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Inside the Credit Lyonnais Scandal


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Inside the Credit Lyonnais Scandal



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Inside the Crédit L onnais scandal David McClintick 15,331 words 7 November 2003 Institutional Investor - Americas English Co ri ht 2003 Euromone Institutional Investor lc.www.iima azine.com On January 16, as France prepared to publicly denounce American policy toward Iraq, a senior French government official arrived at the U.S. Justice Department in Washington, D.C., to beg, in secret, for mercy.
It was afternoon, and the emissary, Jean-David Levitte, France's dapper ambassador to the U.S. and a close confidant of President Jacques Chirac, was shown to a small, plain conference room on the second floor of the Justice Department's imposing limestone-and-granite headquarters, which occupy an entire block formed by Pennsylvania and Constitution Avenues and 9th and 10th Streets. He was accompanied by several aides and a pair of prominent, high-priced American lawyers. Across a long, narrow table they faced a phalanx of senior U.S. officials.
"Please understand the importance of Crédit Lyonnais to the French government," Levitte pleaded, as snow fell steadily in the tall windows that looked out on 10th Street. "It would be devastating if it were indicted."
The ambassador was not exaggerating. A cornerstone of the French financial system, coddled as a national banking champion even as it tumbled toward bankruptcy, Crédit Lyonnais had been under scrutiny for years by the U.S. for its role in an alleged scheme to defraud hundreds of thousands of policyholders of defunct California insurerExecutive LifeInsurance Co. and before that shareholders of the fabled motion picture studio Metro-
Goldwyn-Mayer. A federal grand jury in Los Angeles had been hearing evidence onExecutive Lifesince September 2002. Now, in an extremely rare move, the U.S. was threatening to bring grave criminal charges against the bank and, in effect, a foreign government. And an increasingly agitated France, which still owned 10 percent of the bank after its 1999 privatization, was desperate to avoid an indictment that could lead to the loss of the bank's U.S. license and cost it hundreds of millions of dollars in fines and incalculable humiliation.
For more than a decade, Crédit Lyonnais and French government officials had maneuvered to fend off a series of inquiries by the Justice Department, the Federal Reserve Board and the Securities and Exchange Commission. They had thrown up roadblocks, offered misleading statements, withheld vital information and denied access to witnesses, making what the U.S. government would conclude were "affirmative" efforts to conceal serious crimes. They had assembled a team of renowned U.S. lawyers, including Benjamin Civiletti, the U.S. attorney general under Jimmy Carter, and George Terwilliger III, a former deputy U.S. attorney general who had been at George W. Bush's side through the 2000 election recount in Florida. Both men now sat alongside Levitte as, speaking in English from detailed notes, with occasional asides in French to his aides, he tried to dissuade the Americans from proceeding with the prosecution: The bank, he said, had cleansed itself of past sins; an investigation by French authorities was ongoing; the American probe was redundant.
Across the table from the French representatives sat Michael Chertoff, the U.S. assistant attorney general in charge of criminal prosecutions, and Debra Yang, the U.S. attorney for Los Angeles, in whose jurisdiction the alleged
crimes had been committed. Chertoff, a gaunt man with a gray beard and sunken eyes, guided the ambassador, a nonpracticing lawyer, through the case, explaining that Crédit Lyonnais had engaged in a number of misrepresentations and lied to the Federal Reserve, its primary U.S. regulator.
"This must translate into a criminal prosecution," he said.
Yang, a rising star inside Justice, added: "The case has gotten stronger the longer we have investigated. The bank must plead guilty to at least one felony."
"I am disappointed," Levitte replied. "I will communicate this decision to the highest levels of my government. They will be dismayed. "
Unfortunately for the French side, the high government officials whom Levitte was so worried about dismaying were mounting a noisy campaign to undermine U.S. Iraq policy. The French had hoped over the years that a frustrated U.S. might give up its probe of Crédit Lyonnais or that the statute of limitations might expire on the bank's alleged crimes. But the strategy backfired. Because of Crédit Lyonnais's delaying tactics, the investigation culminated at the worst possible moment: as anti-French sentiment over Iraq rose and as the Bush administration, reacting to intense public outcry over revelations of fraud and misconduct at companies like Enron Corp. and WorldCom, embarked on a crackdown on corporate crime.
The two Americans representing the French, Civiletti and Terwilliger, said little -- even though Terwilliger, a volatile man, had been known to storm out of legal wrangles. But as the conference ended, Yang, a former judge
and law professor known for her searing intellect and droll wit, could not resist ribbing Terwilliger privately. "This is the first time I've ever seen you so quiet," she said.
Terwilliger and his colleagues had reason to be subdued. The January meeting marked the turning point in a multifaceted investigation that had lasted a dozen years and sprawled over a dozen countries. For the first time, the U.S. government had made absolutely clear its intention to move the probe to indictment and, if necessary, to trial.
Reaching this position had not been easy for the American side. Though Chertoff and Yang backed each other at the meeting, the pair of high-powered litigators were at odds over just how far to push the prosecution. Chertoff, who had been relentlessly lobbied by fellow Republican Terwilliger, had adopted the position that the case against Crédit Lyonnais was not terribly strong. He questioned how much money American investors had really lost in theExecutive Lifecase. In fact, he had allowed a proposal for prosecution from the U.S. Attorney's Office in Los Angeles to gather dust for well over a year.
Yang had a different take. Since she was nominated by President Bush and confirmed by the Senate in the spring of 2002, she had been thoroughly briefed on the case by the man who assembled it, Assistant U.S. Attorney Jeffrey Isaacs, a veteran federal prosecutor who himself had been doggedly investigating the French bank for eight years and had drafted the proposal for prosecution. After meticulously documented briefings by Isaacs, Yang put her weight behind the prosecution, wresting control of the case from Chertoff. Normally, the Justice Department's criminal chief defers to U.S.
attorneys in major jurisdictions such as Los Angeles and New York. Chertoff, however, liked to micromanage, sparking frequent conflicts. But Yang had the advantage, because she had won the confidence of Chertoff's boss, Deputy Attorney General Larry Thompson, and the attorney general himself, John Ashcroft.
When the meeting with the French representatives ended, Yang and Chertoff returned to his nearby office suite to hammer out their differences. Chertoff wanted to charge Crédit Lyonnais with as little as possible; Yang made it clear that she wanted to throw the book at the bank. Chertoff was a savvy bureaucrat, but Yang, who had just been appointed to Bush's Corporate Fraud Task Force, had gained the upper hand. If a disagreement between them were appealed to a higher authority, Yang would likely win.
Before she flew back to Los Angeles, she had her chief aide telephone Isaacs with a simple message: Prepare to prosecute.
That is just what the U.S. did, despite intensified efforts by top French government officials to lobby their counterparts in Washington, culminating in a formal telephone call on July 29 from the French minister of Justice to Ashcroft, who politely turned aside the overture.
The next day the federal grand jury in Los Angeles, to whom Isaacs had been presenting evidence, returned a 55-count, 195-page indictment charging Crédit Lyonnais; subsidiaries of the French government entity Consortium de Realisation; Jean-Yves Haberer, the bank's chairman from 1988 to 1993; Jean Peyrelevade, its chairman from 1993 to 2003; and several other individuals with a myriad of felonies including conspiracy,