Credit Suisse Group AG agreed to pay $197 million to regulators and admitted servicing thousands of U.S. clients without approval, leaving unsettled a criminal probe of whether it helped Americans evade taxes.
Credit Suisse, the second-biggest Swiss bank, never registered a cross-border securities business that served 8,500 client accounts between 2002 and 2008 and collected $82 million in fees, according to a settlement with the U.S. Securities and Exchange Commission. The accounts were valued at about $5.6 billion in 2008.
The bank is one of 14 institutions under criminal investigation into whether they used hidden Swiss accounts to help clients cheat the Internal Revenue Service. Seven Credit Suisse bankers were indicted in 2011, when prosecutors also said the bank was a target of the probe. UBS AG, the largest Swiss bank, paid $780 million in 2009 to settle U.S. criminal and civil probes, admitting that it helped foster tax evasion.
“This isn’t the end game,” said Christopher Wheeler, a London-based analyst at Mediobanca SpA. “The Department of Justice probe can potentially result in a lot bigger fine.”
The Zurich-based lender set aside 295 million francs ($332 million) in 2011 for U.S. tax matters in addition to funds set apart for the SEC case.
The U.S. Senate Permanent Subcommittee on Investigations will hold a hearing on Feb. 26 on the status of the tax evasion crackdown, which has stalled in the Credit Suisse case. Witnesses will represent an unidentified Swiss bank and the Justice Department, the committee said.
“We are pleased to have resolved this issue with the SEC,” Credit Suisse said in a statement. “The Department of Justice investigation into tax-related issues remains outstanding, and while we continue to work to resolve this matter, the timing and outcome remain uncertain.”
Yesterday’s settlement includes $82.2 million in disgorgement, $64.3 million in prejudgment interest and a $50 million penalty.
“As Credit Suisse admitted as part of the settlement, its employees for many years failed to comply with these requirements, and the firm took far too long to achieve compliance,” Andrew Ceresney, director of the SEC’s enforcement division, said in the statement. “The broker-dealer and investment adviser registration provisions are core protections for investors.”
Credit Suisse admitted to a set of facts in the SEC administrative order, which concluded that the bank “willfully violated” securities laws. It also agreed to hire an independent consultant, according to the regulator.
“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 this month.
UBS avoided criminal prosecution in 2009 by admitting wrongdoing and handing over data on thousands of U.S. accounts.
Since then, more than 43,000 Americans have avoided prosecution by entering 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.
More than 70 U.S. taxpayers and almost three dozen bankers, lawyers and advisers were charged with using hidden accounts to dodge the IRS.
Some 106 Swiss banks not under individual probes applied for amnesty in the U.S. for helping tax evaders under a program negotiated by the two governments, a U.S. federal prosecutor said last month. The program requires participants to disclose how they helped Americans hide assets, hand over data on undeclared accounts and pay penalties.
Credit Suisse’s advisory and brokerage services began as early as 2002 and involved more than 107 trips to the U.S. by relationship managers. The bank was aware of the registration requirement, though the procedures it had to prevent violations weren’t properly implemented and monitored, according to the SEC.
Credit Suisse was slow to implement rules that would have forced its bankers to follow local laws, according to the SEC.
After some bankers were arrested in Brazil in 2006, including the head of private banking in the country, Credit Suisse started a project it called “Cross-Border+.” The head of the bank’s Switzerland-based group that handled American accounts complained that the proposed rules were too strict.
‘No Air Left’
“People have no air left to breathe,” he complained to his boss in 2007, according to the SEC. “The latest changes will make this business impossible.”
When Credit Suisse’s auditors looked into the handling of U.S. accounts in 2006, some bankers altered reports to take out references to American trips that broke securities laws, the SEC said. The auditors dropped some preliminary findings of cross-border issues from their final report.
Credit Suisse didn’t begin taking steps to end the business until October 2008, after probes into similar conduct by UBS had been publicized, the SEC said. The majority of U.S. client accounts were closed or transferred by 2010 though the bank still held an average total of about $34 million in American client accounts by mid-2013, according to the SEC.