Credit Suisse Group AG Chief Executive Officer Brady Dougan will testify this week at a U.S. Senate committee’s hearing on offshore tax evasion, increasing pressure on the largest of 14 Swiss banks under criminal investigation for helping Americans cheat on taxes.
Dougan, who leads the second-largest Swiss bank, will appear Feb. 26 with three other executives, the Senate Permanent Subcommittee on Investigations said today. Deputy Attorney General James Cole and Assistant Attorney General Kathryn Keneally are also scheduled to testify to a panel examining why the Justice Department hasn’t resolved those criminal probes sooner.
Credit Suisse, based in Zurich, last week agreed to pay $197 million to U.S. regulators and admitted it serviced thousands of Americans without approval. Seven of its bankers were charged in a 2011 indictment with using secret accounts to help U.S. citizens hide $4 billion from tax authorities. Credit Suisse and prosecutors haven’t been able to reach a settlement in the criminal case.
“The Senate is going to take Credit Suisse to task for assisting U.S. taxpayers in not paying their U.S. taxes,” said tax attorney Bryan Skarlatos of Kostelanetz & Fink LLP. “There’s going to be a lot of questions about why the bank and the Justice Department haven’t come to a resolution in the criminal investigation. The hearing is likely to break the logjam and put pressure on the DOJ and the other banks.”
Senator Carl Levin, a Michigan Democrat and the chairman of the committee, has long questioned the U.S. crackdown on a Swiss banking industry that used secret accounts to hide offshore assets from the Internal Revenue Service. Levin estimates that offshore tax-avoidance costs the Treasury $100 billion a year.
Switzerland’s bank secrecy began to erode in February 2009, when the U.S. charged UBS AG, the largest Swiss bank, with helping Americans cheat the IRS. UBS avoided prosecution by paying $780 million, admitting it fostered tax evasion and handing over data on thousands of American accounts.
The bank may push to resolve the criminal probe through a deferred-prosecution agreement before Dougan and the other executives testify, said Scott Michel, a lawyer at Caplin & Drysdale in Washington.
“The only wildcard is whether a deal gets announced between now and Wednesday,” Michel said. “Otherwise, there would be many questions they simply could not answer.”
Credit Suisse disclosed in July 2011 that it was the target of the Justice Department probe. The bank has since said that it’s cooperating with the investigation.
Since 2009, the U.S. has charged more than 70 U.S. taxpayers and about three dozen offshore enablers with using undeclared accounts to hide assets from the IRS. More than 43,000 Americans avoided prosecution through an IRS amnesty program. A Justice Department program for Swiss banks has drawn 106 Swiss banks seeking non-prosecution agreements.
“They will be put on the spot,” said Christopher Wheeler, a London-based analyst at Mediobanca SpA. “This takes it to a new level.”
Taxpayers have given the IRS a wealth 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. Swiss law typically bars the disclosure of data about accounts.
The data helped underpin criminal probes of 14 firms, including Credit Suisse; HSBC Holdings Plc, the largest European bank; and Julius Baer Group Ltd., Switzerland’s third-largest wealth manager, court filings show.
UBS executives went before Levin’s committee in 2008 to answer questions about helping Americans evade taxes. Mark Branson, the bank’s chief financial officer of global wealth management at the time, testified at the hearing.
Hans-Ulrich Meister and Robert Shafir, the co-heads of Credit Suisse’s Swiss private banking and wealth management, will also testify this week, as will Romeo Cerutti, the bank’s general counsel. Cerutti and Meister are based in Zurich, according to the committee. Marc Dosch, a Credit Suisse spokesman, confirmed the executives’ participation and declined further comment.
“Brady Dougan has to answer a lot of tough questions about the bank’s past practices and the banking industry in Switzerland,” said Martin Press, a tax attorney in Fort Lauderdale, Florida. “Credit Suisse has negotiated an SEC settlement, so they’re obviously cooperating with the government.”
The U.S.’s progress in cracking Swiss bank secrecy has been dramatic, even if it has taken years, said Caplin & Drysdale’s Michel.
“What’s happened in last five years has just been remarkable by any measure, in terms of criminal indictments, voluntary disclosures and global attitudes on disclosure,” Michel said. “I suspect there are all kinds of people who think that more could have been done.”