which had been issued

pursuant to the Second Loan were converted into sovereign bonds;

“LPNs” means Loan Participation Notes, a type of publicly traded debt issuance;

“RACO” means a Regional anti-corruption compliance officer, within Credit Suisse’s

BACC function;

“Relevant Period” means 1 October 2012 to 30 March 2016;

“Second SPV” means the Special Purpose Vehicle which took out the Second Loan;

“Third-Party Contractor” means the contractor engaged to deliver the First and

Second Projects.

4.
FACTS AND MATTERS

Credit Suisse’s Emerging Markets Group

4.1.
In 2012, Credit Suisse’s global Emerging Markets Group (“EMG”) was

headquartered in Credit Suisse’s London office. Among the global EMG’s product

lines and activities were the trading of foreign exchange products, the trading of

bonds and derivatives, and financing, including structured lending via syndication

or the issuance of securities.

4.2.
The various teams within the EMG responsible for the European, Middle Eastern

and African (“EMEA”) markets were also based in London. At the outset of the

Relevant Period, Managing Director A jointly managed a team which specialised

in structured financing in Central and Eastern Europe, the Middle East and Africa

(the “EMG Deal Team”). Managing Director A reported to Senior Manager A. From

1 August 2013, Managing Director A’s role managing that team was taken over

by another Managing Director, Managing Director B. Managing Director A,

Managing Director B and Vice President A are referred to collectively in this Notice

as “the Three CS Individuals”.

4.3.
A separate Coverage team managed by Managing Director C, did not sit within

the EMG, but in Credit Suisse’s Sales Group. In providing coverage of a particular

geographical area, it worked with teams including the EMG Deal Team to source

transactions in emerging markets and maintain client relationships.

4.4.
Another separate team, which had special expertise in capital markets issuances,

was managed by another managing director, Managing Director D. Managing

Director D’s team worked on various capital markets issuances both inside and

outside the EMG, but reported to Senior Manager A to the extent that they and

his team worked on issuances within the EMG.

Credit Suisse’s Financial Crime systems and controls

4.5.
Credit Suisse’s Financial Crime Compliance (“FCC”) function was comprised of

several specialist teams that covered, among other responsibilities, AML

Controls/Surveillance, Sanctions, Bribery Anti-Corruption Compliance (“BACC”),

Anti-Fraud, and Client Identification (“CID”).

4.6.
At the start of the Relevant Period, a ‘siloed’ approach to certain financial crime

risks within EMEA had been identified, and the creation of a High-Risk Advisory

Team (“HRAT”) in 2013 was aimed at making the management of financial crime

risks more holistic. However, Credit Suisse did not have a clear and developed

financial crime strategy in place during the Relevant Period, and the position of

Money Laundering Reporting Officer was a Director (rather than Managing

Director) level position notwithstanding its strategic importance in the

management of financial crime risks.

4.7.
Within Credit Suisse’s BACC function, Regional anti-corruption compliance officers

(or ‘RACOs’) had an advisory role for business units within their particular region,

including on individual transactions, where escalated. BACC also relied on the

relevant business unit or deal team within the first line of defence to identify

financial crime risks given their more detailed knowledge about the relevant sector

and specific transactions. In 2013, only one RACO was available to deal with

escalations from all EMEA business units, including in relation to sub-Saharan

Africa.

4.8.
Credit Suisse’s Reputational Risk Policy provided a framework for determining

whether, and if so on what basis, to pursue a particular transaction or client

relationship which may pose a risk to the bank’s reputation and therefore its

franchise.

4.9.
In 2013, the Reputational Risk process was described in Credit Suisse’s

Reputational Risk Policy as a “senior level independent review” of reputational risk

issues, which should be made “with sufficient time for the appropriate evaluation

of the issues”, and “be comprehensive in disclosure of the business being pursued,

material risks and mitigants”. At the time, the total full-time employee headcount

within the formal Reputational Risk team was low, with only one employee in the

formal team based in London, albeit supported by members of control functions

and business line teams.

4.10.
In order to begin the Reputational Risk process, an 'Originator’, who could be any

Credit Suisse employee, would complete a submission form. ‘Feedback Providers’

designated by the originator could comment in specific boxes in the online tool as

to risks that related to their area of expertise. A ‘Divisional Endorser’, of an

appropriate level of seniority in the business, had to review the submission,

consider whether all feedback providers had been identified and had the

opportunity to opine on the matter, confirm that the transaction has been

accurately described and evaluate whether the business supported the proposed

transaction . Finally, for the transaction to clear Reputational Risk, the submission

had to be approved or declined by a ‘Reputational Risk Approver’, senior

approvers in each region, who had to first confirm and finalise the risk type,

identify other feedback providers, if required, evaluate and make a decision about

reputational risk aspects of the proposed transaction.

4.11.
The Reputational Risk review was not a substitute for decision making processes

within the relevant business area, or scrutiny by the formal control functions such

as FCC. In practice, in certain circumstances, the Reputational Risk function could

function as a supplementary layer of protection against financial crime risks

including corruption risks, given the reputational risk such factors posed to the

bank. However, this depended upon the Reputational Risk process being properly

followed and engaged with, including at a senior level.

4.12.
The Reputational Risk Process within the EMEA region was overseen by a

Reputational Risk Council, attended by Credit Suisse senior managers, which met

at least quarterly and could be called on an ad hoc basis. At this meeting, the

Council would discuss existing and potential reputational risks, themes and

trends, including ex post facto review of individual transactions, but it had no live

role in the approval of individual transactions.

The First Loan

4.13.
In February 2012, a senior individual (“TP Individual A”) at a ship building

company (“the Third-Party Contractor”), with whom Credit Suisse had first made

contact through an existing client in October 2011, approached Credit Suisse

through its Coverage team, on behalf of the Government of Mozambique and its

Ministry of Defence, to finance the First Project, a $350m project to create a

coastal surveillance and protection system for Mozambique.

4.14.
Over the course of the next several months, Credit Suisse communicated primarily

with TP Individual A, and individuals claiming a role within the Mozambican

government, in relation to its potential financing of the First Loan. In some

instances, the nature of the Mozambican individuals’ roles in the First Project and

the Mozambican government was unclear. One such individual communicated with

Credit Suisse only by telephone or by using non-official, web-hosted email

addresses, and at one point told a Credit Suisse employee that certain important

details of the transaction were not to be discussed “by email or phone”.

4.15.
In October 2012, a member of Credit Suisse’s senior management who had

knowledge of the region where the Third-Party Contractor was based expressed

concerns about Credit Suisse entering into a business relationship with another

senior individual at the Third-Party Contractor (“TP Individual B”), and in

particular about the “combination” of TP Individual B and the nature of such a

project in Mozambique. On the same day a member of the coverage team said in

response that, notwithstanding the individual’s initial reaction, the participants in

the discussion might need to “go to [the senior individual] and demonstrate that

those [counterparties associated with TP Individual B] are good partners to have

in the deal”. Despite this, there is no evidence that this was done or that these

concerns were conveyed outside of the EMG Deal Team for the First Loan or

coverage team working on the transaction. The senior manager had left Credit

Suisse by the time the First Loan was submitted for formal review and approval

within Credit Suisse.

4.16.
A special purpose vehicle (“The First SPV”) was created and incorporated in

Mozambique on 21 December 2012. On 18 January 2013, the First SPV signed a

$366m supply contract with the Third-Party Contractor (“the First Supply

Contract”) for a coastal monitoring and surveillance system including the training

of staff and operational support.

4.17.
The Government of Mozambique had indicated to the Third-Party Contractor in

August 2012 that Credit Suisse’s proposed financing terms (at that time) were

beyond the financial capacity of the Government. As Credit Suisse would not agree

to Mozambique’s terms, the Third-Party Contractor subsequently agreed to pay

Credit Suisse a ‘subvention fee’, by which it subsidised the interest fee paid on

the First Loan by the Government of Mozambique, to bring it down to a level closer

to that of a concessional loan.

4.18.
Throughout 2012 the Third-Party Contractor and the Government of Mozambique

discussed acceptable financing terms. Correspondence between the Government

of Mozambique and the Third-Party Contractor from December 2012 made clear

that the Government of Mozambique considered the proposed financing to be non-

concessional debt for the purposes of the restrictions which the IMF had placed

on it as a result of its lending and assistance programme to Mozambique, but that

it regarded an “alternative solution” would be to establish an SPV that would be

owned by the Government of Mozambique to handle the First Project and “the

[Government would] rightfully provide the guarantees required for the project to

be financed”. TP Individual A also confirmed to Credit Suisse that that the

proposed financing was within IMF borrowing limits. However, it was unclear how

such an arrangement was consistent with borrowing limits set by the IMF.

