‘Thankyou' E-Mail Shows Guilty Bank's Efforts to Keep Business Rolling

Credit Suisse
The penalty imposed on Zurich-based Credit Suisse was the highest since the U.S. began targeting offshore tax evasion in 2008. Photographer: Gianluca Colla/Bloomberg

“thankyou thankyou thankyou thankyou thankyou thankyou thankyou thankyou thankyou thankyou thankyou thankyou thankyou thankyou thankyou thankyou thankyou...”

That was part of an e-mail sent to the U.S. Department of Labor last fall by lawyer Melanie Nussdorf, three months after her client, Credit Suisse Group AG, admitted to helping Americans evade U.S. taxes.

The Labor Department oversees about $8 trillion in private-sector pensions, and so Credit Suisse, after making its guilty plea, needed the department’s permission to keep managing Americans’ retirement money. The bank would also need to notify “interested persons” that their funds were being overseen by a manager with links to a felon.

Nussdorf, a partner at Steptoe & Johnson LLP who worked at Labor in the 1980s, sought to clarify who, among all the pension clients in the Credit Suisse universe, needed to be told. Labor responded that it was enough, in many cases, to tell the pension managers rather than the clients, prompting Nussdorf to repeat “thankyou” 600 times.

Her Aug. 28 message, and others that are part of the Labor Department’s public records, reveal a collegial, give-and-take negotiation between the department and a bank lawyer seeking to manage the potentially devastating fallout from a criminal conviction. In separate communications, a lawyer for the Justice Department -- whose prosecutors have extracted a handful of guilty pleas from banks in recent years -- thanked Labor Department officials for explaining the process for staying in the pension business.

Clearing a Path

Bank executives have long argued that their institutions, and the financial system, could be ravaged by a guilty plea. The messages reviewed by Bloomberg News show that behind the scenes, the government departments tasked with prosecuting and regulating the banks have in some cases helped clear an administrative path that led these institutions to admit criminal wrongdoing and continue their work without disruption.

Nussdorf declined to comment, as did a representative for Credit Suisse.

“The exemption process takes a lot of hard work on the part of the government and the applicant; 600 thank yous is just an attempt to inject some humor into a long and dry regulatory process. That’s Melanie’s personality,” said Kathy King, a Steptoe spokeswoman.

At issue are so-called waivers, which crime-tainted banks require from Labor, the Securities and Exchange Commission and other regulators to manage mutual funds, issue certain securities or do business in other areas.

Busy Week

It’s been a busy few weeks for waiver-seekers. As soon as tomorrow, five global institutions -- Citigroup Inc., JPMorgan Chase & Co., UBS Group AG, Barclays Plc and Royal Bank of Scotland Group Plc -- will admit guilt in connection with allegations by the Justice Department and regulators that they rigged exchange rates, people familiar with the talks have said. The settlements have been delayed as banks seek to line up waivers, a person familiar with the talks has said.

Officials, lawmakers and bank critics have wrangled over whether regulators should deny waivers as a way to deter future crimes. So far, regulators haven’t rejected any of the requests filed by the big banks that have recently pleaded guilty in the U.S. to interest rate-rigging, sanctions violations and other offenses.

Credit Suisse has faced the longest road at the Labor Department, which still hasn’t issued the Zurich-based bank a permanent waiver for its pension business. Even so, the department must take care to avoid any impression of favoritism, said Michael Smallberg, an investigator with the Project on Government Oversight, a Washington-based nonprofit group.

“When you hear the bank is avoiding some penalties, it raises the question of whether government is willing to take action,” Smallberg said. “When you have a former government attorney representing Credit Suisse, it heightens the impression that the bank is getting a special deal.”

No Favors

There’s no indication that Nussdorf was calling in favors more than three decades after working at the Labor Department. Her experience there, meanwhile, could help her client.

“It’s very common for clients to seek counsel who are familiar with the regulatory process – having a shared understanding of the way the government and its rules work is in everyone’s interest,” said King, the Steptoe spokeswoman.

In this case, Credit Suisse didn’t get everything it wanted: The Labor Department gave the bank a one-year waiver, rather than the 10-year exemption it sought, giving officials more time to consider the bank’s case. It also forced the bank into the spotlight during a public hearing earlier this year where critics alleged the bank had a history of wrongdoing.

“DOL’s sole interest is in protecting plans and workers who are saving for retirement. This is evidenced by the fact that we held a hearing in response to public feedback, and issued a new proposed exemption that includes even stronger protective conditions,” said Michael Trupo, a Labor Department spokesman. “If it were up to the applicants, there would be no conditions and we would grant exemptions as a matter of course. This is not the case.”

When the Justice Department announced in May 2014 that Credit Suisse would plead guilty to helping thousands of Americans evade taxes, it had most of its waivers in hand.

The New York Federal Reserve granted the bank permission to maintain its status as a primary dealer of U.S. treasuries. The SEC agreed that Credit Suisse could continue issuing securities and managing mutual funds uninterrupted.

‘Rubber Stamp’

But the Labor Department didn’t offer Credit Suisse a waiver to retain its status as a qualified professional asset manager, or QPAM. The department “is not a rubber stamp” organization, Trupo said at the time. That left the bank until its Aug. 12, 2014 sentencing to obtain a waiver, or else lose its QPAM privileges.

As Credit Suisse made its case with Labor, the Justice Department also checked in. On June 26, Assistant U.S. Attorney Mark Lytle wrote to Labor Department officials “to follow up on Credit Suisse AG,” according to an e-mail obtained under a Freedom of Information Act request, which, like others between the departments, were heavily redacted.

A few days later, a second attorney in the Justice Department’s criminal division expressed gratitude with Labor’s efforts to help a different bank, BNP Paribas SA, through the waiver process.

“I know we’ve said it before, but it’s worth repeating -- we really appreciate the time you took last week to speak with us regarding the QPAM exemption process,” Jennifer Ambuehl, an attorney in Justice’s asset forfeiture and money laundering section, wrote to Labor officials on July 1.

Temporary Waiver

The Justice Department declined to comment or make Ambuehl and Lytle available for interviews.

Labor’s application process has created hassles for Credit Suisse but hasn’t changed how it does business, critics have said. Under the temporary waiver, even the bank unit that pleaded guilty in the tax-evasion matter will continue working with pension funds in one area, securities lending.

While the unit, Credit Suisse AG, would have to tell securities-lending clients about its plea, other parts of the bank wouldn’t have to inform some investors, Erin Hesse, a special assistant in Labor’s Office of Exemption Determinations, wrote in an Aug. 28 e-mail to Nussdorf.

“I hope this one ‘you are welcome’ covers all those thank yous,” Hesse wrote. “I’m not sure what the exchange rate is these days.”

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