In its decision of 14 August 2018 (6B_689/2016), the Swiss Federal Supreme Court held for the first time that the breach of the duty to account is a criminal offence. Until that decision, only the civil nature of this breach had been judged by the Swiss Federal Supreme Court.

In that decision, an asset manager operating in the canton of Valais had received retrocessions from a custodian bank. However, the asset manager had not informed its clients of the existence of these retrocessions and, consequently, had not repaid these retrocessions to its clients either. In particular, the asset manager was found guilty of criminal mismanagement (Art. 158 para. 1 of the Swiss Criminal Code (“SCC”)) by the cantonal authorities and the Swiss Federal Supreme Court.

As a reminder, according to Art. 400 para. 1 of the Swiss Code of Obligations (“SCO”), “The agent must at the principal’s request, which may be made at any time, give an account of his agency activities and to return anything received for whatever reason as a result of such activities”. It is possible for the client, under certain conditions, to waive the return of retrocessions in advance. In this respect, the judgment briefly points out that a clause providing purely and simply that the asset manager keeps for itself the retrocessions granted by the banks and that the client waives the obligation to report these retrocessions to him and waives any claim in this respect is not valid.

Turning to criminal mismanagement, the majority of the Swiss scholars consider that an asset manager which does not inform its clients of the retrocessions it receives from the custodian bank, in violation of Art. 400 para. 1 SCO, commits an act of criminal mismanagement because the client is not in a position to claim from the asset manager the restitution to which he is entitled and therefore suffers damage.

The minority of the Swiss scholars state that the silence of the asset manager cannot be criminally punishable because such a repressive approach is considered contrary to the principle of the subsidiarity of criminal law with regard to civil law.

Eventually, a decision of the First Criminal Chamber of the Supreme Court of the Canton of Berne held that the manager’s silence is objectively punishable under Art. 158 para. 1 SCC.

In decision 6B_689/2016, the Swiss Federal Supreme Court points out that the sole breach of a duty to return a sum of money received by the manager from a third party is not an act of criminal mismanagement. In order to be criminally punishable, the manager’s conduct must be contrary to the client’s pecuniary interests and, consequently, damageable to the client. This point is not disputed in this case.

Then, the Swiss Federal Supreme Court observes that it has already held in the past that a corporate body of a management company assumes a position of guarantor towards its clients and that concealing information in violation of the duty of loyalty of the agent may constitute a fraud committed by omission. In the judgment under consideration, the Swiss Federal Supreme Court decided to apply this principle by analogy to criminal mismanagement. Indeed, it considers that the duty of accountability is a qualified obligation to act. This duty allows the principal to control that the agent’s activity is in accordance with the proper and faithful execution of the mandate; the information must enable the principal to claim what the agent must return to him, and if necessary, to claim damages as well. Therefore, the violation of this duty may be an act of criminal mismanagement punishable by Art. 158 para. 1 SCC.

The position of the Swiss Federal Supreme Court is not really surprising in view of the opinion of the majority of the Swiss scholars on this subject.

However, this decision must be analyzed with hindsight. Indeed, in this case, the defendant was not only the client’s asset manager but also its legal guardian. In addition, the defendant had committed other serious offences, including disregarding certain instructions ordered by the guardianship authority. All these circumstances probably played a role in the Swiss Federal Supreme Court’s decision making. However, the fact that the Swiss Federal Supreme Court issued a press release on 6 September 2018 relating to this decision tends to demonstrate that this judgment will be considered as an important judgment and not as an isolated decision.

Asset managers will therefore have to be very cautious. A breach of the duty to account may not only make them civilly liable but also criminally liable.

All queries should be addressed to Mr Sekandar Mokhtarzada

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