4.19.
In the weeks leading up to Credit Suisse’s approval of the First Loan, the Three

CS Individuals discussed amongst themselves what information was required from

the Government of Mozambique in connection with the proposed guarantee and

Mozambique’s IMF obligations. Managing Director B told Vice President A that

Credit Suisse should request that Mozambique notify the IMF, but in the event

Mozambique did not want to then “we [Credit Suisse] can live without it, as [there

is] no legal risk to us”. A senior official of the Government of Mozambique told

Managing Director A that they refused to agree to a provision requiring

Mozambique to inform the IMF. This conversation was not communicated to

anyone else within Credit Suisse. Ultimately, the Mozambique represented in

guarantee documentation that it was in compliance with its obligations to the IMF,

but remained silent as to notification.

4.20.
On 18 February 2013, TP Individual A told the Three CS Individuals that the First

SPV’s borrowing was “legally covered by a presidential decree” and that they

believed requiring an opinion from the Mozambican Attorney-General would not

be accepted by the First SPV since its owner wanted to bypass public tender and

normal bureaucratic processes and therefore “would never accept [that it must]

inform the Attorney-General”. Again, the Three CS Individuals did not

communicate this information to anyone else within Credit Suisse. The individuals

and control functions who reviewed and approved the First Loan did not

adequately consider whether the lack of an opinion from the Mozambique

Attorney-General increased the corruption risks of the transaction.

4.21.
On or around 25 February 2013, TP Individual A and Managing Director A agreed

that if Managing Director A could arrange the reduction of the subvention fee to

be paid by the Third-Party Contractor to Credit Suisse, 50% of any such reduction

as a ‘kickback’ would be paid by the Third-Party Contractor to Managing Director

A into a personal bank account. Credit Suisse was not aware of this arrangement.

4.22.
Managing Director B assisted Managing Director A in analysing the subvention fee

with the aim of determining how low any fee could be. Following this analysis, the

subvention fee was lowered by $11m from $49m to $38m. None of the Three CS

Individuals informed Senior Manager A or the bank’s compliance functions. The

Authority does not assert that any Credit Suisse employee other than the Three

CS Individuals was aware of these corrupt arrangements.

FCC consideration of the First Loan

4.23.
FCC had informed Managing Director B and Vice President A in January 2013 that

“for [this deal involving Mozambique] on the ground source enquiries are

essential”. Although the Three CS Individuals commissioned two reports (“EDD

Reports 1 and 2”) from a provider of external enhanced due diligence (the “First

EDD Provider”), that provider had not been approved by FCC as an appropriate

source of external due diligence. The reports from the First EDD Provider

identified “serious red flags” surrounding one of the individuals and identified

other individuals connected to Mozambique’s military and intelligence community.

They were provided directly to the Three CS Individuals.

4.24.
Several external due diligence reports were commissioned by FCC from a different

EDD provider (“the Second EDD Provider”) including reports on:

(1)
the “Business Environment” in Mozambique, giving a general overview of

the risk of corruption in Mozambique;

(2)
the Third-Party Contractor (“EDD Report 3”); and

(3)
the First SPV (“EDD Report 4”), covering “An overview of the maritime

security project, focussed on uncovering any concerns about its

transparency and any controversy concerning the contractor tender process

or project’s management”.

4.25.
EDD Report 3 identified a number of allegations that TP Individual B had engaged

in corrupt practices; including multiple sources cited who were “confident of his

past and continued involvement in offering bribes and kickbacks”; a “senior

banking source who previously dealt with [TP Individual B]” described him as “a

master of the kickbacks”. A draft version of the Report provided to Credit Suisse

also gave a specific example of a contract in which TP Individual B had allegedly

been “clear and transparent about the fact that there would be kickbacks

involved”. Another source cited in the report stated that, recently, TP Individual

B “appears to be conducting… business in a much more classical way, more in

compliance with the rules of ethics”. EDD Report 3 also stated that one of TP

Individual B’s companies had “key clients including navies and governmental

authorities”.

4.26.
EDD Report 4 indicated that three out of four proposed directors of the First SPV

had connections to Mozambican politicians and (in some cases) senior military

credentials. The fourth, Mozambican Individual A, was reported as having a

“negligible public profile”. EDD Report 4 did not include any due diligence on any

Mozambican government officials involved with the procurement of the project,

notwithstanding that this had been an explicit recommendation of BACC, nor any

of the other individuals who had represented, or claimed to represent, the

Mozambican government in discussions with Credit Suisse up to that point. Credit

Suisse had not provided their identities to the Second EDD Provider.

4.27.
Two FCC individuals contacted the Second EDD Provider on 20 March 2013

seeking clarification on how the Third-Party Contractor was awarded the project.

The Second EDD Provider responded “Unfortunately, we were not able to get any

input from sources on the procurement process. The problem is that this is clearly

a highly confidential project. Nobody we spoke to was aware of any major new

initiatives in offshore maritime security, and that includes well-placed private

operators and a consultant who works closely with the MoD on exactly these types

of projects… it would seem the only people aware of the procurement agreement

on the Mozambique side would be those who directly negotiated with [the Third-

Party Contractor]”. The EDD review form for the First Loan recorded that Credit

Suisse was aware that there was a lack of public scrutiny of the project.

4.28.
Previously, BACC had asked the EMG Deal Team whether it was “able to provide

any information on the procurement of [the Third-Party Contractor] by the

Republic” to which Vice President A had responded that the public procurement

regime did not apply, and that the Third-Party Contractor was selected following

it having pitched the project to the Government, the Government having

compared its proposal to other offerings, and having then selected it on the basis

that it was the best suited provider for various reasons.

The Reputational Risk process for the First Loan

4.29.
Following a review of EDD Reports 3 and 4, a member of the Reputational Risk

team requested that meetings be convened with the “deal team/AML/BACC” to

discuss the reports. Subsequently, two meetings took place on the afternoon of

20 March 2013. One meeting was attended by (among others) the Three CS

Individuals, Managing Directors C and E (the latter of whom was both Reputational

Risk Approver for the First Transaction and a senior individual within the Credit

Risk Management function) and other members holding reputational risk, credit

risk management and coverage roles. Issues raised in EDD Reports 3 and 4 were

discussed at that meeting and it was agreed that a Reputational Risk Submission

should be made. A second meeting was attended by Managing Director A, Vice

President A,
representatives
of
FCC
(including
senior
individuals
and

representatives from BACC), and a representative of the Reputational Risk

function. The conclusion reached was that while there was some “noise” around

TP Individual B, there was no bribery/AML issue and no objections from FCC.

4.30.
A Reputational Risk Submission was originated by Vice President A on the evening

of 20 March 2013. Senior Manager E signed off the Submission as Divisional

Endorser. Senior Manager A agreed to be copied into the Reputational Risk

Submission, and was aware in broad terms of its content. Senior Manager A had

not read any of the underlying EDD Reports including EDD Report 3. They were

aware of criminal/corruption allegations in relation to TP Individual B and that

Mozambique was a high-risk jurisdiction.

4.31.
The Submission summarised the discussions held at the meetings earlier that day

and only briefly set out the corruption concerns from EDD Report 3, and

categorised them as “historic” and as relating to previous legal procedures

involving TP Individual B which had been terminated. Various mitigants were listed

in the Submission, including that TP Individual B, through their companies,

continued to conduct business with Ministries of Defence from countries in

Western Europe, Africa, South America and the Middle East. The only

contemporaneous source cited in the Submission was the one that had suggested

TP Individual B conducted business “in a transparent and responsible manner”;

the others that had described TP Individual B’s current corrupt practices were not

mentioned. The Reputational Risk Approver, who had reviewed EDD Reports 3

and 4 and discussed them at the meetings held on 20 March 2013, approved the

First Loan on the morning of 21 March 2013, stating in the Submission that with

the exception of two cases which have been dropped, TP Individual B “has no

substantiated allegations against him” and that Credit Suisse’s AML function had

“reviewed all the due diligence and [had] no issues proceeding”.

4.32.
On 21 March 2013, the First Loan funds passed from Credit Suisse to the Third-

Party Contractor. In its final form, the First Loan was a 6-year amortising $372m

loan facility. Since the funds were disbursed to the Third-Party Contractor, Credit

Suisse deducted $38m from the amount disbursed as a subvention fee agreed to

be due from the Third-Party Contractor to subsidise the interest rate paid on the

First Loan. $172m of the loan principal was syndicated by Credit Suisse to other

lenders (the benefit of a certain portion of the subvention fee also being passed

on to them). Credit Suisse obtained insurance hedges totalling $180m so that its

initial overall exposure on the First Loan was approximately $20m.

4.33.
Credit Suisse also had a separate “Non-Standard transactions” process. This was

a mandatory pre-execution control within Credit Suisse’s Sales Group for

transactions which carried a particular reputational, market or franchise risk. The

Non-Standard Transactions Policy described itself as independent of, but

complementary to, the Reputational Risk process. It required the approval of

Senior Manager F, to whom Managing Director C reported. Senior Manager F had

questions, which he wished addressed before the loan was funded. He contacted

Managing Director A who responded: “Bit late now – we have funded.” Managing

Director A claimed in contemporaneous emails to have no knowledge of the Non-

Standard Transactions procedure, and did not understand its purpose.

