Watchdog slaps record £4m fine on CSFB over scandal in Japan

Credit Suisse First Boston, the beleaguered investment bank, was yesterday landed with a record £4m fine from the UK's financial watchdog for trying to mislead Japanese regulatory and tax authorities.

The fine, the largest ever slapped on a company by the Financial Services Authority, came after the FSA found CSFB's London-based derivatives arm, Credit Suisse Financial Products, tried to conceal documents from Japanese regulators and moved them off-site between 1995 and 1998. The company also had a shredding machine which, the FSA said, it suspected was bought to destroy documents.

The FSA has fined CSFP because while its offences were committed in Japan, the division is headquartered in the UK.

Carol Sergeant, the managing director of the FSA, said: "The unprecedented size of the fine makes clear that we consider any attempt to mislead regulators and other authorities whether in the UK or in other countries to be an extremely serious issue."

The FSA said CSFP had stopped sending reports, including management accounts and trading revenue estimates, to a Japanese subsidiary it used to market derivatives because of concern regulators in Japan might consider some transactions to be banking rather than securities business. At that time CSFB's Japanese arm had a securities licence but not a banking one.

Later CSFP, concerned that it might have to pay tax on its Japanese activities, removed documents and bought a shredder to destroy files before and during a 1996-97 audit by tax authorities in the country, the FSA added. There is no evidence the shredder was used, the regulator said.

The FSA fine is another blow to CSFB's activities in Japan. In 1999, Japan's regulatory body revoked the banking licence of CSFBI, the bank's derivatives unit, following an investigation into the bank's role in helping Japanese clients to conceal losses in published accounts through complex securities transactions.

CSFB tried to defend its reputation by saying its past offences were made under its old management. "The actions of these former employees was an aberration. CSFB takes regulatory responsibilities very seriously and will not tolerate improper behaviour by its employees in their dealings with the firm's regulator," it said in a statement.

Settling investigations and improving internal controls has been a priority for John Mack since he became chief executive of CSFB in July. Mr Mack takes up some of the duties of Lukas Mühlemann, Credit Suisse's chairman and chief executive who left earlier this year.