Credit Suisse Group AG (CSGN), the second-biggest Swiss bank, is a target of a criminal investigation by the Department of Justice over former cross-border private banking services to U.S. customers.
“Subject to our Swiss legal obligations, we will continue to cooperate with the U.S. authorities in an effort to resolve these matters,” the Zurich-based bank said in an e-mailed statement today. The bank said the Justice Department said yesterday that it is a target, and it has responded to requests for information, including subpoenas.
Four bankers who worked at Credit Suisse were indicted in February on charges of conspiring to help clients in the U.S. evade taxes through secret bank accounts. In the fall of 2008, when the bank began closing its cross-border business with U.S. clients, it had “thousands” of accounts with $3 billion in assets not declared to the U.S. Internal Revenue Service, according to the indictment.
Credit Suisse said today “it has been reported that the U.S. authorities are conducting a broader industry inquiry.” The Swiss government is in talks with authorities in the U.S. to resolve the issue of untaxed assets held by U.S. citizens in Swiss bank accounts, a government official said last month.
“Currently it is difficult to say whether this will lead to a legal case and a fine against Credit Suisse,” Teresa Nielsen, an analyst at Vontobel with a “hold” rating, said in a note. “We expect Switzerland and the U.S. to continue negotiations.”
Daniel Saameli, a spokesman for Switzerland’s finance ministry, said the government “acknowledges the developments,” while declining to comment further.
Credit Suisse fell 1.5 percent to 30.12 francs in Zurich trading. The stock is down 20 percent this year, compared with a 12 percent decline in the 46-company Bloomberg Europe Banks and Financial Services Index.
In 2008, U.S. prosecutors conducted a probe into whether UBS AG (UBSN), Switzerland’s biggest bank, helped Americans evade taxes. In February 2009, the U.S. criminally charged UBS with aiding tax evasion by U.S. clients.
UBS avoided prosecution by paying $780 million, admitting it fostered tax evasion, and giving the U.S. Internal Revenue Service data on more than 250 accounts to avoid criminal prosecution. It later turned over data on another 4,450 accounts. In October, the U.S. dropped its criminal case against UBS.
Under Justice Department guidelines, prosecutors don’t call an entity a target of an investigation “until developing significant evidence that a crime has occurred,” said Jeffrey Neiman, a former federal prosecutor who worked on the UBS probe.
“I can’t imagine that the Justice Department will walk away from an international bank when they have significant evidence that they committed a crime on American soil,” Neiman said.
Tax attorney Bryan Skarlatos said he expects Credit Suisse to sign a deferred prosecution agreement similar to the one in the UBS case.
“I wouldn’t be surprised to see a significant financial penalty and obligation to cooperate with the Department of Justice and the IRS with respect to an investigation of individual account holders,” said Skarlatos of Kostelanetz & Fink LLP in New York. “They may possibly reach an agreement to turn over names and records of account holders.”
Neiman said the Credit Suisse statement that it was cooperating “subject to our Swiss legal obligations” suggests that the bank’s assistance may not fully satisfy prosecutors. As in the UBS case, it could set up a “showdown between bank secrecy, Swiss law and American justice,” he said.
The Justice Department has entered dozens of so-called deferred-prosecution agreements in recent years with companies, including Credit Suisse. In December 2009, the bank agreed to pay $536 million to resolve claims that it helped process payments that let Iran and other nations avoid government sanctions and gain access to U.S. financial markets.
Prosecutors said the bank made more than $1.6 billion in illegal transactions involving Iran, Sudan, Burma, Cuba and Libya from the mid-1990s through 2006. Credit Suisse settled with the Justice Department and the Manhattan District Attorney’s Office, which agreed to dismiss the case in December 2011 if the bank complies with the agreement.
Credit Suisse currently provides cross-border banking services to Americans through its Credit Suisse Private Advisors unit, which has its headquarters in Zurich and is registered with the Financial Industry Regulatory Authority and the Securities and Exchange Commission.
In announcing the indictment of four Credit Suisse bankers in February, the Justice Department said “ conspiracy dates back to 1953 and involved two generations of U.S. tax evaders including U.S. customers who inherited secret accounts.”
Credit Suisse employees are also being investigated in Germany for alleged helping some German clients evade taxes. Dusseldorf prosecutors searched homes of some employees and Credit Suisse offices last year, and seized “substantial” amounts of data, after German authorities obtained a disk with data that prompted probes against about 1,100 customers of the bank.
Chief Executive Officer Brady Dougan said in April the bank is cooperating with German authorities. “We believe that globally, we’ve had a really state-of-the-art compliant cross-border banking business,” he said.