Upsizes to First Loan and involvement of Managing Director B

4.34.
Around this time Managing Director A had decided to leave Credit Suisse’s

employment. At some time after 25 June 2013, while on ‘gardening leave’ and

unknown to Credit Suisse, Managing Director A offered kick-backs to Managing

Director B on behalf of the Third-Party Contractor. Managing Director B was to

ensure that Credit Suisse provided significant increases in the funds to the First

SPV under the First Loan, and ensure provision of a new loan (the Second Loan).

Managing Director B accepted. He agreed to allocate resources in a way which

would expedite the transactions, and to advocate for the transactions during

Credit Suisse’s internal approvals processes.

4.35.
By that time, the First Loan had already been upsized. An email of 16 April 2013

from a Credit Suisse employee to a senior manager stated “we are upsizing the

[First Loan] by another $200m to $250m”, because the Government of

Mozambique had decided to expand the project to include “land border security

monitoring”. Three changes ensued to the First Supply Contract between the

Third-Party Contractor and the First SPV in the next month. Credit Suisse

approved these change orders and on 14 June 2013 Credit Suisse and the First

SPV entered into an amended loan facility increasing the maximum loan amount

to $622m.

4.36.
On or around 25 June 2013, Credit Suisse provided additional funding of $100m

for the First Loan. On 12 August 2013 Credit Suisse provided further additional

funding of $32m. All payments were remitted directly to the account of the Third-

Party Contractor subject to the deduction of the subvention fee. In total under the

First Loan Agreement and its subsequent upsizes, the First SPV’s total principal

liability in respect of funds advanced by Credit Suisse stood at $504m, all of which

was subject to a sovereign guarantee by the Government of Mozambique.

The Second Loan

4.37.
TP Individual A informed Managing Director B by email on 28 July 2013 of another

project, for the development by Mozambique of a domestic fishing industry, to be

progressed via another new company, the Second SPV, incorporated on 2 August

2013. Its articles of association defined its main object as “the fishery activity of

Tuna and other fish resources, including the fishing, holding, processing, storage,

handling, transit, sale, import and export of such products.” It was jointly owned

by the Mozambican Ministry of Fisheries, the Ministry of Finance, and

Mozambique’s Intelligence and State Security Services.

4.38.
The Second SPV signed a $785.4m contract (“the Second Supply Contract”) with

the Third-Party Contractor for “the supply of twenty-four fishing vessels, three

[patrol and surveillance trimarans], equipment for a Land Operations Coordination

Centre, training, intellectual property and support to enable the company to

construct the ordered vessels in the future”. The contract was with a different

company within the group structure of the Third-Party Contractor, but throughout

this Notice shall also be referred to as “the Third-Party Contractor”. As with the

First Supply Contract, the Second Supply Contract was to be paid up front in full.

4.39.
The Second Loan was to be a capital markets debt issuance in the form of Loan

Participation Notes (‘LPNs’). This entailed the participation of Managing Director

D’s team, with responsibility for debt capital market transactions, and the

approval of Credit Suisse’s European Investment Banking Committee (“EIBC”).

4.40.
On 1 August 2013, Managing Director B sent a memo (known as a “Heads Up”

memo) notifying the EIBC of, and outlining, the Second Loan, under which it was

proposed that Credit Suisse would arrange and underwrite an amortising loan to

the Second SPV of up to $850m. The memo included a section on the

“background” of TP Individual B. It set out past criminal allegations against and

indictments of TP Individual B allegedly involving “monies paid to government

officials” but went on to state that none had resulted in a conviction (the charges

having been dropped) and that following enhanced due diligence in March 2013

the First Loan had been approved. This memo was also provided to a member of

the Reputational Risk function.

4.41.
The Second Loan deal team was comprised of several individuals of varying

degrees of seniority. It still included Managing Director B but did not include

Managing Director A or Vice President A, who by that time were no longer actively

employed by Credit Suisse. On or about 5 August 2013, Managing Director B

travelled to Mozambique with two other members of the Second Loan deal team

in order to conduct due diligence over several days. A series of meetings were

held with representatives of the Mozambican Ministry of Finance and Ministry of

Fisheries, representatives of the Third-Party Contractor and representatives of the

Second SPV. Managing Director B knew, although did not share this information

with their Credit Suisse colleagues, that Managing Director A and Vice President

A (on “gardening leave” from Credit Suisse) were assisting the Third-Party

Contractor with the Second Loan, and providing the Mozambican participants in

the due diligence discussions with purported answers to Credit Suisse’s questions,

including false information, to help ensure that the Second Loan would be

approved by Credit Suisse.

4.42.
For example, during the meeting with representatives from the Second SPV in

Maputo, at which three Second Loan Deal Team members were present, Managing

Director B asked Mozambican Individual A why the Third-Party Contractor had

been chosen for the project. In response, Mozambican Individual A described bids

by other contractors, but provided no documentary support for them. The Second

Loan deal team compiled the orally transmitted information into a table which it

later provided as evidence of a procurement process.

FCC consideration of the Second Loan

4.43.
An enhanced due diligence form in respect of the Second Loan was submitted to

FCC by a member of the Coverage Team on 12 August 2013. This form was

considered by all three individuals from FCC who had scrutinised the First Loan.

4.44.
In considering the EDD form, an individual with defined senior financial crime

responsibilities noted that it would be necessary given “the risks of possible

corruption in a case like this” to “assess the proposed transactions and related

parties (e.g. contractors) plus controls to ensure funding provided by CS is not

mis-used.” In response to the FCC’s follow-up question if there were “any

controls/procedures in place to ensure that the proceeds are not used for improper

purposes”, a member of the Second Loan deal team responded as it did regarding

the First Loan that “We believe that the upfront direct payment of all proceeds of

the loan to the [Third-Party] contractor is the best assurance that the proceeds

will be used according to the contract terms…”.

4.45.
Another of the FCC individuals commented on the EDD form that “while there is

inherent country related corruption risk with this jurisdiction no specific BACC

issues have been identified from the review or the procurement process for this

transaction… Adverse news was identified via the previous external reports on [TP

Individual B but were] not substantiated...”. The EDD form was later submitted

as part of the reputational risk process. FCC was informed by the Second Loan

deal team that the Third-Party Contractor had not been required to go through a

“formal procurement procedure” and had been appointed through a legal

exception to the formal procurement laws of Mozambique.

4.46.
Credit Suisse did not commission any additional external due diligence reports in

respect of the Second Loan. In respect of the Third-Party Contractor, TP Individual

B and the Second SPV, FCC relied on EDD Reports 3 and 4 as external due

diligence which had been obtained five months earlier for the purposes of the First

Loan. EDD Report 4 was concerned with the First SPV and did not contain any

information on three directors of the new Second SPV who had not also been

director of the First SPV. On 15 August 2013, FCC gave its approval for the

transaction to proceed.

EIBC consideration of the Second Loan

4.47.
On 13 August 2013, the EIBC was provided with an 82-page Memo (“the EIBC

Memo”) in which the Second Loan deal team, together with Managing Director D’s

team, set out the details of the proposed transaction and sought approval for

Credit Suisse to act as lead manager and underwrite the $850m Second Loan

facility. As part of a section regarding the Third-Party Contractor’s selection for

the project, the purported details of bids by other contractors provided orally by

Mozambican Individual A had been compiled by the Second Loan deal team into

a table and it was explained that the Third-Party Contractor was selected based

on price, timeline for delivery and intellectual property transfers. The EIBC memo

also provided that in “June 2013 the IMF approved a new 3-year policy support

instrument (PSI)… [for Mozambique and] established a new non-concessional

debt limit… of $2bn applicable until June 2014. This transaction falls within the

new non-concessional limit".

4.48.
The EIBC memo gave an overview of the due diligence conducted, including details

of the Second Loan deal team’s due diligence trip to Mozambique and a section

covering various risks and mitigants of the transaction, which included the same

information which had been included in the ‘Heads-Up’ memo regarding previous

indictments and allegations relating to corruption involving TP Individual B.

Among the other risks flagged was that disclosure by Mozambique under an LPN

issue would be limited compared to disclosure under other types of securities, and

that the mitigating factors of this risk included the “good quality publicly available

information” on Mozambique from “credible third parties” including the IMF and

World Bank and two ratings agencies. Also, the LPNs were “expected to be rated

B+ by [a Credit Ratings Agency] in line with the sovereign rating of the Republic

of Mozambique”. The EIBC Memo listed all of the approvals that had been obtained

or were expected, including Sustainability, Reputational Risk and AML.

4.49.
The EIBC approved the transaction on 14 August 2013 “subject to final

satisfactory due diligence, documentation, comfort package and relevant pending

internal approvals“.

4.50.
On 17 August 2013, a credit ratings agency submitted to Credit Suisse additional

due diligence questions for Mozambique “regarding [Mozambique’s] sovereign

support for [the Second SPV]”. These included questions about whether the

guarantee fell under Mozambique’s non-concessional borrowing limits allowed by

the IMF, whether the transaction (and in particular the sovereign guarantee

underpinning it) had been discussed with the IMF, and whether the Government

of Mozambique would report the debt as its own in its debt statistics.

