Swiss banks are turning over thousands of employee names to U.S. authorities as they seek leniency for their alleged role in helping American clients evade taxes, according to lawyers representing banking staff.
At least five banks supplied e-mails and telephone records containing as many as 10,000 names to the U.S. Department of Justice, according to estimates by Douglas Hornung, a Geneva- based lawyer representing 40 current and former employees of HSBC Holdings Plc’s Swiss unit, Credit Suisse Group AG (CSGN) and Julius Baer Group Ltd. (BAER) The data handover is illegal, said Alec Reymond, a former president of the Geneva Bar Association, who is representing two Credit Suisse staff members.
“The banks are burning their own people to try and cut deals with the DOJ,” said Hornung. “This violation of personal privacy is unprecedented in the Swiss banking industry.”
Swiss banks want to settle a U.S. tax-evasion probe after the Justice Department indicted Wegelin & Co. on Feb. 2 for allegedly helping customers hide money from the Internal Revenue Service. Credit Suisse, HSBC and Julius Baer, which have said they expect to pay fines to resolve the tax matter, are handing over data to mollify the U.S., according to Hornung.
Credit Suisse said the Swiss government authorized the delivery of staff names and that the “large majority” of employees have nothing to fear. Julius Baer and Zuercher Kantonalbank also said they received authorization. HSBC said it has delivered documents and is cooperating with the U.S.
HSBC shares declined 0.1 percent to 561.9 pence at 8:21 a.m. in London trading, paring this year’s gain to 14 percent. Credit Suisse climbed 0.3 percent in Zurich, while Julius Baer shares fell 0.1 percent.
Swiss banks, the biggest managers of offshore wealth, have seen secrecy erode since UBS AG (UBSN) admitted in 2009 to fostering tax evasion and paid a fine of $780 million to avoid prosecution. Switzerland’s largest wealth manager later turned over data on about 4,700 accounts to the IRS.
While Swiss companies are usually prohibited from sending evidence to assist foreign legal proceedings, the country’s governing Federal Council authorized an exemption in April at the request of an undisclosed number of banks.
“The Federal Council had no right to grant permission for banks to send any information to a foreign authority,” said Marcel Niggli, a professor of law at the University of Fribourg. “The companies know the risk of penalties in Switzerland is insignificant compared with the business risk in the U.S. It’s a cold-blooded action by the banks.”
The banks have sent copies of employees’ passports as well as packages of correspondence to the Justice Department, according to Hornung, who has lodged complaints on behalf of four HSBC and Credit Suisse employees with the Swiss federal Attorney General’s Office and regional prosecutors in Geneva and Zurich.
Bloomberg News was shown complaints filed by Hornung with the prosecutor in Geneva and with the Office of the Attorney General.
Reymond, who counts assassinated former Pakistani premier Benazir Bhutto and Cecile Brossard, the killer of French financier Edouard Stern during a sex game, among his former clients, has made complaints on behalf of two other employees at Credit Suisse.
“That’s the first attack,” said Reymond, a lawyer at Keppeler & Associes in Geneva. “Other clients may follow the same route.”
HSBC’s Swiss unit provided a list of 1,100 names, of which only 17 had direct contact with U.S. clients, said Hornung, who is pressing for the release of letters between the U.S. and Swiss governments.
Swiss banks, rather than the government, must take responsibility for the delivery of data on their U.S. businesses, Swiss President and Federal Council head Eveline Widmer-Schlumpf wrote in a letter dated July 31.
While the government authorized banks to defend their interests, it didn’t specify what information could be handed over to U.S. authorities, Widmer-Schlumpf said in the letter. Employees can initiate legal action against banks if they believe their details were transmitted illegally, she said.
Switzerland is in talks to end a Justice Department investigation of 11 Swiss financial firms, including Credit Suisse, Julius Baer and HSBC’s Geneva-based wealth business, as part of a U.S. probe of offshore tax evasion.
The dispute shows signs of escalating after U.S. authorities questioned two teenagers at an airport in May about their father’s wealth-management activities, Tribune de Geneve reported Aug. 6, citing an unidentified Swiss lawyer.
The deterrent value of having the names of bank employees and prosecuting them may be even greater to the Justice Department than getting details of all U.S. client accounts, said Milan Patel, a partner at Zurich-based law firm Anaford AG.
“If one banker is indicted or detained in a hotel room as a material witness, that resonates in Switzerland,” said Patel. “Even if the DOJ does not prosecute anyone, Swiss bankers are still concerned about their names being sent to the DOJ.”
The U.S. investigation is hindering Swiss efforts to shed its image as a haven for untaxed money and comes as the loss of higher-fee earning American and European cross-border clients squeezes profit margins at private banks.
Since UBS agreed to settle with the U.S., more than 33,000 wealthy Americans with money in offshore accounts have made voluntary disclosures, giving the IRS a trove of data to build cases against other banks.
“I don’t think anybody understood back in 2006 when they were going after UBS the full extent to which the DOJ and IRS would pursue this,” said Jeffrey Morse, a Geneva-based lawyer at Withers LLP. “We now live in a world where banks are willing to break local laws if they deem it helpful in defending against the IRS.”
Credit Suisse, which booked a provision of 295 million Swiss francs ($302 million) in the third quarter last year for U.S. tax matters, said last month it disclosed information to the U.S. in accordance with the Federal Council’s authorization and after consulting with the Swiss Financial Supervisory Authority.
“Credit Suisse provided the U.S. authorities with internal business documents that show how it ran its U.S. cross-border business,” said Marc Dosch, a spokesman for the bank. “The large majority of Credit Suisse employees complied with the applicable laws and regulations and have nothing to fear.”
The Zurich-based bank declined to confirm the number of names mentioned in the documents. Dosch said the disclosure is in the interests of bank employees because it can contribute toward reaching an amicable solution with the US.
HSBC’s Swiss private bank said May 3 that fines and penalties relating to the U.S. probe “could be significant.”
“HSBC continues to assist the U.S. authorities with their enquiries concerning cross-border business with the U.S.,” said Brendan McNamara, a London-based spokesman for the bank, adding that more documents have been delivered. He declined to comment further.
Eric Delissy, 71, head of legal at HSBC’s Swiss unit between 1998 and 2003 expects to be arrested if he travels abroad after discovering his name was mentioned in documents sent to the U.S.
“We didn’t even have any U.S. clients back then,” said Delissy. “I feel betrayed.”
Julius Baer, which took clients from UBS before closing its U.S. business between 2009 and 2011 as scrutiny increased, said its penalty is not yet “reliably assessable.” The firm has already spent 22.4 million francs in the 18 months through June on legal and other costs relating to the U.S. tax matter as it attempts to broker a deferred prosecution agreement.
Julius Baer’s delivery of employee information was authorized by the Swiss government, said Jan Vonder Muehll, a Zurich-based spokesman for the bank, who declined to provide details of what was sent.
“The disclosure of certain data is necessary to achieve a solution and the solving of this issue is very important for both the bank and all its current and former employees,” he said.
“The tax dispute with the U.S. can only be settled without further escalation if the bank cooperates with the U.S. authorities,” said Igor Moser, a spokesman for Zuercher Kantonalbank.
The Swiss government can partly block moves by the country’s attorney general to prosecute banks for handing over employee names, said law professor Niggli.
“The respect for the rule of law has declined in a way I simply thought unimaginable a few years ago,” he said. “The government treats these business interests of the banks as if they were the business interests of Switzerland because the U.S. market is so enormously important.”
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