As Vladimir Putin’s war in Ukraine has sparked demands for a financial crackdown on dictators and their oligarch networks, the Joe Biden administration is proposing to waive punishments for a scandal-ridden bank amid revelations that it had been providing resources to autocrats and their financial cronies — reportedly including Russian oligarchs who the Biden administration is promising to target.
The administration’s proposed waiver for the global investment bank Credit Suisse — whose donors delivered more than $100,000 to President Biden’s campaign — could shield a bank linked to those oligarchs as the war in Ukraine rages, after Biden used his State of the Union address this week to promise a crackdown.
“We are joining with our European allies to find and seize your yachts, your luxury apartments, your private jets,” he declared. “We are coming for your ill-begotten gains.”
Lawmakers in the European Parliament are considering adding Switzerland’s financial sector to a dirty money blacklist in response to the new revelations about Credit Suisse.
Two Senate Democrats have asked the Biden administration to withdraw its waiver proposal. Whether or not the administration now heeds that call will test whether the Ukraine conflict is prompting a more antagonistic regulatory posture toward financial institutions that have enabled oligarchs from rogue nations.
A Scandal-Plagued Bank
At issue is a January proposal from Biden’s Labor Department to waive punishments against Credit Suisse for defrauding investors who financed a fishing project in Mozambique, which the bank pleaded guilty to last year, as well as for “knowingly and willfully” aiding wealthy clients in tax evasion for multiple decades through 2009.
In light of the convictions, the bank is required to obtain a waiver in order to retain an investment classification that allows it to continue managing — and profiting from — American workers’ retirement savings.
Since then, new reporting has alleged that Credit Suisse has aided criminals and financed the luxury assets of oligarchs, raising additional questions about the Biden administration’s proposal to let the bank off the hook.
One month after the Labor Department proposed such a waiver, the Financial Times reported that “Credit Suisse has securitised a portfolio of loans linked to its wealthiest customers’ yachts and private jets, in an unusual use of derivatives to offload risks associated with lending to ultra-rich oligarchs and entrepreneurs.”
The newspaper reported that the bank had reported losses on its yacht- and jet-related loans because of sanctions against Russian oligarchs. After a first round of sanctions in 2018, Credit Suisse declared its intention to “remain highly committed to Russia,” and Reuters reported that it had been extending financing to two Putin-linked oligarchs. In recent days, many Russian oligarchs have continued to roam free on yachts and jets, escaping American authorities and moving toward countries that don’t have extradition agreements with the United States.
On March 1, as the United States and the European Union were rolling out new sanctions on Russian oligarchs, the Financial Times reported that Credit Suisse had told investors to “destroy documents relating to its richest clients’ yachts and private jets, in an attempt to stop information leaking about a unit of the bank that has made loans to oligarchs who were later sanctioned.”
Meanwhile, in late February, a leak of the account information of more than 18,000 Credit Suisse clients revealed that the bank had been managing money for “clients involved in torture, drug trafficking, money laundering, corruption and other serious crimes,” according to reporting by the Guardian.
“Credit Suisse’s misconduct prosecuted over the years should have disqualified it from pension and investment management privileges supposedly reserved only for good actors,” said Bartlett Naylor of the watchdog group Public Citizen, which criticized the bank’s first waiver in 2015. “Now, details of its rogues list of tax evaders sharpens the case.”
Credit Suisse declined our request for comment.
In response to the most recent leaks, the bank has denied any wrongdoing. After Russia invaded Ukraine, Credit Suisse also announced that it will stop accepting some Russian bonds as collateral for debt and will stop financing commodities trades involving Russia.
Previously Let Off the Hook
When Credit Suisse pleaded guilty to fraud last year, it risked losing its status as a qualified professional asset manager (QPAM), a required classification for banks to manage — and profit from — the lucrative retirement fund industry.
When QPAM was originally created forty years ago, lawmakers included a major stipulation for banks seeking the designation: they must avoid felony convictions.
While that isn’t an especially high bar, Credit Suisse has struggled to meet it.
In 2014, when the Justice Department found that Credit Suisse had aided its clients in dodging tax enforcement, by falsifying documents for them or helping them hide assets in offshore accounts, Credit Suisse found itself on the verge of losing its QPAM status.
But the Barack Obama Labor Department let the bank off the hook. Despite protests from financial watchdogs and lawmakers, including Representative Maxine Waters (D-CA), the Obama administration granted Credit Suisse a waiver, allowing the bank to retain its QPAM status.
Credit Suisse wasn’t the only bank to receive such a waiver from the Obama administration. Under Labor Secretary Tom Perez, many major banks received such waivers.