4.51.
These questions were relayed by Managing Director B to TP Individual A who

refused to answer them. Managing Director B subsequently notified the EIBC by

email that due diligence required by the credit ratings agency could not be

accommodated and that “as a result the transaction team has decided to proceed

on the basis of the [LPNs] being unrated”. Managing Director B also notified the

EIBC that the credit ratings agency had downgraded Mozambique’s country credit

rating.

4.52.
By 19 August 2013, the Second Loan deal team and the Debt Capital Markets

(“DCM”) team determined that the loan facility would be reduced to $500m

underwritten, with an additional $350m on a ‘best efforts’ basis. The EIBC asked

questions about the impact of the downgrade, including on performance of the

underlying contract, but did not ask for details of the due diligence sought by the

credit ratings agency or why it could not be accommodated. The EIBC reconfirmed

its authorisation of the transaction later on 19 August 2013.

4.53.
On 20 August 2013, in order to satisfy one of EIBC’s conditions for approval,

Managing Director B summarised the Second Loan by email for divisional senior

management approval. Senior management approval was granted on 23 August

2013.

Reputational Risk process for the Second Loan

4.54.
A member of the Reputational Risk team had been provided with the ‘Heads up’

memo on 1 August 2013. An iterative discussion followed which included members

of the Second Loan deal team, FCC and the Reputational Risk function, including

the Reputational Risk Approver for the First Loan and the individual who was

(eventually) to be the Reputational Risk Approver for the Second Loan. The

discussion was informal and resulted in the participants in the discussion coming

to the view that no additional reputational risk arose from the Second Loan

following Reputational Risk’s approval of the First Loan and therefore no

Reputational Risk Submission was required.

4.55.
On 21 August 2013, Senior Manager B brought the Second Loan to the attention

of the Risk Committee of Credit Suisse’s EMEA Board, noting that the Second Loan

was a second Mozambican transaction involving the Third-Party Contractor and

had completed internal approvals, and that the First Loan had drawn “regulatory

scrutiny”. The Risk Committee requested that prior to final approval of the Second

Loan a Reputational Risk Submission be made. The Reputational Risk Approver

for the First Loan commented to a Risk Committee member that this request was

“ridiculous”, given that that the transaction had already been through “all

appropriate channels”.

4.56.
Following this exchange, on 23 August 2013, a draft Reputational Risk Submission

was prepared, although some members of the Reputational Risk function and

Managing Director B still objected that it was not necessary. On 28 August 2013,

Managing Director B requested the endorsement of Senior Manager D, in the

capacity of Divisional Endorser for the Reputational Risk Submission.

4.57.
On 30 August 2013, before Senior Manager D had provided such endorsement, or

the Reputational Risk submission had been made, a facility agreement for the

Second Loan was executed between the Second SPV as borrower, and Credit

Suisse as arranger, original lender, and facility agent. Managing Director B and

Director A signed on behalf of Credit Suisse.

4.58.
On 2 September 2013, Senior Manager D (who had been on leave) endorsed the

Reputational Risk Submission and a member of the Second Loan deal team

originated it. It stated that the reputation of TP Individual B and the linked

acceptability of the Third-Party Contractor formed the basis of a Reputational Risk

review for the First Loan and stated that EDD Report 3 “alludes to historic corrupt

business practices [of TP Individual B] but there are no specific, substantiated

facts pointing to any occurrence” and that the “deal team considers that from a

reputational perspective the [Third-Party Contractor] remains an acceptable

counterparty…”. As with the Submission for the First Loan, the Submission for the

Second Loan was flawed for want of any reference to allegations of

contemporaneous corrupt practices, rather than merely “historic” ones. The

Submission also did not include any feedback from a member of Credit Suisse’s

Risk Committee who had been nominated as a feedback provider, and did not

contain any analysis from FCC or otherwise that captured the discussions held

among FCC, Reputational Risk and other Credit Suisse personnel.

4.59.
A Reputational Risk Approver approved the transaction on 3 September 2013,

stating “that while a Reputational Risk Submission was requested by the [Credit

reputational risk has been identified”. The Reputational Risk Approver, who was

aware of the contents of EDD Report 3, did not include any detail of the

consideration of the potential reputational risks or explain the basis for the

conclusion that no reputational risk had been identified.

Conclusion of the Second Loan

4.60.
On 5 September 2013, Managing Director B and Director B signed a ‘Notice of

Commitment’ letter on behalf of Credit Suisse which committed Credit Suisse to

funding $500m of the Second Loan and paying that money directly to the Third-

Party Contractor on demand, once the subvention fee had been deducted.

4.61.
On 11 September 2013, after obtaining the requisite approvals from the Second

SPV, the loan monies totalling $446m following deduction of the subvention fee,

and fees owed by the Second SPV to Credit Suisse, was released by Credit Suisse

to the Third-Party Contractor.

4.62.
The DCM team was responsible for distributing the loan to investors on behalf of

Credit Suisse via LPNs. On 10 September 2013, an Offering Circular was published

in relation to the LPNs. This was an official memorandum, to which the facility

agreement and the sovereign guarantee were appended and which described the

Second Loan to potential investors. It specified the use of proceeds as follows:

"The Borrower shall apply all amounts borrowed by it towards financing the

purchase of fishing infrastructure, comprising of 27 vessels, an operations centre

and related training and the general corporate purposes of the Borrower."

Payment of kick-backs to Managing Director B by Managing Director A

4.63.
In addition to the sum of $5.5m that Managing Director A received into a personal

account for reducing the subvention fee (referred to in paragraphs 4.21 and 4.22

above) in connection with the First Loan, Managing Director A received further

kick-backs from the Third-Party Contractor through 2013 and 2014, unknown to

Credit Suisse and after he had ceased working for Credit Suisse, which in total

amounted to approximately an additional $47m. For his role in assisting with the

completion of the Second Loan and upsizing the First Loan, Managing Director B

received $5.7m in kick-backs from Managing Director A.

Continued reports and enquiries about the Second Loan

4.64.
Following the issuance of the LPNs, questions and allegations concerning the

Second Loan began to be reported in the press and elsewhere indicating possible

impropriety in connection with the Second Loan and the use of proceeds. These

reports centred on proceeds being spent on military expenditure (and a large

portion of the loan being eventually allocated to the Mozambican defence budget),

the possible weaponisation of vessels, and the associated concerns of

international donors. For example, one press report from November 2013 stated

that “Mozambique risks delays in [aid] payment because of questions by donor

countries over an $850 million bond issue”. The articles quoted donor concerns

regarding “a very murky deal” and reported that “key concerns are [the Second

SPV’s] unclear mandate, a lack of feasibility studies, and unclear procurement

spending which includes patrol boats and possibly military hardware”.

4.65.
During October and November 2013, Credit Suisse was contacted by journalists,

asking if the Second Loan had been used to finance military expenditure, rather

than the tuna fishing boats and infrastructure specified in the LPN Offering

Circular. Some of the journalists went on to publish articles about the concerns of

international donors, including the IMF.

4.66.
In January 2014, the IMF published a report that identified that the Second Loan

had been used to finance the purchase of “24 tuna fishing vessels and 3 patrol

vessels, as well as other vessels”, the latter of which were not specified under the

Second Supply Contract. The report contained a table detailing Mozambique’s

non-concessional borrowing, but the table did not include the First Loan. The

report also referred to a revised budget proposal for 2014, whereby $350m of the

Second Loan had – as required by the IMF itself – been allocated to the Ministry

of Defence to account for “the non-commercial activities of [the Second SPV]”

because “the [Mozambican] Government believes that this increase in the budget

of the Ministry of Defense is necessary to provide protection services along the

coast of Mozambique, including for natural resource companies operating

offshore”. The report noted “concerns, shared in the donor community about the

lack of transparency regarding the use of funds and the secretive manner in which

the project was evaluated, selected, and implemented…”. Credit Suisse did not

make enquiries of the IMF, the Second SPV or any of the government officials or

associates with whom it had been dealing about these non-commercial activities.

4.67.
By late June 2015, Credit Suisse was aware of further reports (which continued

in the months ahead) that $500m of the $850m Second Loan had been

incorporated into the budget of the Mozambican Ministry of Defence, having

supposedly been used to purchase naval ships and equipment. In July 2015,

press reports alleged that “vast profits [from the deal had been] made by senior

figures in the [Mozambican government]” and suggested that the Second Loan

had been used to enrich senior Mozambican officials. Around this time, Credit

Suisse was also contacted by reporters who claimed that the government’s

guarantee on the Second Loan was in breach of Mozambican law and sought Credit

Suisse’s response.

4.68.
Credit Suisse considered these press reports internally and focused on the

contractual restrictions imposed in the loan documentation on how the loan

monies were to be spent. Credit Suisse contacted the Third-Party Contractor and

the Second SPV regarding the press reports and obtained their confirmation that

there was no weaponisation of the vessels. However, Credit Suisse did not ask

the Third-Party Contractor any other questions about the true use of the proceeds

of the Second Loan or request evidence to verify that use at that time or

subsequently. Credit Suisse did subsequently ask some more questions of its

client, the Second SPV, however, as set out in paragraphs 4.87, 4.90 and 4.91

below, those enquiries were limited.

