The U.S. Senate Permanent Subcommittee on Investigations will hold a hearing on a crackdown on offshore tax evasion that has stalled as prosecutors conduct criminal probes of 14 banks, including Credit Suisse Group AG. (C)
The hearing will focus on “the status of efforts to hold Swiss banks and their U.S. clients accountable for unpaid taxes on billions of dollars in hidden assets,” according to a statement by the committee. Chairman Carl Levin, a Michigan Democrat, estimates that offshore tax avoidance costs the U.S. Treasury more than $100 billion a year.
Witnesses will represent an unidentified Swiss bank and the Justice Department, the committee said. Since 2009, the U.S. has charged more than 70 U.S. taxpayers and almost three dozen bankers, lawyers and advisers with using hidden accounts to cheat the Internal Revenue Service. At the same time, the Justice Department hasn’t resolved criminal probes involving Credit Suisse, the second-largest Swiss lender, and other banks.
“I’m certain that Senator Levin will inquire as to the status of the investigations with respect to these banks,” said Nathan Hochman, a former assistant attorney general who oversaw the Justice Department’s tax division. “Senator Levin plays an important role because he brings the bully pulpit to this area and can pressure the government one way or another to make decisions on what it wants to do with these investigations.”
Switzerland, the largest cross-border financial center with $2.2 trillion of assets, has been losing its ability to use bank secrecy to protect clients who evade taxes.
The big break came in February 2009, when U.S. prosecutors charged UBS AG (UBSN), the largest Swiss bank, with aiding tax evasion by thousands of U.S. clients. Zurich-based UBS avoided prosecution by paying $780 million, admitting it fostered tax evasion and giving the IRS data on more than 250 accounts. It later turned over data on 4,450 more accounts.
Since then, more than 43,000 Americans avoided prosecution through an amnesty program at the IRS, paying $6 billion in back taxes, fines and penalties. They gave the IRS a trove of leads about offshore banks and advisers that has allowed the U.S. to build criminal cases that weren’t previously possible because of the way Swiss bank secrecy shielded client identity.
The data helped underpin criminal probes of 14 firms, including Credit Suisse; HSBC Holdings Plc (HSBA), the largest European bank; and Julius Baer Group Ltd. (BAER), Switzerland’s third-largest wealth manager.
Kathryn Keneally, the assistant attorney general overseeing the tax division, said in her first interview since taking the job in April 2012 that the enforcement drive has forced a “remarkable” change in the ability of the U.S. to find secret accounts in Switzerland.
“If someone had an account in Switzerland, it is beyond foolish to think that that account is going to remain secret,” Keneally said in September. “In the last five years, we’ve seen a remarkable change in our ability to get information concerning Swiss bank accounts. It’s extraordinary. Switzerland is no longer a good place to hide assets for tax reasons.”
In July 2011, seven Credit Suisse bankers were charged with conspiring to help U.S. clients evade taxes through secret bank accounts. The defendants include Markus Walder, the former head of North America offshore banking at Credit Suisse; (CSGN) Marco Parenti Adami, a former senior manager and private banker; and Susanne D. Ruegg Meier, who was a senior manager and private banker. They have not appeared in U.S. court.
Managers in the cross-border business “knew and should have known they were aiding and abetting U.S. customers in evading their U.S. income taxes,” according to the indictment in Alexandria, Virginia. The Zurich-based bank had “thousands” of accounts totaling $4 billion in assets not declared to the IRS in 2008, according to the indictment.
In July 2011, the bank said U.S. prosecutors disclosed it was the target of a criminal probe over former cross-border private banking services to U.S. customers. Under Justice Department guidelines, prosecutors don’t call an entity a target of an investigation until developing significant evidence that a crime has occurred.
Calvin Mitchell, a spokesman for Credit Suisse, and Wyn Hornbuckle, a spokesman for the Justice Department, declined to comment on the Senate hearing.
On Feb. 6, Credit Suisse set aside 175 million Swiss francs ($197 million) for U.S. tax matters, saying it covered potential costs related to a Securities and Exchange Commission investigation into whether the bank broke regulations while offering American clients banking services. The bank also set aside 295 million francs for U.S. tax matters in 2011.
“It’s been a long-running issue, something that we’ve been working hard on,” Chief Executive Officer Brady Dougan said in a Bloomberg Television interview. “The reserves that we’re taking today against the SEC element of it, which is more the securities and the licensing issues on the cross-border issue, do represent the fact that we’re making some progress towards getting a resolution to that portion of the issue.”
Aside from the 14 banks under criminal probes, Keneally offered a program last August to more than 300 other Swiss banks that allowed them to avoid prosecution in the U.S. Participants must disclose how they helped Americans hide assets, hand over data on undeclared accounts and pay penalties.
Keneally said on Jan. 25 that 106 banks applied for non-prosecution agreements with the Justice Department.
“Every Swiss bank that comes forward to cooperate under the program represents an opportunity to obtain valuable law enforcement information from a source that is new to the department’s investigations of offshore banking activities in Switzerland and throughout the world,” Keneally said.
The voluntary disclosure program for taxpayers has yielded information about tax havens beyond Switzerland, according to lawyers for clients.
“If I were Senator Levin, I’d ask the Justice Department, ‘You did this program with the Swiss and 106 banks signed up for non-prosecution, so will you take that prototype to other countries with a history of unreported bank accounts, such as Israel, India, Singapore and Hong Kong?’” said Lawrence Horn, a tax attorney at Sills Cummis & Gross in Newark, New Jersey.
To contact the reporters on this story: David Voreacos in federal court in Newark, New Jersey, at