As the five-week trial of a Credit Suisse Group AG life insurance unit began to wind down last Thursday afternoon, the presiding judge cut to the chase.
Lawyers for Credit Suisse Life (Bermuda) Ltd. had spent weeks fending off allegations from Georgian billionaire Bidzina Ivanishvili that the unit bears responsibility for failing to prevent convicted fraudster Patrice Lescaudron from losing $400 million of the $755 million he’d invested with the unit.
Bermuda Chief Justice Narinder Hargun challenged CS Life’s lawyer Stephen Moverley Smith on exactly that point.
“If he goes rogue,” and acts without any instruction from CS Life, in breach of the the contract that the insurer set up sold to these clients, “do you not think that CS Life has some responsibility?” Hargun asked at the courtroom in the island’s capital, Hamilton.
Lescaudron was convicted of fraud by a Swiss court in 2018. The bank has always said the Frenchman, who took his life last year, was a lone wolf who hid his fraudulent activity, and even commissions from Ivanishvili, from colleagues and supervisors. The Bermuda trial is the first major test of whether that argument will protect one of its units from liability.
The bank declined to comment while the trial is ongoing.
CS Life Chief Executive Officer Daniele Celia testified earlier in the trial that the unit delegated all its risk monitoring to its Zurich parent. In his closing arguments this week, Ivanishvili’s lawyer Joe Smouha pounced on that, arguing that this was a fundamental compliance flaw.
Smouha read from a 2010 letter Swiss banking regulator Finma sent to banks and insurers. It spells out that insurance wrapper products like Ivanishvili’s CS Life policy are “hardly any different” from a traditional asset management vehicle in terms of money-laundering risk and that corresponding due diligence requirements should apply.
That means, Smouha said, that “the life company can’t just say ‘well, it’s the bank that’s doing the checking.'”
Smouha then pointed to a couple of reports into the fraud that were only entered into evidence after Credit Suisse lost a court bid to keep them out of the trial.
Smouha cited their findings, saying one risk management executive believed Lescaudron should have been punished more severely when it was discovered in 2012 he had made an unauthorized trade, but didn’t speak up because “for fear of losing their jobs.”
Rocking the Boat
In short, argued Smouha, bank staff didn’t go far enough in disciplining Lescaudron because they didn’t want to be seen to be rocking the boat. The bank “turned a blind eye to all the warning signs because it was expressly decided it was more important to continue the revenues he was generating,” he said.
In his closing rebuttal, Moverley Smith pushed back on the notion that CS Life bore any liability for Lescaudron’s actions as he was based in Geneva not Bermuda.
“It’s got nothing to do with CS Life and nothing to do with the policies, it’s got all to do with an employee not complying with the rules in relation to banking transactions,” he said.
Moverley Smith acknowledged the reports from PricewaterhouseCoopers and Finma were negative but said they didn’t demonstrate illegal behavior from his colleagues.
“What Finma picked up on was subject to severe criticism and rightly so,” said Moverley Smith. “But it’s not fraudulent.”