Vontobel in judicial dispute from Asia, now enforcement proceedings

Bank Vontobel has ended up in the middle of a bitter legal dispute between two Asian groups of companies. Finma is therefore even conducting enforcement proceedings against Vontobel. This is unpleasant for the bank, which has been able to stay out of the scandals in the financial center in recent years. But the case has an even more fundamental level: it rekindles the banks’ old lawsuit, saying that public prosecutors and, above all, private prosecutors obtained sensitive bank documents too easily via Finma.

But first to the dispute in Thailand, which dates back to 2015 and 2017: The Japanese financial company J Trust bought shares and bonds of the Thai credit provider Group Lease in several tranches for more than 200 million dollars. The company offered loans for the scooters popular in Southeast Asia. A growth business, it seemed.

Sentiment between the parties deteriorated in October 2017. Group Lease’s shares fell sharply after the Thailand Securities and Exchange Commission filed a criminal complaint against the then Group Lease boss. He is said to have inflated the company’s operating results by making bogus loans to other companies he controlled. This trial in Thailand is still ongoing, the presumption of innocence applies.

As a result, J Trust initiated a series of proceedings in numerous countries – the core allegation: Group Lease and its boss had deceived them with false information and cheated them out of the investment. Some of these cases are still pending, and J Trust has lost in others. In a Singapore court ruling from 2020, however, the company achieved a partial victory: J Trust was awarded compensation of around 70 million dollars, compared to the demand for 230 million dollars.

Targeting Vontobel

Both sides seem to be fighting hard. J Trust also reported the former Group Lease CEO in Zurich because he is said to have been a Vontobel customer. The Zurich public prosecutor’s office opened a criminal investigation into suspected money laundering in 2019, as confirmed on request. This investigation is still ongoing.

J Trust subsequently drew Bank Vontobel itself into the dispute. From conversations with people who are familiar with the case, it emerges that J Trust constituted itself as a private prosecutor in the criminal investigation and was given access to the collected documents. In March 2020, J Trust then also filed a criminal complaint against a Vontobel employee, but the Zurich public prosecutor’s office has not yet opened a criminal investigation. “The clarification of the criminal liability of the complex and international facts requires coordination with various authorities in different jurisdictions,” explains the spokesman for the public prosecutor’s office.

J Trust is said to have called the Financial Market Authority (Finma) into action. In any case, Finma launched enforcement proceedings against Vontobel at the end of 2020, according to several circles close to the bank and the legal dispute. Finma itself does not comment on whether it is conducting proceedings. The focus should be on whether the bank and its employees knew or should have known about possible illegal practices and whether they reacted correctly. The procedure should continue; to date, there has been no evidence of any misconduct on the part of the bank. J Trust and Vontobel do not want to comment on this case to the NZZ, and Group Lease has not responded to inquiries.

However, people close to the bank have said that Vontobel is now taking a tougher approach in its dispute with J Trust, because the Japanese company’s boilerplate activity is not based on a solid foundation. In any case, J Trust also demands the aforementioned around 230 million dollars from Vontobel. In April, the bank refused to sign another waiver of the statute of limitations – this is a kind of truce: J Trust had refrained from taking legal action against Vontobel, but kept this option open.

As a result, J Trust initiated debt enforcement against Vontobel on April 29, 2022 – the NZZ has received the payment order that was received by the Zurich 2 debt enforcement office. The Japanese want up to 214 million francs from the bank, plus 5 percent interest since 2015. In particular, it is about “claims related to money laundering”. Vontobel, in turn, sued on May 4 to have this operation overturned. The district court of Zurich must decide on the question.

Finma as a powerful “lever”

So far the individual case. It is interesting that in the Vontobel environment, the criticism often voiced in banking circles flared up again, resourceful private prosecutors would use Finma and Swiss criminal law as a lever to get important bank documents. In the second step, the plaintiffs could then use these documents for their civil proceedings, in which millions are being disputed.

What do you think of the accusation? First of all, you have to know that banks and employees have a duty to cooperate in the enforcement procedures of Finma (see info box). They must therefore inform Finma of their own omissions. Most banks comply with this obligation. Cooperation is made easy for them because Finma is not a criminal authority and cannot fine them. However, Finma is also dependent on this cooperation. She cannot order any coercive measures herself, such as confiscating computers or wiretapping telephones.

The public prosecutor’s offices, which have powerful instruments at their disposal and can demand high penalties, are quite different. In criminal proceedings, the accused therefore have the right to remain silent: “Nemo tenetur” is the principle. Nobody is forced to incriminate themselves.

As long as these two worlds, finma and criminal proceedings, are separate, none of this is a problem. But the worlds mix regularly. The proceedings conducted by Finma are not open to third parties. However, according to the law, Finma must cooperate with the law enforcement authorities and provide them with information from its own investigations – even if the bank and employees have incriminated themselves. Finma even has to file a report itself if it learns of criminally relevant violations.

From the point of view of the critics, it is particularly offensive when private prosecutors join the criminal proceedings and also have comprehensive access to the documents of the proceedings, including the aforementioned FINMA reports. These are then often used in civil proceedings and have already ended up in the media.

No one needs to harm themselves – actually

If the banks and their employees fear that their candid statements to Finma will later cause them problems before the criminal judge or that they will be used against them in expensive civil proceedings, they could also show little cooperation with Finma.

The Bern finance law professor Peter V. Kunz says that this question has been worrying the banks for years. “The reservations of the banks are understandable.” The tense relationship between the obligation to cooperate and “Nemo tenetur” was deliberately created by the legislature. “It has been one of the big topics in teaching for years, and there are no clear answers.”

He himself is of the opinion that the principle that no one has to harm themselves is paramount. The problem could be solved, for example, by Finma assuring the respondents that they would not pass on criminally relevant findings or would only pass them on in a blacked out form. Otherwise, a right to refuse to give evidence could be introduced in the enforcement procedure.

Flexible regulator

So would one have to amend the Finma law to ease the tension? Finma itself does not want to comment on this question. In her practice, however, she seems to take up the concerns.

“Finma correctly did not rely on maximum severity, even if some politicians called for it,” says Kunz, who used to advise banks on enforcement procedures. “Otherwise the interviewees will close the shop.” From his experience, Finma has shown understanding for the concerns of those surveyed – and has not imposed sanctions on institutes or natural persons just because they withheld their statements. Sometimes pressure was even more exerted by the bank on the individual employee to tell more.

In fact, Finma seems to differentiate in practice how strongly it demands the obligation to cooperate in its surveys: it apparently respects bank employees to a certain extent if they do not make any statements with reference to possible criminal law problems – unless the respondents simply state this categorically refuse to testify and otherwise cooperate. During the questioning, she probably also adheres quite closely to her own interests in reconstructing the facts of the case, and therefore does not only ask questions with regard to the fact that they could be relevant to criminal proceedings.

One can at least question the image that the Finma and public prosecutor’s offices could simply be used as leverage by third parties. Although both authorities accept tips from outside, they decide on their own authority whether to start a procedure or not. At the level of criminal proceedings, there are ways to make it more difficult for third parties to access the documents, for example by sealing them.

It is not yet clear whether the problems mentioned will also arise in Vontobel’s current enforcement proceedings. In any case, Finma usually only shares findings with other authorities after it has completed its own proceedings. But as long as the Swiss legislator does not define its priorities more clearly, procedures of this kind will remain a constant balancing act – for the banks, the employees and Finma itself.