Credit Suisse Group AG (CSGN), Switzerland’s second-biggest bank, told U.S. clients it is giving confidential client account data to the Swiss tax authorities, who will decide whether to disclose it to the Internal Revenue Service.
The U.S. is probing whether Credit Suisse helped Americans evade taxes, and the IRS used a 1996 tax treaty to request data for certain accounts held between 2002 and 2010, according to a Nov. 2 letter sent to a client by the bank. The IRS sought data for accounts owned through domiciliary companies in which clients are the beneficial owners, according to the letter.
The Swiss Federal Tax Administration issued an “immediately executable” order to the Zurich-based bank, which has no right to appeal, according to the letter. Taxpayers can consent to the SFTA handing over their account data to the IRS, or they can use the Swiss legal system to appeal a ruling by the SFTA that their account must be given to the IRS, according to the letter.
“Please be advised that Credit Suisse is not able to provide any information on whether or not information with respect to a specific account will be provided to the IRS,” according to the letter, signed by managing directors Michel Ruffieux and Stephan Gussmann.
Credit Suisse said July 15 that it’s a target of a criminal probe by the Department of Justice over former cross-border private-banking services to U.S. customers. On July 21, seven Credit Suisse bankers were indicted on a charge of conspiring to help U.S. clients evade taxes through secret accounts.
11 Criminal Probes
The U.S. is conducting criminal probes of 11 financial institutions. U.S. and Swiss officials are concluding talks on a civil settlement that will probably require Swiss banks to pay billions of dollars and hand over the names of thousands of Americans who have secret accounts, two people familiar with the matter said on Oct. 24.
“In connection with the IRS treaty request, the SFTA has issued an order directing Credit Suisse AG to submit responsive account information to the SFTA,” the bank said in a statement.
Tax attorney Barbara Kaplan said she has gotten phone calls seeking guidance from Credit Suisse clients who got letters.
“They are concerned and exploring what it means for them,” said Kaplan, of Greenberg Traurig LLP in New York. “People who are receiving this letter are exposed to disclosure down the road. Those people who have had their accounts disclosed will be subject to civil tax penalties by the IRS and potential prosecution by the Justice Department.”
U.S. taxpayers can avoid prosecution by voluntarily disclosing their account to the IRS, she said.
Credit Suisse spokesman David Walker declined to say how many accounts it has handed over or to comment further.
“The U.S. tax matter and data handover is advancing faster than expected, which we believe is positive for Credit Suisse,” Teresa Nielsen, a Zurich-based analyst at Vontobel Holding AG, wrote in a note to clients today.
Credit Suisse booked 295 million francs ($329 million) of litigation provisions for tax matters in the U.S. in the third quarter.
The government is dealing with an IRS request for administrative assistance relating to tax fraud, according to Mario Tuor, a spokesman for Switzerland’s State Secretariat for International Financial Matters. He declined to comment on the number of fraud cases and when they occurred.
The Swiss Federal Tax Administration, which will collect the data from Credit Suisse, wasn’t immediately available to comment.
Account holders who contest the handover of their data must notify the U.S. Justice Department they are appealing, according to the client letter.
Switzerland, the world’s biggest center for offshore wealth, agreed in 2009 to meet international standards to avoid being blacklisted as a tax haven by the Organization for Economic Cooperation and Development. The London-based Tax Justice Network ranks Switzerland at the top of its 2011 financial secrecy index.
In February 2009, UBS AG (UBSN), the biggest Swiss bank, avoided criminal prosecution by paying $780 million, admitting it fostered tax evasion and giving the IRS data on more than 250 accounts to avoid criminal prosecution. It later turned over data on another 4,450 accounts and in October 2010, the U.S. dropped its criminal case against UBS.
The Justice Department is pursuing new criminal cases against Swiss banks after American customers provided information on them through a U.S. voluntary-disclosure program.
The U.S. crackdown against offshore tax evasion has led to charges against UBS AG, at least 21 foreign bankers, advisers and attorneys and at least 36 U.S. taxpayers.
Kaplan, the tax attorney, said that Credit Suisse clients haven’t expressed as much fear as UBS clients did earlier.
“Before UBS, they were relying on Swiss secrecy,” she said. “Now they know that Swiss secrecy isn’t going to protect them. So the fear element isn’t as palpable as it was at the beginning of this whole process in 2008.”
She predicted that other Swiss banks under investigation will eventually settle with the U.S.
“Ultimately, they will reach agreement, and part of that will be to disclose the U.S. client account information,” Kaplan said. “When that happens, those banks will send out letters to their clients.”