4.69.
Credit Suisse did not adequately consider the scenario that if it was the case that

the guarantee had been granted in excess of Mozambican budgetary limits, why

that may have occurred and whether that would be evidence of corruption or some

other unlawfulness in respect of the Second Loan, given the widespread reports

and other information about corruption circulating at the time.

4.70.
In November 2014, Credit Suisse also physically inspected five fishing vessels at

Maputo. This inspection confirmed that no weapons had been installed. Further

investigative steps in response to these press reports were not taken until later

in 2015, in the context of the LPN Exchange (a transaction described below). As

to the First Loan, Credit Suisse did not take steps at this time, or subsequently,

to physically inspect the vessels supplied or to conduct any valuation exercise.

4.71.
On 29 May 2015, the Second SPV published accounts showing financial losses of

$24.9m during 2014, which were attributed to implementation problems and

delays. (The problems as reported to Credit Suisse related to external challenges

such as a lack of public electricity, government infighting and a lack of staff due

to increased military exercises.) On or around 5 June 2015, Credit Suisse met a

representative of the Second SPV about a proposed restructuring of the Second

Loan because the underlying fishing project was not yet fully operational and

therefore unable to generate the level of revenues initially expected and pay the

first amortisation of its bond in September 2015. The Government of Mozambique,

in its function as the guarantor, therefore engaged Credit Suisse to replace the

current note with a more liquid, less expensive, longer-dated, direct sovereign

bond of $850m. On 17 July 2015, Credit Suisse was appointed to act as lead

manager.

4.72.
At this time, the intention was that the existing $850m of LPNs would be

exchanged for sovereign bonds (the “LPN Exchange”), with a possibility of raising

a further circa $150m of new money should that be required (and should that be

approved by Credit Suisse), for “general corporate purposes” and to keep the

Second SPV “afloat”.

4.73.
The Credit Suisse team in charge of preparations for the LPN Exchange (the

“Exchange Deal Team”) consisted of members from the DCM, Coverage, Liability

Management, Transaction Management Group and Structuring teams. DCM was

led by Managing Director D. As a member of the Structuring team, Managing

Director B had a more limited involvement in the LPN Exchange, primarily in

response to certain information requests from the Exchange Deal Team.

FCC and Reputational Risk initial consideration of the LPN Exchange

4.75.
In July 2015, a draft Reputational Risk Submission for the proposed LPN Exchange

dismissed allegations that the Second Loan had been used to procure patrol

vessels instead of fishing vessels or that the vessels would be weaponised, on the

basis that such allegations stemmed from “confusion”, “speculation” and

“misinformed” statements due to “political jostling”. The summary of the

transaction included a statement that “the deal team had inspected vessels

delivered for [the Second SPV]and [the First SPV] during a [due diligence] trip to

Maputo in November 2014” and that “the contractor and [the Second SPV] both

categorically confirmed that there are no weapons on any of the vessels.” The

document referred to “prior (unsubstantiated) allegations” but did not provide any

further (negative) detail from EDD Report 3 about TP Individual B.

4.76.
The Reputational Risk team and FCC discussed the allegations and concerns over

use of proceeds and concluded that “we’ve weighed the allegations against what

we factually know to be true and those two don’t quite stack up, with the

allegations really coming with a lot of political baggage attached”. FCC noted that

“Unfortunately, we have not [reviewed the proceeds of the Second Loan to check

that they were spent on the assets that they were provided for]”, but concluded

that Credit Suisse’s ability to investigate the allegations was limited and that it

could not verify how the proceeds of the Second Loan were actually spent because

it concerned the actions of a sovereign state. In deciding to approve the LPN

Exchange, Credit Suisse comforted itself with the following factors: (i) the “issuer

is the State, not [the Third-Party Contractor]”; (ii) “robust use of proceeds”; (iii)

“broader disclosure requirements”; (iv) “broad anti-corruption reps & warranties”;

and (v) “public assurances from the issuer regarding use of funds”. On this basis,

and on the condition that “the business is to monitor for any corruption-related

development”, BACC did not object to a new deal (to include the additional $150m

of new money). BACC did not direct that further enquiries be made in an effort to

gain more clarity about the circumstances surrounding the apparent diversion of

some $500m of the Second Loan.

4.77.
On 3 August 2015, a Divisional Endorser for the Reputational Risk process

recorded that they had noted the negative press and that “having spoken to the

deal teams and synthesized the reviews of the various feedback providers (AML,

Corp Comms etc), my conclusion is that the restructuring of this loan is ultimately

a good thing” and was in the best interests of investors and Credit Suisse’s client,

the Second SPV. Their reasoning included that the restructuring: (i) would give

direct recourse to the Government of Mozambique rather than via a secondary

obligation through the government’s guarantee on the Second Loan; (ii) had the

effect of moving the debt obligation from a state-owned entity to the sovereign

itself; (iii) created more transparency and a liquid tradeable instrument; and (iv)

would reduce the cost of capital to the government. The Divisional Endorser also

made their approval conditional on inspection of the fishing fleet to ensure that it

complied with “the original intentions of our loan (ie not weaponised, being used

for fishing etc)” and that if “new money” was raised that the use of proceeds

would be restricted to the project and requirements related to it.

4.78.
On 5 August 2015, the LPN Exchange with a “new money” component of $150m

was approved by the Reputational Risk function, with a direction that the

Exchange Deal Team “ensures robust independent third-party verification on the

Use of Proceeds (working with BACC and Sustainability Affairs) and that

[Corporate Communications] continue to work with the business and client on

suitable media strategy”.

Inspection and valuation of vessels: the Valuation Gap

4.79.
In early August 2015, BACC and Sustainability Affairs directed that there be an

independent valuation of the vessels. A number of members of the Exchange Deal

Team travelled to Mozambique in early August 2015 to inspect the fishing vessels

supplied under the Second Supply Contract. They reported back that they saw 22

of the 24 fishing vessels (explaining that the other two vessels were out at sea at

the time) and that there “were no sign of any weapons, and clearly no signs of

any intention to build weapons on the boats”.

4.80.
However, the Exchange Deal Team members reported that the trimarans (which

were to be supplied under the Second Supply Contract) were not available for

inspection because they were still “in Europe and will be delivered to Mozambique

as soon as the infrastructure is in place to moor them”. One of the reasons for

inspecting the vessels was to verify negative press reports suggesting that

weapons had been installed on them, which Credit Suisse confirmed as incorrect.

However, as part of this due diligence trip, Credit Suisse did not take steps to also

investigate the range of other allegations (e.g., the allocation of $500m from the

Second Loan to the defence budget). Therefore, those other issues remained at

large.

4.81.
On 16 November 2015, members of the Exchange Deal Team prepared an internal

document for senior colleagues that explained that their “understanding is that

[$500m of the Second Loan] has been allocated to [the Mozambican] defence

budget”. The Exchange Deal Team also stated that, given the Mozambican

government had assumed $500m of the Second SPV’s debt, it was “likely that the

trimarans will form part of the navy”.

4.82.
Some five months after the direction of BACC and Sustainability Affairs to obtain

a valuation, in January 2016, Credit Suisse engaged a shipping expert to value

the fishing vessels. At the time of engagement, the shipping expert made it clear

that they would only be able to “produce a very hypothetical valuation” because

of the difficulty in “finding a market [as] you have to have a Licence to catch Tuna

and these are few and far between.” The expert’s report valued each of the fishing

boats (i.e. not the trimarans), including the costs of delivery, at $10m-$15m. The

valuer explained that the reason for the higher and lower range of values was to

take account of the facilities and services that were also said to have been

included in the contract, which the valuer did not observe (for example, spare

parts for the fishing vessels) and delivery. In contrast with this valuation, the

fishing vessels (as distinct from the trimarans) had been invoiced to the Second

SPV at $22.3m each. Credit Suisse did not take further steps to verify the

existence of the facilities and services. Nor did it take steps to verify and value

the intellectual property that was also to have been provided under the contract.

4.83.
Credit Suisse also sought to arrange inspection of the three trimarans (which were

said to be located in France) on several occasions, but permission was refused by

the Second SPV because the Second SPV said that the shipyard contained several

other confidential vessels (even though the Second Supply Contract provided that

the Second SPV could insist on inspection facilities being made available at the

site of manufacture). Credit Suisse therefore engaged another independent

valuer to provide a separate ‘desk top’ valuation for the trimarans (i.e. without

physically inspecting them) in the range of €19.39m to €22.29m. In the event,

Credit Suisse never obtained access to the trimarans to verify their existence and

to value them.

4.84.
Based on these two valuations, Credit Suisse calculated that there was a

difference between the valuations of all of the vessels to be supplied under the

contract and the contract value of between $265,400,000 and $394,400,000 (“the

Valuation Gap”). The Valuation Gap amounted to between 33% and 48% of the

Second Loan facility.

4.85.
On 22 February 2016, BACC circulated internally four potential explanations for

the Valuation Gap:

a)
The Second SPV simply entered into a “highly unfavourable deal”;

b)
The funds were used to purchase other undeclared vessels;

c)
The funds were “significantly mismanaged”; or

d)
The funds were “used for improper purposes (e.g. bribes)”.

