May 6 (Bloomberg) -- Credit Suisse Group AG is close to resolving a U.S. tax-evasion probe with an agreement that might include a penalty of more than $1 billion, after creating a separate entity last year to house the businesses involved.
The resolution of the investigation may also include a guilty plea, according to a person familiar with the talks who asked not to be identified because the matter is private. The new unit, CS International Advisors AG, was incorporated in December with a Swiss banking license. In February, Credit Suisse moved its U.S. cross-border business into the fully owned entity, according to records from the Commercial Register of the Canton of Zurich.
The Justice Department, cracking down on foreign banks that help Americans cheat the Internal Revenue Service, may charge the unit instead of the whole firm, said Scott Michel, a tax lawyer at Caplin & Drysdale in Washington. Prosecutors, who must weigh economic consequences when taking action, have expressed concern about the potential fallout from charging big banks.
“It has the earmarks of a structural step that somebody has thought of to try to protect the bank as a whole in the event that a guilty plea is required,” Michel said. “I’ve had a couple of criminal tax cases over the years where the client created a corporate entity to enter a guilty plea.”
Credit Suisse fell 0.4 percent to 27.29 Swiss francs by 1:01 p.m. in Zurich trading, a fourth straight decline. The stock is little changed this year.
The cost of insuring Credit Suisse’s debt for five years fell two basis points to 61, the lowest level since January 2010, according to data compiled by Bloomberg. A basis point is a hundredth of a percentage point.
Credit Suisse transferred 242 million francs ($276 million) of assets and 238 million francs of liabilities related to its U.S. cross-border business to the unit, which has 21 million francs in capital. That included 1,040 active accounts, 43,018 accounts that had already been closed as well as 1,144 dormant accounts, the documents show.
Spokesmen for Zurich-based Credit Suisse declined to comment on talks with U.S. authorities and wouldn’t elaborate on the new unit beyond what’s disclosed in official records. The person familiar with the negotiations, asking not to be named because they’re confidential, didn’t specify whether a plea would be entered by the entire firm or a subsidiary.
U.S. Attorney General Eric Holder said in a video message posted yesterday that the Justice Department is readying criminal cases against banks that show financial institutions aren’t too big to prosecute.
“I intend to reaffirm the principle that no individual or entity that does harm to our economy is ever above the law,” he said without identifying firms that may be charged.
Prosecutors are considering indictments in probes of Credit Suisse and Paris-based BNP Paribas SA, a person familiar with the matter said last week. To clear the way for potential charges, authorities have met with U.S. banking regulators to discuss how to contain the fallout. Investigators have been examining BNP Paribas for possible violations of sanctions barring business with prohibited countries.
Swiss officials would view an indictment of Credit Suisse as destabilizing for the bank and broader financial system, according to sources familiar with the matter. The U.S. is seen as more likely to seek a negotiated settlement in which a unit or the bank’s holding company pleads guilty, the sources said, asking not to be named because discussions are confidential. An agreement is expected to come quickly, the sources said.
The bank said April 3 it set aside 425 million francs ($484 million) in provisions for the probe, in addition to 295 million francs for U.S. tax matters in 2011. The Wall Street Journal reported that a settlement may exceed $1 billion. It may go as high as $1.6 billion, Reuters wrote, citing an unidentified person familiar with the matter.
Credit Suisse agreed to pay $196.5 million in February to settle related claims by the Securities and Exchange Commission.
Holder’s department has been faulted by lawmakers for resolving cases against banks with settlements that let them escape charges by paying fines, improving controls and promising not to break the law. At least 20 such agreements with financial firms including UBS AG, HSBC Holdings Plc, and JPMorgan Chase & Co. have been entered into during Holder’s five-year tenure, according to a compilation published by law firm Gibson Dunn & Crutcher.
Fritz Mueller, a Credit Suisse employee, is listed as the chairman of the unit, with Hanspeter Kurzmeyer as vice chairman. Kurzmeyer was appointed chief executive officer of Clariden Leu in November 2011, when Credit Suisse announced the integration of that private bank.
“The U.S. wants Credit Suisse to pay money, acknowledge wrongdoing and accept responsibility, and take certain steps to ensure that similar conduct doesn’t occur in the future,” Michel said. “They’ll want Credit Suisse to cooperate in any investigation by the Justice Department and IRS of any clients and of its own bankers and management.”
To contact the reporters on this story: Tom Schoenberg in Washington at firstname.lastname@example.org; David Voreacos in federal court in Newark, New Jersey, at