In December 2016, a group of lawmakers sent a letter to Perez asking for a hearing on “recent proposals to let five megabanks with a history of criminal misconduct to continue managing assets of U.S. pension funds.” The letter noted that in 2015, the department had granted waivers to four of those banks without convening a public hearing.
After Perez issued the original waiver for Credit Suisse and then became chairman of the Democratic National Committee, the bank’s donors delivered more than $1 million worth of donations to Democratic politicians and groups. Perez is now running for Maryland governor, and has vacuumed in more than $200,000 of campaign donations from the financial sector, according to data compiled by the National Institute on Money in Politics.
The Labor Department under Obama did deny a handful of requested waivers, but those denials were the exception rather than the rule. Between 1997 and 2014, the department granted waivers to all twenty-three firms that sought them, according to reporting from Pensions and Investments.
“You Have the Opportunity to Send a Clear Message”
Now, a familiar battle is playing out — but the focus on oligarchs during Russia’s invasion and the recent revelations about Credit Suisse’s business practices have raised the stakes. In effect, Biden must now choose between his tough-on-oligarchs Ukraine policy and his Wall Street donors.
According to data from OpenSecrets, Credit Suisse employees gave more than $117,000 to Biden’s 2020 campaign, and employees of the law firm representing Credit Suisse, Steptoe and Johnson, contributed nearly $140,000 to Biden in the 2020 cycle.
Credit Suisse was already operating under a QPAM waiver for its 2014 tax crimes when it pleaded guilty to fraud in the Mozambique case. In the newer case, the bank arranged loans for the Mozambique government to invest in a new tuna fishery. Law enforcement officials said a contractor spent a substantial portion of the money on kickbacks, including to Credit Suisse bankers to secure better deals on the loans and bribes to government officials. The bank was charged with defrauding the investors who had financed the loans, and pleaded guilty.
Both the 2014 and 2021 convictions are being considered for the current waiver, since both occurred in the past decade — the time frame in which QPAM institutions cannot commit felonies.
Last month, senators Elizabeth Warren (D-MA) and Tina Smith (D-MN) sent a letter demanding the Biden administration rescind its QPAM waiver proposal for Credit Suisse.
The Department of Labor exists to protect American workers and their retirement savings from greed, corruption, and mismanagement. Exempting corporations from consequences for misconduct and allowing Wall Street’s most powerful bad actors to continue business as usual flies in the face of that obligation to the public,
they wrote. “You have the opportunity to send a clear message that the federal government holds corporate criminals accountable for their misdeeds rather than shower them with special regulatory favors. We ask that you review and rescind this proposal.”
For its part, Credit Suisse has argued that the parts of the bank found to be involved in fraud and conspiracy are separate from those managing worker retirement funds — and that regulators should not punish one part of the bank for the crimes of another part of the bank.
“The granting of the exemption should not depend upon public allegations of wrongdoing, regardless of where in the world it occurred, including outside the separate asset management division and not involving the CS Affiliated QPAMs,” the bank’s lawyers wrote in its comment on the proposed waiver.
The 1982 QPAM rule explicitly stated that regulators are supposed to judge the criminal record of an entire financial institution and its affiliates.
“A QPAM, and those who may be in a position to influence its policies, are expected to maintain a high standard of integrity,” the Labor Department’s original rule states. “Accordingly, the proposed exemption does not cover transactions if the QPAM or various ‘affiliates’ have been convicted of various crimes that involve abuse or misuse of a position of trust.”
Echoing the same argument it made back in 2015, Credit Suisse has also insisted that punishing the bank right now could harm retirees.
“The decision to propose an exemption granting relief will avoid significant harm to plan clients,” the comment letter said, adding, “An adverse decision on the exemption is seen as the Department’s vote of no confidence in a manager, and thus effectively denies plans their preferred manager, which in itself is harmful to plans.”
That rationale echoes the financial crisis–era notion that punishing banks should be avoided because it can cause “collateral consequences” — and it has become a rationale for many banks seeking a QPAM exemption. Indeed, in a recent case in which the Labor Department granted a QPAM exemption to Goldman Sachs, the department told Warren and Smith that the bank insisted it should receive the waiver “because it was concerned that harm may arise to American workers” if it was denied.
In their letter to the Biden administration, Warren and Smith noted that if it is indeed true that these financial institutions are “too big to fail,” then “the agency must develop rules that mitigate these types of risks for workers if their QPAM is involved in illegal activity, not simply repeatedly refuse to enforce the law against large financial institutions that continually break financial laws.”