Watchdog: Follow the Money

Credit Suisse helped clients hide billions, Senate says

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Credit Suisse Group helped American customers hide as much as $10 billion in assets from the Internal Revenue Service, more than double the amount previously known, according to a U.S. Senate committee.

A report by the Senate Permanent Subcommittee on Investigations criticized the Zurich-based bank for failing to discipline any senior executives in the face of widespread tax evasion fostered by 1,800 Credit Suisse employees serving U.S. clients. The firm also misled investors about growth in its private banking unit, according to the report.

The Justice Department has failed to use all its legal tools in its criminal probe of whether Credit Suisse, the second-largest Swiss bank, helped U.S. clients evade taxes, according to the report. Lax enforcement also allowed Credit Suisse to turn over the names of only 238 U.S. account holders to prosecutors, the report said.

This U.S. inaction symbolizes a larger problem in a five- year crackdown on offshore tax evasion, the subcommittee said. Prosecutors have “failed to utilize available U.S. legal means to obtain the names of tens of thousands” of Americans who owe billions of dollars in taxes and whose identities are still hidden by the Swiss, according to the 176-page report.

“The Department of Justice must take firm action to obtain the names of persons who hid those assets” and cheated on taxes, said Sen. Carl Levin, D-Mich., who chairs the panel. “They owe Uncle Sam, they owe the people of the United States.” He added: “Simple justice requires that tax cheats must come clean, pony up, and face the consequences.”

Hearing Tuesday

Levin’s committee will hold a hearing in Washington on Tuesday that will include testimony by Credit Suisse Chief Executive Officer Brady Dougan, three other bank executives and two Justice Department officials who coordinate the tax crackdown.

The bank last week paid $197 million to U.S. regulators and admitted it serviced thousands of American accounts without authorization. It’s the biggest of 14 Swiss banks under criminal investigation, and seven of its bankers were indicted in 2011 on charges of helping clients conceal assets from the IRS and avoid paying taxes on them. The Justice Department told the bank in 2011 that it was a target of the probe. The bank has said it’s trying to resolve the case.

“Credit Suisse has yet to admit that its U.S. cross-border business was largely a dishonest enterprise, dominated by undeclared accounts and U.S. account holders dodging U.S. taxes,” the report said. “The bank has not developed or implemented lessons learned that would guide the bank for the future.”

1,800 bankers

Of the 1,800 bankers who serviced U.S. clients, only 10 have been disciplined and none was fired, the committee said.

“To date, no bank executive or senior official at Credit Suisse has been identified as responsible for any of the misconduct in Credit Suisse’s cross-border activity, even though that activity went on for decades, involved tens of thousands of U.S. clients and billions of dollars,” the report said.

Sen. John McCain, R-Ariz., who is on the committee, said it's not plausible that senior management wasn't involved, considering the systemic misconduct.

“If you believe that, I have some beachfront property in Arizona,” McCain said. “You think all this was coming for all these years in this fashion and nobody knew about it? It defies logic or reason.”

‘Systemic’ conduct

The report, he said, shows the conduct is “systemic, it extended over years, it involved tens of thousands of accounts, and billions of dollars.”

Calvin Mitchell, a spokesman for Credit Suisse, said the bank would make its written testimony available before the hearing.

The report offers fresh details about how Credit Suisse helped clients cheat the IRS by opening accounts under false names, avoiding the mail when delivering account statements and servicing clients in the U.S. or Switzerland. One client was given an account statement hidden in a Sports Illustrated magazine, according to the report.

Almost 10,000 U.S. clients visited a branch office at the Zurich airport given the code name “SIOA5.” Dougan told the committee that “the airport office was needed because many U.S. clients traveled to Switzerland to go skiing” and didn’t want to go into Zurich.

Elevator experience

Levin described the experience of one account holder: “He was guided into an elevator remotely controlled, with no buttons, no floors. The meeting took place not at a banker’s office, but in a separate bare, conference room. All of these being a dramatic demonstration to the client of the secrecy that Credit Suisse practiced.”

The committee details three ways that it estimated the amount of undeclared assets held by the bank’s U.S. clients. It concluded that “the vast majority” of 22,000 accounts opened for U.S. customers — 85 percent to 95 percent — may have been hidden from the IRS.

At its peak from 2001 to 2008, the bank held as much as $12 billion in assets for U.S. customers, according to the report, meaning that about $10 billion was undeclared. The indictment in 2011 said the amount was $4 billion.

“The amount of assets associated with the bank’s undeclared Swiss accounts are likely significantly greater than the amount cited by DOJ in indictment,” according to the report.

UBS case

The U.S. crackdown on offshore tax evasion accelerated after 2009, when UBS AG, the largest Swiss bank, avoided prosecution by paying $780 million, admitting it fostered tax evasion and turning over the names of 4,700 account holders.

Prosecutors charged more than 70 taxpayers and three dozen offshore bankers, lawyers and advisers. More than 43,000 Americans avoided prosecution by voluntarily disclosing their accounts to the IRS and helping investigators.

The report criticizes prosecutors for failing to go to U.S. courts more often to file civil summonses seeking names of unidentified clients suspected of tax crimes, as it did in the UBS case. It also faults the Justice Department for failing to enforce grand-jury subpoenas, such as one it issued to Credit Suisse in 2011.

Instead, the U.S. has made requests for client names through a tax treaty with Switzerland and has failed to overcome Swiss objections based on that nation’s laws protecting account secrecy.

Emily Pierce, a Justice Department spokeswoman, defended the actions of U.S. prosecutors.

‘Forceful enough’

“The prospect of U.S. prosecution has been forceful enough to cause 43,000 taxpayers to self-report and pay nearly $6 billion in taxes and penalties,” Pierce said in an e-mailed statement. “More than 100 Swiss financial institutions have applied for a program where they fully disclose their illegal conduct, cooperate and pay steep penalties. That program will help the department root out tax evasion throughout the world.”

She also said the department has acknowledged that 14 Swiss banks are under investigation and “won’t hesitate to indict if and when circumstances merit.”

In addition, 106 Swiss banks are seeking non-prosecution agreements with the Justice Department.

Despite the committee’s criticisms, the offshore crackdown has made enormous strides against bank secrecy, according to tax attorney Charles Rettig of Hochman, Salkin, Rettig, Toscher & Perez PC in Beverly Hills, California. People inside and outside the U.S. seek advice on making voluntary disclosures.

“The majority of those people are told to come into compliance one way or another, and they follow that advice,” Rettig said. “You have to keep reminding them that the government’s out there.”

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