Crédit LyonnaisLong arm of the law

American prosecutors have empanelled a grand jury to indict Crédit Lyonnais

WHILE rival suitors circle Crédit Lyonnais in France, its past is catching up with it in America. Jeffrey Isaacs, an assistant United States attorney in Los Angeles, has started long-awaited grand-jury hearings to indict the bank for fraud in connection with its purchase in 1991-93 of Executive Life, an American insurance company. Several witnesses have been called and more will appear this month and next. An indictment is expected early next year.

After Executive Life went bust in 1991, insurance regulators chose a rescue package put together by Crédit Lyonnais. As part of the deal, the bank arranged for a new insurance company, Aurora, to take over Executive Life's insurance contracts. Regulators were told that a consortium set up to own and manage Aurora would be independent of Crédit Lyonnais, as both federal and state laws required. However, the bank had confidential agreements to buy back shares in Aurora from consortium members, who were acting as fronts for the bank.

As Crédit Lyonnais was then owned by the French state, Mr Isaacs has, in effect, been seeking the indictment of a foreign government ever since announcing his plans in May 2001. French diplomats and politicians have been lobbying in Washington for a settlement. They have argued that the crime was victimless, perpetrated by a few bad apples, long since departed.

It is not clear why Mr Isaacs has been given the go-ahead now. However, the clamour to indict those responsible for frauds at Enron and WorldCom may have made it increasingly difficult to let Crédit Lyonnais off the hook. An indictment may be a formality, but a trial is not. Before any indictment is made public, the French are likely to mount a final push in Washington to see off a criminal case. These hearings will weaken their hand, however. Several Crédit Lyonnais managers, past and present, may not have a happy new year.

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