For Credit Suisse and Peers, Offshore Billionaires Are Always Risky

The latest slew of stories about Credit Suisse Group AG’s links with unsavory clients highlights again the very long tail on what the bank says are entirely historic issues

It’s not always good when wealthy clients are front-page news.
By Paul J. Davies
February 21, 2022 | 01:17 PM

Bloomberg Opinion — The reputation of Swiss banking has taken a battering for years and the hits keep coming.

The latest slew of stories about Credit Suisse Group AG’s links with unsavory clients highlights again the very long tail on what the bank says are entirely historic issues.

Cleaning up Swiss banks’ client base and the industry’s standing in the world is an ongoing effort. Inter-governmental transparency on taxes has improved and anti-money laundering practices are sharper, but there will always be great risks in helping very rich people keep fortunes outside their own countries.

After the U.S. and Europe became less lucrative markets for secrecy, Swiss banks chased higher margin growth in the developing world. They now bank many of Asia’s new billionaires, for example. It is going to be very hard to guarantee that all those clients are completely clean and impossible to be sure that local politics might not turn into a nightmare either for them or for their bankers.


To recap the news briefly, Germany’s Sueddeutsche Zeitung received a leak of more than 18,000 Credit Suisse client accounts dating from as far back as 1940. The newspaper and other media groups found individuals linked with accounts at the bank who had been involved in drug trafficking, corruption and human-rights abuses.

Credit Suisse rejected allegations that it either failed to spot or ignored warning signs about bad clients. It wouldn’t comment on individuals, but said more than 60% of accounts “potentially associated with matters raised” in the leaks had been closed before 2015.

These kinds of leaks are damaging not just for Swiss banks’ political or moral reputations, but also to their commercial prospects. The wealthy still trust their funds to Swiss accounts because they expect their details to be protected by Swiss secrecy laws.


Leaks and whistleblowers also led to the tax cases against rival UBS Group AG in the U.S. and France, where UBS is still fighting court judgments and a $2 billion fine for helping French clients avoid tax.

Revelations like these make existing and potential clients nervous. Credit Suisse’s statement about the stories made clear it was hunting the source of the leak and reiterated its “robust data protection.”

For Swiss banking, much changed after the big U.S. and German tax-avoidance crackdowns of a decade ago. Since 2018, Switzerland has implemented automatic tax-information exchanges with about 100 countries.

But the clean-up is ongoing. A Credit Suisse whistleblower last year claimed in a U.S. court case that the bank was still helping American citizens avoid tax. The government sought to get this civil suit dismissed to protect its deal with Credit Suisse to continue rooting out offenders. Credit Suisse said in November it continued to cooperate with U.S. authorities.


Money-laundering rules globally have also been tightened significantly, but just like the tax-transparency deals, that doesn’t mean all bad people or accounts were instantly purged. The Swiss financial regulator, Finma, cracked down on Credit Suisse in 2018 for due diligence failings in relation to FIFA, world football’s governing body, and the national oil companies in Brazil and Venezuela. The bank was ordered to improve its control systems and processes in its wealth business.

At the end of 2019, Finma said money laundering remained one of the principal risks for Swiss banks. It said that shrinking margins in a world of low interest rates and greater transparency can cause banks to pursue risky business relationships with people, companies, governments or funds that can be involved in corruption or embezzlement.

It is clear that some of Credit Suisse’s business relationships should not have been started. In others, the bank has had opportunities to change its mind about clients — and not just in private banking. As recently as 2015, the bank reviewed its relationship with Bill Hwang and his Archegos family office after he had pled guilty to wire fraud in the U.S., settled insider trading allegations with the Securities and Exchange Commission and been banned from trading in Hong Kong for four years.


Credit Suisse’s report into the failings that led to its $5 billion loss in the collapse of Archegos said these risk reviews led to no additional scrutiny of the client and described the process as perfunctory. However, in the last year, Credit Suisse has gone through its clients again and cut loose some that it now deems risky.

Client relationships can turn sour because someone who starts out clean can turn bad or find themselves on the wrong side of local politics. Clients still bear the costs of keeping money offshore precisely to look after themselves or their families if their political fortunes decline.

Sometimes such people might enjoy international support; other times they might themselves be the problem. Swiss banks cannot control such situations, but they need to ensure they respond as swiftly as possible.

Money laundering is far from a solely Swiss problem, and it is becoming more complex. There are many ways to move and hide billions: From cryptocurrencies, to shell companies that buy high-end London property and the growing number of private trusts in South Dakota, for example.


But when your business is the global super-rich, you are more exposed to risks of politics and corruption than anyone else.

For Swiss banks, the greatest uncertainty today is probably China: It has been their most important growth market of the past decade and it is where the billionaire’s position is most precarious. Xi Jinping’s push for “Common Prosperity” has so far stopped at the gates of Chinese individuals onshore. But it is impossible to say that the government won’t in future go after the banks that have helped wealthy Chinese manage their offshore fortunes.

The latest storm around Credit Suisse does appear to be mostly historic, but the risks of banking billionaires will always remain high.


This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Paul J. Davies is a Bloomberg Opinion columnist covering banking and finance. He previously worked for the Wall Street Journal and the Financial Times.