The Financial Services Authority (FSA) in the UK has fined a former CEO of Credit Suisse Financial Products GBP 150,000 for failing to detect or prevent attempts to mislead the Japanese tax authority in 1996-7.
In addition, it has banned two individuals for their share of responsibility in attempts to mislead the Japanese tax or regulatory authorities in 1996-8.
The three UK-based individuals Christopher Goekjian (the former CEO), Robert Stevens and Antony Blunden were part of the senior management of Credit Suisse Financial Products (CSFP), now known as Credit Suisse First Boston International (CSFBi). CSFBi is authorised in the UK.
Andrew Procter, FSA director for Enforcement, said: "This is an example of the FSA holding the senior management of a global company to account. The penalty of banning an individual is the most serious action available to the FSA and the fine ranks amongst the highest ever imposed by a UK regulator on an individual for this type of breach. We have taken this action because we expect people in senior positions in regulated firms to set high standards and lead by example. In cases where they fail to do so or act in contravention of those standards, such as clearly occurred here, we will not allow these people to carry on without regulatory sanction."
Christopher Goekjian was the CEO of CSFP. As such he was responsible for running CSFP. The FSA said it has fined him £150,000 because in 1996-7 Mr Goekjian did not:
* properly supervise and monitor the activities of staff to whom he had delegated responsibility for CSFP's management of an audit by the Japanese tax authority (NTA);
* pick up, follow up and investigate warning signals about CSFP's misconduct; and
* take appropriate, swift and decisive action to stop and/or prevent and/or remedy CSFP's misconduct.
Robert Stevens as the former head of financial control at CSFP was responsible for management and financial reporting. He has been prohibited from holding any role which requires approval by the FSA as he has been found not fit and proper.
The FSA found that in 1996-7 Robert Stevens was involved in deliberately trying to mislead the NTA in order to avoid incurring a possible Japanese tax liability for CSFP. As part of senior management he was also aware of actions by other staff that had the same intention.
Examples of Steven's actions include:
* preparing misleading statements and documents to give to the NTA;
* instructing a staff member who said she had been told to give incomplete and misleading information to the NTA to "do as she had been told"; and
* agreeing to give the NTA a "suitably cleaned up version" of a document.
The FSA said Stevens was also aware that staff:
* gave deliberately misleading and incomplete answers to the NTA about activities undertaken on CSFP's behalf;
* removed documents offsite so they would not be seen by the NTA; and
* intended to show the NTA incomplete documentation.
Antony Blunden was CSFP's compliance officer. His responsibilities included ensuring that CSFP's business practices in its newly established branch in Japan met regulatory requirements and, if they did not, to take remedial action.
Blunden has been prohibited from holding any compliance function because he:
* received information in 1997-8 that procedures in CSFP's Tokyo branch were designed to conceal activities from the Japanese regulator; and
* did not take necessary remedial action.
Background Note: The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the appropriate degree of protection of consumers; and fighting financial crime. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.
CSFBi, formerly known as CSFP, is a UK regulated firm with headquarters in London. In January 1999, CSFP's Tokyo branch concealed documents from the Japanese regulator and misled it. This triggered the investigation by the Securities and Futures Authority (SFA), CSFP's UK regulator at the time. CSFP subsequently had its licence to do business in Japan revoked. The SFA became aware of actions intended to mislead the Japanese tax authority in 2001. This led to a widening of its investigations into the events and individuals involved in this aspect of CSFP's business in Japan. The UK investigation was continued by the FSA following the transfer of the SFA's regulatory responsibilities to the FSA on 1 December 2001. The January 1999 events are not part of the FSA's case.
CSFP was part of the Credit Suisse group and specialised in derivatives products within the group. It did not have its own presence in Japan between 1990 and 14 April 1997. During that period the Structured Products Group (SPG) of CS First Boston Japan Limited (CSFB JL) which had a securities licence acted on behalf of CSFP. In 1996-7 the NTA audited CSFB JL of which the SPG was part. From 15 April 1997 CSFP had a banking licence.
The FSA has taken action against Robert Stevens and Antony Blunden as they are deemed to be not fit and proper. Christopher Goekjian has been found to have breached former Principles 2 and 9.
Former Principle 2 stated: "A firm should act with due skill, care and diligence."
Former Principle 9 stated: " A firm should organise and control its internal affairs in a responsible manner, keeping proper records, and where the firm employs staff or is responsible for the conduct of investment business by others, should have adequate arrangements to ensure that they are suitable, adequately trained and properly supervised and that it has well-defined compliance procedures."
The former principles apply as the events took place before 1 December 2001.
The Japanese regulator in 1995-6 was the Securities and Exchange Surveillance Commission. The Japanese Financial Services Agency has now taken over its responsibilities. The Japanese tax authority is called the Japanese National Tax Administration Agency.
copyright hedgeweek 2003