A giant Swiss bank that is already bracing for a billion-dollar legal bill for helping Americans cheat on their taxes may also have to plead guilty to criminal charges in order to resolve a Justice Department (DOJ) investigation. The news comes alongside reports of another investigation from a New York regulator with a reputation for playing hardball on white collar crime.
Prosecutors have been working on a settlement with Credit Suisse for nearly five years since similar evidence against fellow Swiss megabank UBS produced a landmark settlement and tens of thousands of names of people evading taxes. The UBS deal was the first “deferred prosecution” agreement with a Swiss bank over tax dodging, and UBS paid a $780 million penalty as part of the deal. The DOJ is reportedly angling for a bigger payout from Credit Suisse as part of a similar agreement, and “is also pushing for a guilty plea from a Credit Suisse subsidiary” before it agrees to drop charges against the parent company in exchange for cooperation, the New York Times reported Sunday. The UBS deal that acts as a precedent here included a guilty plea for felony wire fraud from a UBS subsidiary based in Japan.
By shunting that felony off onto its Japanese arm, UBS shielded the rest of its global business from the most serious consequences of a criminal conviction. It is unclear how the criminal guilt provisions of a DOJ settlement with Credit Suisse will be structured.
At the same time, the New York Department of Financial Services is launching its own investigation of Credit Suisse, according to the Times. Credit Suisse has already paid $196 million to settle Securities and Exchange Commission (SEC) charges and set aside another billion dollars for the DOJ settlement.
Credit Suisse helped hide as much as $12 billion from American tax agencies through cross-border transactions and networks of shell corporations, Senate investigators reported in February. Bank employees were expected to recruit clients for the firm’s tax evasion services when they took business trips to America, and the bank’s New York office kept a list of “intermediaries” who would facilitate new clients’ tax dodging. Credit Suisse blames what it did on a handful of junior employees, though one former employee at the bank who has pleaded guilty to helping Americans hide money says that his bosses knew about and approved of the program.
Credit Suisse is one of 14 large Swiss banks to face criminal indictment for facilitating U.S. tax violations. A hundred smaller Swiss banks are reportedly also cooperating with the U.S. tax crackdown, in part because the country’s oldest bank ended up shutting its doors after attempting to fight DOJ charges.
Deferred prosecution deals with Swiss banks represent a sea change for a country notorious for its bank secrecy laws and resistance to foreign investigations, but they have also been criticized by Senate investigators for producing too little action given the scope of the tax violations uncovered. Those critics may be glad to hear of the new state-level investigation of Credit Suisse practices, because the official overseeing it “has churned out cases in a matter of months” and “squeezed settlements out of banks, as his Washington colleagues continued to investigate,” the Times writes.
But the years of investigators’ time and taxpayers’ money invested in the unprecedented probes of Swiss banking practices can only hope to scratch the surface of America’s tax evasion problem. The Treasury Department loses an estimated $300 billion each year to tax cheating by both individuals and corporations. Landmark investigations into individual tax dodging habits and a new set of international agreements are helping bring in some lost revenue, but the vast majority of Treasury’s leakage comes from corporate accounting practices that have proven even harder to curb.