4.86.
On 1 March 2016, BACC emailed senior FCC colleagues noting that consideration

was being given to whether notifying Credit Suisse’s client, the Second SPV, about

the Valuation Gap could constitute a criminal offence of “tipping off” under the

Proceeds of Crime Act 2002. The email said that this question would be put to

external counsel to advise upon, along with “the larger question of our obligations

vis-à-vis regulators (both here and locally)”.

4.87.
On 2 March 2016, Exchange Deal Team Member A met Mozambican Individual A

in Maputo to inform the Second SPV about the Valuation Gap, ascertain the

response of the Second SPV and ask about how the Second SPV would follow up

on the information. Exchange Deal Team Member A’s file note of the discussion

30

recorded that Mozambican Individual A had purposely not been briefed on the

topic of the meeting to "get a more realistic/unprepared response from [them] so

as to properly [gauge their] reaction". The note described Mozambican Individual

A’s response as “thoughtful & [their] reaction was one of interest, perhaps

concern, but no alarm”. In terms of value provided, Mozambican Individual A

considered “the contract was an integral ie one solution”, “they had preferred to

appoint one contractor given strict confidentiality”, they “felt that the different

components of the contract were of significant value” and that “[the Contractor]

has provided value overall”.

4.88.
Credit Suisse ultimately arrived at the view that the most likely explanation for

the Valuation Gap was that the Second SPV had been overcharged and that they

attributed greater value to certain items (e.g. intellectual property/technology

transfer) in the contract than Credit Suisse or valuers did. It considered this

explanation plausible on the basis that: (i) the project was a new venture for

Mozambique; (ii) they had little experience, expertise, or knowledge of the boats

and infrastructure that were to be acquired; (iii) there was a lack of efficiency in

the way they had approached the contract; (iv) it was extremely difficult to value

the vessels (particularly the trimarans); (v) the client had obtained alternative

quotes which were more expensive than the contract value; and (vi) the difference

may have been partially explained by the intellectual property/technology transfer

relating to the trimarans.

4.89.
However, overcharging could not, of itself, have constituted an adequate

explanation and insufficient weight was afforded to allegations in the press of

corruption and the misuse of the proceeds of the Second Loan (including to fund

military expansion) and the information held about the business practices of TP

Individual B according to EDD Report 3.

4.90.
On 8 March 2016, Credit Suisse asked the Second SPV for sight of the

documentation for the purported alternative quotes referred to in paragraph 4.88

(v). The Second SPV said that it had not retained the documents. Credit Suisse

did not take any further steps to obtain this documentation e.g. to ask the Second

SPV to request the documentation from the other providers, or to authorise them

to supply it to Credit Suisse.

4.91.
Credit Suisse did not take any other steps to further investigate the possible other

explanations for the Valuation Gap (including by questioning the explanations it

received from Mozambican Individual A more rigorously. For example, no

questions were put to Mozambican Individual A about the $500m that had been

allocated to the defence budget). No questions on the reports of military

expansion and/or reports about the misuse of the loan proceeds, or the Valuation

Gap were asked of the Third-Party Contractor or any of the Mozambican officials

with whom Credit Suisse had been dealing.

4.92.
Instead, Credit Suisse placed too much weight on the fact that allegations in the

press had not been proven and that it had no evidence or certainty that misuse

or misappropriation of the proceeds of the Second Loan was the explanation for

the Valuation Gap.

4.93.
The cumulative effect of the information known to Credit Suisse was not properly

assessed. Credit Suisse did not inform the relevant authorities about its concerns

regarding the use of proceeds of the Second Loan.

Final consideration and approval of the LPN Exchange

4.94.
Having established the existence and scale of the Valuation Gap, by no later than

11 February 2016, Credit Suisse decided that it would not provide any new money

as part of the LPN Exchange because of its use of proceeds concerns (which

included financial crime concerns) arising from the Valuation Gap and press

allegations. On 3 March 2016, the LPN Exchange was approved by the Global

Investment Bank Committee, on the condition that Credit Suisse was not involved

in the raising of any new money.

4.95.
On 3 March 2016, BACC emailed senior individuals in compliance, anti-money

laundering and FCC, stating “FCC/Compliance has no objection to the proposed

restructure transaction on the grounds that there is no evidence the proceeds

were used for purposes other than those described in the original transaction [Use

of Proceeds] clause.” BACC noted that: “The proposed restructure will create

transparency, provide a more liquid issuer and will extend the timeline for

repayment” and that it had reached this view following “discussions with the deal

team, Sustainability Affairs, Legal, Reputational Risk, dozens of email exchanges,

numerous requests for documents and various independent reviews of publicly

available and non-public sources”.

4.96.
On 7 March 2016, a senior FCC member noted that he “remained concerned (…)

that we have not closed out the red flags regarding the deal – not least because

of information concerning [TP Individual B] who has a reputation... for allegedly

making corrupt payments… Although the business has asked some questions of

[the Second SPV], in my view we still do not have a clear picture of why [the

Second SPV] appeared to pay so much for the boats.” However, on 9 March 2016,

having been provided with further information about the due diligence conducted

on the Third-Party Contractor, the vessel valuations and the responses received

from Mozambican Individual A, the same senior FCC member concluded that,

“While I am still uncomfortable about the valuation gap, I think we have done now

all the due diligence we reasonably can in the timeframe available. As such, I’m

ok to proceed.”

4.97.
The Reputational Risk Approver approved the LPN Exchange, based on the

rationale presented by the Exchange Deal Team and Compliance confirmation that

it did not object to the LPN Exchange proceeding. The Reputational Risk Approver

placed reliance on the following representations made by “senior business

management” :

(1)
The explanation provided by the Second SPV for the Valuation Gap was

“broadly reasonable … in the context of the market expertise of the client

in this type of EM [Emerging Markets] market transaction”;

(2)
FCC did not object to the LPN Exchange on the basis of the facts presented;

(3)
There was to be no new money generated and lent to the Second SPV as

part of the LPN Exchange; and

(4)
The LPN Exchange was “economically the best outcome for the client and

the current investors”, to whom Credit Suisse had an obligation.

4.98.
On 6 April 2016, the LPN Exchange settled, following which the LPNs issued by

the Second SPV ceased to exist.

4.99.
On 23 April 2016, the IMF announced that an excess of $1billion of external debt

guaranteed by the Government of Mozambique had not been disclosed by that

government to the fund. That non-disclosure related to the approximately

$1.4billion of non-concessional debt (including the First Loan).

4.100. The IMF halted loan disbursement and other international donors suspended

budgetary support. The Government of Mozambique introduced an emergency

budget which significantly cut public expenditure. There was a drop in foreign

investment. Inflation increased from 3.6 per cent in 2015 to 19.9 per cent in 2016.

Mozambique’s currency fell by one third in value during 2017, and it defaulted on

its sovereign debt. Compounding the accumulated impact of a range of factors

(such as low commodity prices, drought and conflict), this severely impacted

public services, including health and education. The impact has been most

seriously felt in Mozambique’s poorest communities.

5.
FAILINGS

5.1.
The regulatory provisions relevant to this Notice are referred to in Annex A.

Principle 3 & SYSC 6.1.1R

5.2.
Principle 3 required Credit Suisse to take reasonable care to organise and control

its affairs responsibly and effectively, with adequate risk management systems.

SYSC 6.1.1R required Credit Suisse to establish, implement and maintain

adequate
policies
and
procedures
sufficient
to
ensure
compliance
of

the firm, including its managers and employees, with its obligations under

the regulatory system and for countering the risk that the firm might be used to

further financial crime. Both Principle 3 and SYSC 6.1.1R apply with respect to

the carrying on of unregulated activities in a prudential context (PRIN 3.2.3R and

SYSC 1 Annex 1 2.13R). ‘Prudential context’ is defined by the FCA Handbook as

including the context in which activities have, or might reasonably be regarded as

likely to have, a negative effect on the integrity of the UK financial system, and

the integrity of the UK financial system includes it not being used for a purpose

connected with financial crime (section 1D of the Act). Therefore Principle 3 and

SYSC 6.1.1R required Credit Suisse to have adequate financial crime controls,

policies and procedures including in relation to unregulated activities (such as

corporate lending).

5.3.
Credit Suisse breached Principle 3 and SYSC 6.1.1R because it failed to sufficiently

prioritise the mitigation of financial crime risks, including corruption risks, within

its emerging markets business; it lacked an adequate financial crime strategy for

the management of those risks, and as a result, the risk management systems it

had in place were not adequate. At the outset of the Relevant Period:

(1) Both FCC and the Reputational Risk function were under increased strain due

to the broad remit of their respective roles, and the processes in place at the

time were inadequate for facilitating and capturing a comprehensive and

holistic assessment of potential financial crime risks;

(2) The FCC function covering EMEA was inadequately resourced in terms of the

number, experience and seniority of its personnel to deal fully with the volume

and complexity of work assigned to it;

(3) The distinction between financial crime controls and reputational risk controls

was not adequately defined, which contributed to the distinction between

financial crime risks and reputational issues becoming blurred;

(4) The Reputational Risk function had three full-time employees globally and the

process was informal, lacking in committee oversight and inadequate for the

comprehensive assessment of risks required by the Reputational Risk policy;

and

(5) The ‘Non-Standard Transactions’ process, albeit potentially capable of

providing some protection against financial crime risks, was neither clearly

defined relative to other transaction controls, including the Reputational Risk

process, nor adequately disseminated among stakeholders to be effective.

