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From Banking and Finance Law Daily, May 20, 2014

Credit Suisse pleads guilty to tax evasion conspiracy charges

By J. Preston Carter, J.D., LL.M.

Becoming the first major bank to plead guilty to a criminal offense, Credit Suisse Bank has agreed to plead guilty to charges related to “an extensive and wide ranging conspiracy to help U.S. taxpayers evade taxes,” Attorney General Eric Holder stated at a press conference announcing the plea. “This case shows that no financial institution, no matter its size or global reach, is above the law,” he added.

According to Holder, the bank will pay a total of $1.8 billion in the form of a fine of over $1.13 billion and nearly $670 million in restitution to the Internal Revenue Service. Referring to the bank’s admission of criminal wrongdoing in a detailed statement of facts, Holder said the bank has “stopped these activities, fundamentally changed their business operations, and agreed to provide critical information that will aid in our enforcement efforts—so the bank can move forward in full compliance with the law.”

Support of Swiss government. Also speaking at the press conference, Deputy Attorney General James M. Cole referred to other actions undertaken in the past few months in the Justice Department’s “ongoing efforts to combat the use of foreign bank accounts to evade U.S. taxes.” He said that over 100 Swiss banks have come forward as part of a program put in place with the support of the Swiss government. Under this program, the banks, which were not under investigation, will pay penalties for the violations of U.S. law that were committed at their institutions and provide the Justice Department with “information that will lead to the identification of their U.S. clients who evaded paying their taxes.”

Assistant Attorney General for the Tax Division Kathryn Keneally noted that, through the information Credit Suisse has agreed to provide, the Internal Revenue Service and the Justice Department will be able to make treaty requests to Switzerland for account records. She said, “For those account holders who closed their accounts knowing that our investigations were focusing on Credit Suisse, we are obtaining information that is enabling us to follow the funds to other Swiss banks or to banks in other tax haven and bank secrecy countries.”

Fed release and order. The Federal Reserve Board announced that Credit Suisse will pay a $100 million penalty for unsafe and unsound practices and failure to comply with the federal banking laws governing its activities in the United States. The Fed also issued a cease and desist order requiring the bank promptly to address deficiencies in its oversight, management, and controls governing compliance with U.S. laws. The Fed stated that its actions were based on the institution's inadequate risk-management and compliance program, and its failure to conduct and accurately report to the Fed the operations of its New York representative office in compliance with U.S. banking laws.

As part of the Fed’s order, Credit Suisse has agreed to terminate its relationship with nine individuals who were involved in the actions that resulted in the violation of U.S. laws. The Fed noted that it is also investigating whether other individuals involved in the Credit Suisse events should be subject to actions by it.

New York DFS statement and order. The New York State Department of Financial Services (DFS) announced that it issued an order regarding Credit Suisse and its operation of an illegal cross-border banking business that aided thousands of U.S. clients in opening and maintaining undeclared accounts and concealing their off shore assets and income from the IRS and New York authorities. The order requires Credit Suisse to pay DFS a $715 million penalty for violations of law in connection with the bank’s global tax evasion scheme.

The order notes that, during the course of the scheme, Credit Suisse’s New York Representative Office was a hub for the bank’s private banking business and played a significant role in the bank’s facilitation of tax evasion. However, according to Benjamin M. Lawsky, New York Superintendent of Financial Services, the DFS will not revoke Credit Suisse’s New York License. “The New York Representative Office that had engaged in the misconduct at issue has been shut down and is no longer operating; the work of that office has been terminated. Going forward, however, it is necessary that Credit Suisse and its top management go above and beyond to ensure the Bank is playing by the rules and that management acts to prevent misconduct within the firm, Lawsky said.

Credit Suisse statement. In the bank’s release regarding its guilty plea, Brady Dougan, CEO of Credit Suisse, said: “We deeply regret the past misconduct that led to this settlement. The US cross-border matter represented the most significant and longstanding regulatory and litigation issue for Credit Suisse. Having this matter fully resolved is an important step forward for us. We have seen no material impact on our business resulting from the heightened public attention on this issue in the past several weeks. We want to thank our clients and employees for their support as we continued to work through this matter and brought it to a conclusion. We can now focus on the future and give our full attention to executing our strategy.”

Senator Levin response. Following the announcement of Credit Suisse’s guilty plea, Senator Carl Levin (D-Mich.), Chairman of the Senate Permanent Subcommittee on Investigations, stated, “This guilty plea strikes an important blow against tax evasion through bank secrecy. But it is a mystery to me why the U.S. government didn’t require as part of the agreement that the bank cough up some of the names of the U.S. clients with secret Swiss bank accounts. More than 20,000 Americans were Credit Suisse accountholders in Switzerland, the vast majority of whom never disclosed their accounts as required by U.S. law. This leaves their identities undisclosed, with no accountability for taxes owed.”

Public Citizen release. Regarding the action against Credit Suisse, Lisa Gilbert, Director of Public Citizen’s Congress Watch division, said, “[A]n isolated case alone cannot refute the prevailing concern that justice applies unequally in the case of large financial institutions. The Department of Justice failed with the major cases from the financial crisis of 2008 to bring criminal cases. If anything, today’s case represents a de facto acknowledgement of those failures. We look forward to more prosecutions such as this and seek more transparency of the process.”

Companies: Credit Suisse AG; Public Citizen

MainStory: TopStory BankSecrecyAct BankingOperations CrimesOffenses EnforcementActions NewYorkNews

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