Internal controls failed to stop Societe Generale scandal: minister
PARIS (AFP) — A failure of internal controls at Societe Generale contributed to the bank's multi-billion-dollar rogue trade scandal, France's finance minister said Monday, calling for tougher penalties for breaches of regulations.
"Certain internal control mechanisms at Societe Generale did not work and those that did were not always followed up with the appropriate changes," Finance Minister Christine Lagarde said.
Lagarde was speaking after delivering a report on the debacle to Prime Minister Francois Fillon, in which she said the maximum fine the state banking commission can levy for breach of its rules, currently five million euros (7.4 million dollars), should be "substantially increased".
"In terms of what is at stake, but also the cost of investment in efficient internal control systems, the (current) amounts are not sufficient," she argued.
Societe Generale revealed on January 24 it had lost a staggering 4.8 billion euros (7.1 billion dollars) in the biggest rogue trading scandal in history, for which 31-year-old junior trader Jerome Kerviel has been charged.
Takeover talk is now swirling around the bank, with France's top two lenders, Credit Agricole and BNP Paribas, reportedly eyeing their embattled rival.
Lagarde's 56-page report, drawn up jointly with the French central bank's oversight commission and the financial markets authority, the AMF, "identifies several points that may have been decisive" in the run-up to the scandal, the finance ministry said in a statement.
It examines the sequence of events at the bank, its internal controls and the handling of the crisis by outside authorities, and suggests "initial ideas for reinforcing the security of market operations."
Lagarde stressed that the report did not aim to draw conclusions on the causes of the scandal, which is the subject of several ongoing judicial investigations.
But she said it proposed a series of measures "intended to avoid a repeat of this kind of situation."
The report says there is "clearly progress to be made" in tackling the "operational risk" of fraud.
It also argues that that senior managers should be "fully involved" in preventing rogue trade incidents, and that bank control systems should devote special attention to tackling internal fraud.
Societe Generale accuses Kerviel of stealing computer codes and falsifying documents to place more than 50 billion euros (73 billion dollars) in futures trades that were discovered on January 20.
The bank was forced over three days to unwind his deals despite a slumping market, resulting in losses of 4.82 billion euros, the biggest in investment banking history.
Lagarde's report found that the bank acted "in a professional manner" when it unwound the deals, and had duly informed the financial markets about the positions.
Kerviel has told prosecutors that his bosses must have been aware of his dealings because of the profits he had generated earlier.
His defence appears to resonate among the French, with a poll on Friday showing only 13 percent blame Kerviel for the scandal while 50 percent say Societe Generale's management is at fault.
The embattled bank faced fresh troubles Monday with a trial opening in Paris involving a multi-million dollar money-laundering scam between France and Israel, that allegedly operated in the last 1990s.
Four banks, including Societe Generale, and 138 people, including the bank's chairman Daniel Bouton, are accused of turning a blind eye to a vast traffic of cheques between the two countries.
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