The 3 Biggest Surprises From An Investigation Into A Swiss Bank That Helps Americans Dodge Taxes

CREDIT: Flickr user tahir

When Credit Suisse, Switzerland’s largest bank, agreed to cooperate with American authorities over its extensive tax dodging work for U.S. clients five years ago, it seemed that a sea change might be underway in overseas tax enforcement. Yet according to a lengthy new report from the Senate Permanent Subcommittee on Investigations, all that excitement has failed to produce much action.

The report details how Credit Suisse worked with Americans to hide money from the Internal Revenue Service (IRS). After fellow banking giant UBS capitulated to American investigators in 2008, a group of 14 major Swiss banks was notified that they faced similar prosecution unless they cooperated. Tuesday’s report is the product of years of work to detail how Credit Suisse operated both before and after the UBS scandal broke and how American authorities failed to capitalize on the opportunity that scandal created. Here are the three key takeaways from the investigation.

1. Credit Suisse actively recruited American clients, rather than acting as a passive facilitator. While you might think that a rich American looking to duck tax liabilities would have to go seek out the right banker to help him, the Senate investigation says that’s not the case. In over 150 separate trips from 2001 to 2008, the bank sent employees from Switzerland to the U.S. “to secretly recruit clients” at golf tournaments, swanky formal parties put on by Swiss socialites, and individual meetings. To justify the trips to their bosses, bankers had to show that at least a quarter of their meetings were with “prospects” who didn’t yet have accounts.

After selling these clients on the bank’s tax evasion specialties, Credit Suisse employees helped Americans set up shell corporations to move their money outside of the Internal Revenue Service’s (IRS) reach, as well as credit cards and cash transfers to access the hidden money without triggering suspicion from tax officials. The system seems to have led bankers to behave like characters from a paperback spy novel, with one Credit Suisse employee hiding a client’s bank statement inside a magazine and passing it over the breakfast table at a New York hotel. The bank’s New York office kept a list of phone numbers for “intermediaries” who specialized in the multinational corporate law practices required by the evasion system the bank offered its clients. All of this happened in violation of numerous internal Credit Suisse policies, including a 2002 policy that was supposed to force all U.S. clients through one small branch office whose employees were specifically trained in international tax law compliance.

2. American authorities are doing a poor job fighting Swiss tax evasion. Department of Justice (DOJ) officials have talked a big game about cracking down on the kinds of practices revealed in the committee’s report for five years now, but the investigation concludes that the agencies aren’t backing up their big talk. “DOJ and IRS enforcement efforts to hold U.S. tax evaders and Swiss banks accountable for misconduct have bogged down,” the investigators write, with prosecutors failing to act on the information banks have already shared. The UBS settlement produced a list of 4,700 American accountholder names, yet the DOJ has only prosecuted 71 tax evaders from that list. Subpoenas on other banks have gone unenforced and “DOJ has ceded control over the information collection process” to the Swiss government, further undermining its already lax enforcement efforts. An IRS voluntary disclosure program has managed to recoup $6 billion in back taxes and penalties from 43,000 U.S. taxpayers who hid their money offshore, but that is a small amount compared to the total that banks around the world are likely hiding from the agency.

3. The amount of American money hidden away at just one Swiss bank is massive. Credit Suisse’s work with American clients peaked in 2006, according to the report, with more than 22,000 accounts linked to the U.S. and between $10 and $12 billion in total assets held in them. Not all of those assets were hidden from American authorities, but investigators write that the “vast majority” were. Estimates of how much money the bank hid from American tax authorities range widely depending on how the estimates are done, the report says, from a $5 billion estimate using the bank’s own methods to a $12 billion estimate using a more rigorous approach.

In total, individual and corporate tax evasion costs the country an estimated $300 billion each year. Swiss banks play a key role in that evasion, but they are far from alone in recruiting and facilitating American tax dodgers. Tuesday’s report casts serious doubt on the ongoing crackdown effort by IRS and DOJ officials, which is also being undermined by budget cuts to key portions of the IRS budget.