5.4
While some of these processes and procedures improved over the Relevant Period,

Credit Suisse did not complete the full implementation of its financial crime strategy

until after the end of the Relevant Period.

5.5
Furthermore, Credit Suisse breached Principle 3 and SYSC 6.1.1R because on

multiple occasions there was insufficient challenge and scrutiny in the face of

important risk factors related to these transactions. Credit Suisse had sufficient

information from which it should have appreciated that the transactions were

associated with a high risk of bribery and corruption. Although Credit Suisse did

consider relevant risk factors, it consistently gave insufficient weight to them

individually and failed adequately to consider them holistically. At times, a lack of

engagement by senior individuals within the emerging markets business

contributed to Credit Suisse’s failure to adequately scrutinise these transactions.

Collectively, the above shortcomings constituted a failure by Credit Suisse to take

reasonable care to organise and control its affairs responsibly and effectively over

the Relevant Period.

5.6
Principle 2 required Credit Suisse to conduct its business with due skill, care and

diligence. As set out in more detail below Credit Suisse breached Principle 2 on

multiple occasions during the Relevant Period by failing to adequately assess the

risks related to these transactions.

The Second Loan

5.7
Credit Suisse breached Principle 2 in August and September 2013 because:

(1) its FCC team, on the information of which it was made aware, failed

adequately to assess the heightened risks associated with the Second Loan.

This included failing to aggregate relevant risks by reference to the First Loan

and particularly the information set out in EDD Report 3;

(2) its European Investment Bank Committee failed to adequately challenge the

information presented to the committee in the EIBC Memo, given the

complexities of the transaction, and the conduct risks arising from the

jurisdiction and Third Party Contractor. In particular, it failed to give adequate

challenge or seek further information regarding changes to the deal structure

following its initial approval;

(3) its Reputational Risk function, including the Divisional Endorser and

Reputational Risk Approver in respect of the Second Loan, did not follow the

reputational risk process properly and failed to identify any reputational risk

associated with the Second Loan, despite the corruption risk posed by TP

Individual B and other risk factors.

After the Second Loan

5.8
After the Second Loan, Credit Suisse breached Principle 2 on a number of occasions

because it failed to adequately scrutinise or react to relevant information of which

it became aware, including:

36

(1) Numerous articles and reports between September 2013 and November 2013

which raised questions and concerns about proceeds from the Second Loan

being used for naval ships and equipment.

(2) A report published by the IMF in January 2014 that identified that more

vessels than specified under the Second Supply Contract had been financed

with the Second Loan, and in which the existence of the First Loan was

omitted from a table detailing the amount of non-concessional borrowing. The

report also referred to $350m from the Second Loan being re-allocated to the

defence budget of Mozambique – as required by the IMF - for what was

described as non-commercial activities. It should therefore have been

apparent to Credit Suisse that the basis upon which it had made the Second

Loan was, on the face of it, untrue.

(3) In the period from June 2015 to November 2015, there were further reports,

including a statement from a Mozambican minister of finance, that $500m of

the $850m from the Second Loan had been spent on naval ships and had

been incorporated into the Mozambican Ministry of Defence budget. Reports

also circulated that the Second Loan had been used to enrich senior

individuals in the Mozambican government.

5.9
From mid-2015 to April 2016, whilst engaged on the LPN Exchange, Credit Suisse

breached Principle 2 because in the face of information which indicated a further

heightened risk that the money lent in 2013 had been misapplied or

misappropriated and tainted by financial crime, Credit Suisse again failed to

challenge and scrutinise information adequately including an independent valuation

that calculated a ‘valuation gap’ between the assets purchased and the funds lent

on the Second Loan of between $279m and $408m.

5.10
By the time of the LPN Exchange, the cumulative effect of the information known

to Credit Suisse constituted circumstances sufficient to ground a reasonable

suspicion that the Second Loan may have been tainted, either by corruption or

other financial crime. Although the LPN Exchange was considered extensively by

financial crime compliance, the Reputational Risk function, senior individuals and a

senior business committee, Credit Suisse again failed to adequately consider

important risk factors individually and holistically, despite its unresolved concerns.

As a result, it failed to take appropriate steps (including informing relevant

authorities) before proceeding with the LPN Exchange. This increased the risk of

any bribery or other financial crime continuing and the beneficiaries of any previous

corruption retaining the fruits of their participation in the corruption.

6.
SANCTION

Financial Penalty: breaches of Principles 2 and 3 and SYSC 6.1.1R

6.1.
The Authority has considered the disciplinary and other options available to it and

has concluded that a financial penalty is the appropriate sanction in the

circumstances of this particular case.

6.2.
The Authority’s policy for imposing a financial penalty is set out in Chapter 6 of

DEPP. In respect of conduct occurring on or after 6 March 2010, the Authority

applies a five-step framework to determine the appropriate level of financial

penalty. DEPP 6.5A sets out the details of the five-step framework that applies in

respect of financial penalties imposed on firms.

Step 1: disgorgement

6.3.
Pursuant to DEPP 5.5A.1G, at Step 1 the Authority seeks to deprive a firm of the

financial benefit derived directly from the breach where it is practicable to quantify

this. The financial benefit arising directly from its breach of Statement of Principles

2 and 3 and SYSC 6.1.1R has or will be disgorged from Credit Suisse in other

proceedings. Step 1 is therefore $0.

Step 2: the seriousness of the breach

6.4
Pursuant to DEPP 6.5A.2G, at Step 2 the Authority determines a figure that reflects

the seriousness of the breach. Where the amount of revenue generated by a firm

from a particular product line or business area is indicative of the harm or potential

harm that its breach may cause, that figure will be based on a percentage of the

firm’s revenue from the relevant products or business area.

38

6.5
The Authority considers that the gross revenue generated by the global activities

of Credit Suisse’s Emerging Markets Group is indicative of the harm or potential

harm caused by its breach. The Authority has therefore determined a figure based

on a percentage of Credit Suisse’s relevant revenue, which is the gross global

revenue of the Emerging Markets Group during the period of Credit Suisse’s

breach.

6.6
The period of Credit Suisse’s breach was from 1 October 2012 to 30 March 2016.

The Authority therefore considers Credit Suisse’s relevant revenue for this period

to be $5,754,100,000.

6.7
In deciding on the percentage of the relevant revenue that forms the basis of the

step 2 figure, the Authority considers the seriousness of the breach and chooses

a percentage between 0% and 20%. This range is divided into five fixed levels

which represent, on a sliding scale, the seriousness of the breach; the more

serious the breach, the higher the level. For penalties imposed on firms there are

the following five levels:

Level 1 – 0%

Level 2 – 5%

Level 3 – 10%

Level 5 – 20%

6.8
In assessing the seriousness level, the Authority takes into account various factors

which reflect the impact and nature of the breach, and whether it was committed

deliberately or recklessly. DEPP 6.5A.2G(11) lists factors likely to be considered

‘level 4 or 5 factors’. Of these, the Authority considers the following factors to be

relevant:

(1)
the breach revealed serious or systemic weaknesses in the firm’s

procedures or in the management systems or internal controls relating to

all or part of the firm’s business;

(2)
financial crime was facilitated, occasioned or otherwise attributable to the

breach.

6.9
DEPP 6.5A.2G(12) lists factors likely to be considered ‘level 1, 2 or 3 factors’. The

Authority considers the following factor to be relevant: the breaches were not

committed deliberately or recklessly.

6.10
Under DEPP 6.5A.2G(6) it is relevant whether the breach had an effect on

particularly vulnerable people, whether intentionally or otherwise. The Authority

considers that the level of poverty in Mozambique renders a significant proportion

of the inhabitants of that nation vulnerable to financial shock. The indebtedness

resulting from the First and Second Loan and its subsequent conversion in the

LPN Exchange, which contributed to a debt crisis, currency devaluation, and

inflation in Mozambique, has materially affected the people of Mozambique. The

Authority does not assert that Credit Suisse was solely or primarily responsible

for this, and recognises the involvement of other key actors and other factors, but

finds that by its role in these transactions Credit Suisse contributed to these

outcomes.

6.11
Taking all of these factors into account, the Authority considers the seriousness

of the breach to be level 4 and so the Step 2 figure is 15% of $5,754,100,000

6.12
DEPP6.5.3(3)G provides that the Authority may decrease the level of penalty

arrived at after applying Step 2 of the framework if it considers that the penalty

is disproportionately high for the breach concerned. The Authority considers that

the level of penalty is disproportionate.

