Patrick B. Kraemer, Keystone/APCredit Suisse CEO Brady Dougan.By David Voreacos, Alan Katz and Elena Logutenkova
Credit Suisse Group (CS) moved to blame a small number of employees after a U.S. Senate report said the Swiss lender helped clients hide as much as $10 billion of assets from tax authorities.
“Some Swiss-based private bankers went to great lengths to disguise their bad conduct from Credit Suisse executive management,” Chief Executive Officer Brady Dougan said in written testimony before a U.S. Senate committee hearing in Washington on Wednesday. “While that employee misconduct violated our policies, and was unknown to our executive management, we accept responsibility for and deeply regret these employees’ actions.”
Credit Suisse helped American clients hide as much as $10 billion in assets from the Internal Revenue Service, more than twice the amount previously known, according to the report by the Senate Permanent Subcommittee on Investigations. The panel criticized the Zurich-based bank for failing to discipline any senior executives in the face of widespread evasion fostered by 1,800 Credit Suisse employees serving U.S. clients. Of those, only 10 have been disciplined and none was fired.
Switzerland’s second-biggest bank helped clients cheat the IRS by opening accounts under false names, avoiding the mail when delivering account statements and servicing clients in the two countries. One client was given an account statement hidden in a Sports Illustrated magazine, according to the report.
Credit Suisse bankers wooed wealthy American clients at bank-sponsored events such as an annual Swiss Ball in New York or golf tournaments in Florida and the Bahamas, according to the report. Almost 10,000 U.S. clients visited a branch office at Zurich airport given the code name “SIOA5.” Dougan told the committee that “the airport office was needed because many U.S. clients traveled to Switzerland to go skiing” and didn’t want to go into Zurich.
No Snail Mail, No Buttons on the Elevator
Credit Suisse bankers referred clients to intermediaries who set up offshore shell entities that masked the ownership of accounts. Bankers visited clients in the U.S., telling them not to use the mail and only send faxes from non-U.S. numbers, the committee reported. One client with a $2.6 million account recounted his annual meeting with a Credit Suisse banker. When he arrived at the bank, the client took an elevator with no buttons that was controlled remotely. He met the banker in a nondescript, white meeting room. After each meeting, the client signed an order to destroy account statements they reviewed and declined offers to withdraw cash, according to the report.
SenatorJohn McCain, an Arizona Republican on the committee, said it’s not plausible that senior management wasn’t involved, considering the “systemic” misconduct. “If you believe that, I have some beachfront property in Arizona,” he said. “You think all this was coming for all these years in this fashion and nobody knew about it? It defies logic or reason.”
The committee concluded that “the vast majority” of 22,000 accounts opened for U.S. customers — 85 percent to 95 percent — may have been hidden from the IRS. At its peak from 2001 to 2008, the bank held as much as $12 billion in assets for U.S. customers, the report found, meaning that about $10 billion was undeclared. An indictment of seven Credit Suisse bankers by the Justice Department in 2011 said the amount was $4 billion.
Bank Cites ‘Scattered Evidence’
The methods used to estimate the undeclared assets are “problematic” and produced “unreliable” results because they included accounts that may have been legitimately reported to the IRS, Credit Suisse said in its response. The bank said it had found evidence that a group of about 15 to 20 private bankers focused on larger accounts of U.S. residents had violated bank policy.
“Most of the improper activity was focused on some private bankers who traveled to the United States once or twice a year,” the bank said. “Otherwise, the investigation found only scattered evidence of improper conduct.” The bank said that it has “consistently cooperated” with the U.S. probes.
The U.S. crackdown on offshore tax evasion accelerated after 2009, when UBS AG (UBSN), the largest Swiss bank, avoided prosecution by paying $780 million, admitting it fostered tax evasion and turning over the names of 4,700 account holders. Prosecutors charged more than 70 taxpayers and three dozen offshore bankers, lawyers and advisers. More than 43,000 Americans avoided prosecution by voluntarily disclosing their accounts to the IRS and helping investigators.
Credit Suisse said it has already provided client-related information to U.S. authorities to the full extent allowed by Swiss law and is ready to provide more. The lender also urged the Senate to ratify the new double taxation treaty with Switzerland, which would allow it to provide more information. The Justice Department failed to use all its legal tools in its criminal probe, according to the report. Lax enforcement also allowed Credit Suisse to turn over the names of only 238 U.S. account holders to prosecutors, the report said. This U.S. inaction symbolizes a larger problem in a five-year crackdown on offshore tax evasion, the subcommittee said.
“The Department of Justice must take firm action to obtain the names of persons who hid those assets” and cheated on taxes, said Senator Carl Levin, a Michigan Democrat who chairs the panel. “They owe Uncle Sam, they owe the people of the United States.” He added: “Simple justice requires that tax cheats must come clean, pony up, and face the consequences.”
Justice Cites $6 Billion in Penalties
Emily Pierce, a Justice Department spokeswoman, defended prosecutors saying the prospect of action “has been forceful enough to cause 43,000 taxpayers to self-report and pay nearly $6 billion in taxes and penalties.” “More than 100 Swiss financial institutions have applied for a program where they fully disclose their illegal conduct, cooperate and pay steep penalties,” she said in an e-mailed statement. “That program will help the department root out tax evasion throughout the world.”
U.S. Deputy Attorney General James Cole is also scheduled to deliver testimony at Wednesday’s hearing and will promise lawmakers more action in coming months, according to excerpts of his planned oral remarks.
Despite the committee’s criticisms, the offshore crackdown has made enormous strides against bank secrecy, according to tax attorney Charles Rettig of Hochman, Salkin, Rettig, Toscher & Perez in Beverly Hills, Calif. People inside and outside the U.S. seek advice on making voluntary disclosures.
“The majority of those people are told to come into compliance one way or another, and they follow that advice,” Rettig said. “You have to keep reminding them that the government’s out there.”
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