No compensation for Zug pension fund

After members of the board of trustees embezzled millions, a Zug pension fund wanted compensation from the federal government. The charge: The highest supervisory authority intervened too late.

There was no lack of excuses: health complaints, technical and legal problems, the death of a close relative, bank closed during the Zurich Sechseläuten. The managers of the First Swiss Pension Fund, based in the Canton of Zug, did everything they could to fob off the authorities, who had continually and unsuccessfully requested documents indicating the financial situation of the pension fund.

It later became clear that these delaying tactics were being used to hide criminal activities - more than CHF 30 million had disappeared. The two managing trustees were sentenced to more than four years imprisonment for multiple qualified embezzlement. In another case - triggered by the security fund that had been created for the missing funds - all the members of the board of trustees and the supervisory authority were required to pay CHF 30 million.

The legal consequences were not ended with these two judgments, however. The reason: The collective foundation, which is in liquidation, has demanded compensation of more than CHF 24 million from the federal government - plus interest. Their legal representative argued in court that damage to this amount could have been prevented if the Federal Social Insurance Office, as the supreme supervisory body, had intervened earlier.

The Swiss Federal Department of Finance did not agree, and the Federal Administrative Court dismissed the collective foundation's appeal because the demand had been made too late. The Federal Court did not share this assessment, however, reversing the verdict and sending the case back to the Federal Administrative Court. The new decision is now published - with the same result, but different reasoning.

The latest judgment is centred on the question of whether or not the conditions for a compensation liability of the Federation are fulfilled. In the detail, the presiding judge and her two colleagues explain why their answer is no. At the time in question, the supervisory authority could not and did not need to know about the illegally paid amounts. The authority can rely on the actions of the control system. This is a pyramid-like structure: at the lowest level is the Board of Trustees, above this the auditing body and the expert for occupational benefits, and only then the Federal Social Insurance Office as the highest level of supervision. "On the whole, the approach of the supervisory authority does not seem too hesitant," says the verdict. A wrongful omission does not exist.

In addition, the Federal Administrative Court considers that a further condition was not met: there is no causal link between the alleged late intervention of the authority and the damage suffered. This link was "broken by the serious third-party negligence on the part of the auditing body and the BVG expert", said the judges. These two lower-level supervisory bodies "prevented or massively delayed the timely intervention of the supervisory authority by neglecting their supervisory duties or by their inaction". The federal government therefore does not have to pay compensation; the collective foundation’s appeal is rejected, and it will thereby have to pay the legal costs of CHF 35,000. The verdict can be passed on to the Federal Court.

Federal Administrative Court Judgment A-7005/2018 of 27 November 2019.