6.13
In order to achieve a penalty that (at Step 2) is proportionate to the breach the

Step 2 figure is therefore reduced to $600,000,000.

6.14
Step 2 is therefore $600,000,000.

Step 3: mitigating and aggravating factors

6.15
Pursuant to DEPP 6.5A.3G, at Step 3 the Authority may increase or decrease the

amount of the financial penalty arrived at after Step 2, but not including any

amount to be disgorged as set out in Step 1, to take into account factors which

aggravate or mitigate the breach.

6.16
The Authority considers that the following factors specified in DEPP 6.5A(3)

aggravate the breach:

(1)
the firm had previously been told about the Authority’s concerns in

relation to the issue in supervisory meetings and email correspondence.

In 2013, the Authority had specifically queried aspects of the First Loan.

While the specific possibility that the transactions were corrupt was not

raised by the supervisors, the risks of the transactions and the proper

application of systems and controls governing Credit Suisse’s emerging

markets business to them were raised.

(2)
the firm’s previous disciplinary history:

(a)
13 August 2008: £5.6 million penalty for breaches of Principles

2 and 3 in relation to the mismarking of securities by Credit

Suisse International and Credit Suisse Securities (Europe)

Limited;

(b)
8 April 2010: £1.75 million penalty for breaches of SUP 17 of

the FSA Handbook in relation to transaction reports by Credit

Suisse International, Credit Suisse Securities (Europe) Limited,

Credit Suisse AG and Credit Suisse (UK) Limited;

(c)
25 October 2011: £5.95 million penalty for breaches of

Principle 3 in relation to the suitability of its advice to private

banking retail advisory customers by Credit Suisse (UK)

Limited; and

(d)
16 June 2014: £2.398m penalty for breach of Principle 7 in

relation to the information needs of its clients and the

requirement that its communications with them be clear, fair

and not misleading by Credit Suisse International.

6.17
The Authority considers that the above factors justify an increase in the penalty

at Step 3 by 10%. Were there no mitigating factors, the Step 3 figure would

therefore be $660,000,000.

6.18
The Authority has had regard to Credit Suisse’s co-ordinated settlements with

overseas agencies in respect of related facts and matters. Furthermore, the

Authority has made specific allowance in respect of the following step Credit

Suisse has taken to mitigate the harm to the population of Mozambique to which

its misconduct has contributed referred to at paragraph 6.10 above.

6.19
As part of this resolution, the Authority has sought and Credit Suisse has given

an irrevocable and unconditional undertaking to the Authority that, in respect of

ongoing civil proceedings between the Mozambique and Credit Suisse in relation

to the First and Second Loan, the first $200m of any sums claimed by Credit

Suisse as due and payable to it from Mozambique shall not be payable, whether

as part of any settlement reached, or in the event of judgment against

Mozambique (a possibility on which the Authority expresses no opinion).

6.20
This sum explicitly excludes that portion of any settlement, or judgment, under

which default interest is agreed or ordered to be payable by Mozambique to Credit

Suisse, and Credit Suisse has additionally undertaken to reduce any such sums of

default interest arising from the First Loan by $42.484m.

6.21
The Authority considers that it is appropriate to reduce the penalty payable by

giving credit for the above undertakings on the following basis. The Authority

considers that (a) no credit should be given in relation to the undertaking relating

to default interest (b) the $200m undertaking amount should be ‘grossed up’ at

step 3 to achieve a dollar for dollar reduction in the figure generated following

Step 5 and (c) it is appropriate to use a spot FX rate of $1.36331 in relation to the

credit provided (whereas by contrast an historic average is used, in accordance

with the Authority’s usual practice, when converting the $660,000,000 into

£419,847,328). This results in a reduction of $285,714,286 from $660,000,000

or, in GBP, a deduction of £209,575,505 from £419,847,328. This calculation is

solely for the purposes of determining an appropriate level of financial penalty in

this matter and the Authority expresses no opinion as to the validity of amounts

in dispute between Credit Suisse and the Republic or any other party.

6.22
Step 3 is therefore £210,271,823.

Step 4: adjustment for deterrence

6.23
Pursuant to DEPP 6.5A.4G, if the Authority considers the figure arrived at after

Step 3 is insufficient to deter the firm who committed the breach, or others, from

committing further or similar breaches, then the Authority may increase the

penalty. The Authority considers that the Step 3 figure of £210,271,823

1This is the spot FX rate as set out by the Bank of England on Thursday 14 October 2021

represents a sufficient deterrent to Credit Suisse and others, and so has not

increased the penalty at Step 4.

6.24
Step 4 is therefore £210,271,823.

Step 5: settlement discount

6.25
Pursuant to DEPP 6.5A.5G, if the Authority and the firm on whom a penalty is to

be imposed agree the amount of the financial penalty and other terms, DEPP 6.7

provides that the amount of the financial penalty which might otherwise have

been payable will be reduced to reflect the stage at which the Authority and the

firm reached agreement. The settlement discount does not apply to the

disgorgement of any benefit calculated at Step 1.

6.26
The Authority and Credit Suisse reached agreement at Stage 1 and so a 30%

discount applies to the Step 4 figure.

6.27
Step 5 is therefore £147,190,276 ($200,664,504).

6.28
The Authority, therefore, hereby imposes a total financial penalty on Credit Suisse

for breaches of Principles 2 and 3 and SYSC 6.1.1R of £147,190,200.

7. PROCEDURAL MATTERS

7.1.
This Notice is given to Credit Suisse under and in accordance with section 390 of

the Act.

7.2.
The following statutory rights are important.

Decision maker

7.3.
The decision which gave rise to the obligation to give this Notice was made by the

Settlement Decision Makers.

Manner and time for payment

7.4.
The financial penalty must be paid in full by Credit Suisse to the Authority no later

than 5 November 2021.

If the financial penalty is not paid

7.5.
If all or any of the financial penalty is outstanding on 6 November 2021, the

Authority may recover the outstanding amount as a debt owed by Credit Suisse

and due to the Authority.

7.6.
Sections 391(4), 391(6) and 391(7) of the Act apply to the publication of

information about the matter to which this notice relates. Under those provisions,

the Authority must publish such information about the matter to which this notice

relates as the Authority considers appropriate. The information may be published

in such manner as the Authority considers appropriate. However, the Authority

may not publish information if such publication would, in the opinion of the

Authority, be unfair to you or prejudicial to the interests of consumers or

detrimental to the stability of the UK financial system.

7.7.
The Authority intends to publish such information about the matter to which this

Final Notice relates as it considers appropriate.

Authority contacts

7.8.
For more information concerning this matter generally, contact Richard Littlechild

at the Authority (direct line: 020 7066 7146).

Financial Conduct Authority, Enforcement and Market Oversight Division

ANNEX A

RELEVANT STATUTORY AND REGULATORY PROVISIONS

1.1.
The Authority’s operational objectives, set out in section 1B(3) of the Act, include
the objective of protecting and enhancing the integrity of the UK financial system.
The integrity of the UK financial system includes it not being used for a purpose
connected with financial crime.

1.2.
‘Financial crime’ (in accordance with section 1H of the Act) means any kind of
criminal conduct relating to money or to financial services or markets, including
any offence involving:

(a) fraud or dishonesty; or

(b) misconduct in, or misuse of information relating to, a financial market; or

(c) handling the proceeds of crime; or

(d) the financing of terrorism;

and in this definition "offence" includes an act or omission which would be an
offence if it had taken place in the United Kingdom.

1.3.
Prior to 1 April 2013 ‘financial crime’ was defined by section 6(3) of the Act in the
same way as above save that it did not include reference to offences involving the
financing of terrorism.

1.4.
Section 206(1) of the Act provides:

“If the Authority considers that an authorised person has contravened a
requirement imposed on him by or under this Act… it may impose on him a
penalty, in respect of the contravention, of such amount as it considers
appropriate.”

RELEVANT REGULATORY PROVISIONS

Principles for Businesses

1.5.
The Principles are a general statement of the fundamental obligations of firms
under the regulatory system and are set out in the Authority’s Handbook. They
derive their authority from the Authority’s rule-making powers set out in the Act.
The relevant Principles are as follows.

1.6.
Principle 2 provides that a firm must conduct its business with due skill, care and
diligence,

1.7.
Principle 3 provides that a firm take reasonable care to organise and control its
affairs responsibly and effectively, with adequate risk management systems.

Relevant Rules

1.8.
SYSC 6.1.1R provides that a firm must establish, implement and maintain
adequate policies and procedures sufficient to ensure compliance of
the firm including its managers, employees and appointed representatives (or
where applicable, tied agents) with its obligations under the regulatory

system and for countering the risk that the firm might be used to further financial
crime.

DEPP

1.9.
Chapter 6 of DEPP, which forms part of the Authority’s Handbook, sets out the
Authority’s statement of policy with respect to the imposition and amount of
financial penalties under the Act.

The Enforcement Guide

1.10. The Enforcement Guide sets out the Authority’s approach to exercising its main
enforcement powers under the Act.

1.11. Chapter 7 of the Enforcement Guide sets out the Authority’s approach to
exercising its power to impose a financial a penalty.