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Credit Suisse admits US tax evasion guilt
By Matthew Allen, swissinfo.ch
May 20, 2014 - 5:55 AM
|Roger Federer visits Uetlihof office in Zurich: Roger Federer, Switzerland's national hero, presnts a positive image for Credit Suisse and on Tuesday, April 8 he visited with the approximately 6,500 employees at the bank's Uetlihof office in Zurich. Roger Federer is the winner of 17 tennis Grand Slams and is a Credit Suisse brand ambassador. |
Switzerland’s second largest bank, Credit
Suisse, has been fined more than $2.6 billion (CHF2.3 billion) after pleading
guilty to criminal charges of helping United States clients to evade taxes.
The bank admitted to a US court that it set up sham companies to enable
clients to unlawfully funnel assets away from the Internal Revenue Service
(IRS). It agreed on Monday to pay out $1.8 billion to the federal authorities,
$715 million to the New York state banking regulator and $100 million to the
The bank had previously settled a $196 million fine with the US Securities and
Exchange Commission. This means the total bill to the bank reached $2.8 billion
The Swiss government said in a statement it “welcomes the fact that it has been
possible to find a solution with this agreement which resolves the long-standing
conflict between the Department of Justice and Credit Suisse”.
“What is also particularly important is that there will be no licence
withdrawals with this solution and the use of emergency legislation is not an
issue,” it added.
But the stain on Credit Suisse’s reputation, having owned up to criminal
activities, may prove more damaging in the long run than the financial
penalties. For example, some pension funds have rules that prevent them from
doing business with convicted persons or entities.
Several Swiss politicians have already called for the heads of Credit Suisse
chief executive Brady Dougan and chairman Urs Rohner. Others, including the
Swiss Bank Employees’ Association, have been scathing of Brady’s assertion
before a February US Senate committee hearing that the fault lay with a handful
of rogue staff who acted under the radar of management.
"We deeply regret the past misconduct that led to this settlement," Dougan said
in a statement reacting to the guilty plea. The bank said a post-tax charge of
CHF1.6 billion would be recorded in second quarter results.
"Having this matter fully resolved is an important step forward for us. We have
seen no material impact on our business resulting from the heightened public
attention on this issue in the past several weeks," Dougan added.
Birkenfeld speaks out
Former Credit Suisse banker-turned-whistleblower Bradley Birkenfeld had a
mixed reaction to the verdict, having testified against his ex-employer in 2007.
“On the one hand it is quite gratifying to see that Credit Suisse is finally
being held accountable for its cross-border tax fraud. On the other hand, it is
nothing short of outrageous that the Department of Justice dragged its feet for
seven long years before this day arrived," he told swissinfo.ch.
"In the spring of 2007, I not only blew the whistle on UBS but on Credit Suisse
as well. Both banks were engaged in this illicit business. I used to work for
both banks and I saw what went on."
Birkenfeld was sentenced to 40 months imprisonment in 2009 for failing to tell
the authorities about all of his activities, but received more than $100 million
from the IRS for his testimony that saw Swiss bank UBS prosecuted the same year.
He now claims that the DoJ has wrongly downplayed the part he played in bringing
both UBS and Credit Suisse to justice. "It’s just too embarrassing for them to
publicly acknowledge this," he told swissinfo.ch.
US tax lawyer Scott Michel told swissinfo.ch that Credit Suisse’s punishment is
more severe than that imposed on UBS in 2009 for similar offences. UBS "escaped"
with a $780 million fine under a less embarrassing deferred prosecution process
negotiated with the Department of Justice (DoJ).
“The DOJ’s decision to indict a major worldwide bank, rather than go the route
of a deferred prosecution agreement, obviously reflects a judgment as to the
severity of the underlying conduct,” Michel said. “Going through an indictment
is certainly a more serious event.”
The penalty was about as far as prosecutors could go without threatening to
bring down Credit Suisse and the people it employs on Wall Street, according to
Beckett Cantley, a US legal consultant and professor of tax law at the John
Marshall Law School in Atlanta.
“It appears that the DoJ and Credit Suisse have fashioned a settlement that
gives DoJ the win it wanted, while preventing Credit Suisse from having to go so
far that it would be imperilled as an institution and all the broader economic
blowback that a major bank failure would have caused,” he told swissinfo.ch.
The implosion of bank secrecy
Swiss banking secrecy started its rocky road to ruin with the UBS case in
A few weeks later, the US demanded a list of 52,000 UBS client names to help
track down individual offenders. The Swiss government stepped in to whittle this
list down to around 4,500, but banking secrecy was irrevocably damaged despite
this smaller number.
Undeterred by UBS's fate, some smaller Swiss banks then set about poaching UBS
clients, offering a perceived safe haven on the assumption that they could not
be touched because they had no physical presence in the US.
But such illusions were to be horribly shattered. In January 2012, Switzerland's
oldest bank, Wegelin, was forced to dismantle its business and sell off its
non-US operations after being charged with tax evasion offences.
A year later the rump of the bank dissolved after being fined $74 million. Also
in 2013, Bank Frey said it would cease operations under the weight of US
Around a dozen other Swiss banks, including Credit Suisse, were also placed
under criminal prosecution. These include private banking giants Julius Bär and
Cut your losses
Alarmed by these developments, the Swiss government embarked upon a
diplomatic damage limitation exercise.
Several rounds of negotiations with the US resulted in a deal to allow all Swiss
banks to come clean about their US activities in exchange for immunity from
More than 200 banks have decided to take advantage of the treaty that was signed
last August. This compels them to send reams of documents relating to their US
business dealings (but not names of clients) to the Internal Revenue Service via
the Swiss government.
Those banks that were already under active criminal investigation (category one)
were not allowed to take part in the scheme.
Professor Cantley warned that other banks that are awaiting potential criminal
indictments should take notice of the criminal liability that Credit Suisse was
forced to admit.
"This result is going to set the new bar for all category one Swiss banks that
have not settled," he told swissinfo.ch. "Unfortunately, it also adds to the
untrue perception in the general public that all US taxpayer activity with Swiss
banks is shady and potentially unlawful."
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