Credit Suisse AG (CSGN), which pleaded guilty yesterday to helping Americans evade taxes, has so far avoided identifying thousands of customers who cheated the Internal Revenue Service. Instead, it promised to point investigators in the right direction.
While the unit of Credit Suisse Group AG became the largest bank to plead guilty in 20 years, agreeing to $2.6 billion in penalties, its deal with the Justice Department put off the day of reckoning for the firm’s clients. They’re protected by Swiss bank-secrecy laws that make it a crime to disclose account data.
In a deal overseen by Attorney General Eric Holder, Credit Suisse pledged to help the U.S. seek those names through a tax treaty with Switzerland. It also will provide other information, outlining the size and number of accounts and indicating where money went. That contrasts with UBS AG (UBSN), the largest Swiss bank, which avoided prosecution in 2009 by paying $780 million and disclosing names of 250 American clients. UBS later revealed 4,450 more account holders in settling a U.S. lawsuit.
“It is a mystery to me why the U.S. government didn’t require as part of the agreement that the bank cough up some of the names of the U.S. clients with secret Swiss bank accounts,” said U.S. Senator Carl Levin, a Michigan Democrat.
Credit Suisse rose 1 percent to 26.32 Swiss francs in Zurich trading. Earlier, the Zurich-based bank rose the most in six months, gaining as much as 3 percent.
Levin is chairman of the Senate Permanent Subcommittee on Investigations, which issued a report and held a February hearing criticizing practices that the bank has now admitted, as well as the Justice Department’s failure to get more customer names. The panel found the U.S. used treaty requests to identify 238 Credit Suisse clients out of 22,000 accounts held by Americans. The requests require Switzerland to analyze whether account holders engaged in tax fraud “and the like.”
Deputy Attorney General James Cole defended U.S. efforts to identify account holders during a news conference yesterday, as he did at the Levin hearing in February.
“Credit Suisse is going to provide us a lot of information -- not the specific account names, but they’re going to help us in treaty requests that, under Swiss law, can get us the specific account names,” Cole said.
“They’re providing us with a great deal of additional information that will allow us to determine where those accounts went, how many accounts they had, some of the size of the accounts,” he said. “We can go to other places to try and then locate those accounts.”
Credit Suisse Chief Executive Officer Brady Dougan said in a statement yesterday that the firm regrets its misconduct. He was asked in a conference call today whether he can rule out the U.S. taking any other legal action to get client data.
“This is a complete and final resolution of all the outstanding matters, and so this brings to a close all those issues,” Dougan said. “This agreement did not include the provision of account data. We clearly will continue to deliver data to them, which we’re allowed to legally.”
With Swiss banks bound by their nation’s secrecy laws, Levin has pushed the Justice Department to be more aggressive. In February, he complained about “this endless negotiation with the Swiss about their laws instead of implementing our laws.”
The Swiss government invoked emergency powers in 2009 to allow the one-time handover of account data from Zurich-based UBS. Since then, the government has said it won’t repeat such emergency measures, effectively drawing a line with the U.S.
Cole and other officials predicted that data Credit Suisse provides will help drive taxpayers into an IRS amnesty program that has already drawn 43,000 Americans who paid $6 billion in back taxes and penalties to avoid prosecution. Prosecutors and the IRS also expect reams of data from 106 Swiss banks seeking non-prosecution agreements from the Justice Department.
“Credit Suisse bought and pled their way out of providing names,” Jeff Neiman, who was a prosecutor on the UBS case, said in a phone interview. “Money talks. It appears that the bank made the decision to pay more money rather than produce names directly.”
Credit Suisse Chairman Urs Rohner told Swiss radio in an interview that the bank couldn’t deliver client data to the U.S., which “materially contributed” to the fine being higher.
Edward Robbins, a former tax prosecutor, said Credit Suisse walked away with a victory for the nation.
“Credit Suisse should get the Swiss bank secrecy award of the year for this move,” said Robbins, an attorney with Hochman Salkin Rettig Toscher & Perez. “What about the 20,000 tax cheats that are out there thumbing their noses at the U.S.?”
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