CREDIT: Flickr user tahir
Credit Suisse is pleading guilty to criminal charges and paying a $2.6 billion fine for helping American clients cheat on their taxes over the past decade. The firm helped tens of thousands of Americans hide their wealth, kept lists of companies and accountants who could facilitate tax evasion for clients, and actively recruited U.S. citizens to use Swiss accounts as tax shelters. Monday’s announcement concludes five years of investigations and legal wrangling between the Swiss banking giant and the U.S. government, which has been pushing to curb tax evasion in recent years.
The bank is one of several Swiss firms to be caught up in U.S. tax evasion probes, and Monday’s plea deal provides a signpost for other industry actors making calculations about how American authorities will handle cases like it. While the criminal charges and plea bargain make the case stand out from other recent government efforts to tackle white collar crime, the details of the settlement seem unlikely to send a strong deterrent signal to the rest of the industry.
Here are the three biggest lessons the banking sector can take from how the Credit Suisse saga played out:
1. Cooperating with the feds is better than fighting them. Credit Suisse has technically been cooperating with U.S. officials for the past five years. But where rival Swiss giant UBS gave full cooperation to similar American investigations over tax evasion services, winning a deferred prosecution agreement that limited its fine to $780 million and resolved the affair in about a year, Credit Suisse offered halting and limited cooperation. Two years after it ostensibly began cooperating with investigators, Creidt Suisse “allowed evidence to be lost or destroyed,” Attorney General Eric Holder said Monday. The company’s “poor cooperation in the investigation” helped lead to criminal charges, according to Reuters. As a result the bank faces a fine roughly three and a half times what UBS paid.
2. Even pleading guilty to criminal charges won’t hurt a big bank’s bottom line. While Credit Suisse is the biggest bank to plead out criminal charges in 20 years, the deal seems unlikely to put any lasting dent in the company’s ability to make lots of money. Despite the size of the fine, the bank “expects no ‘material impact’ on its operations from the settlement,” according to the Wall Street Journal. Credit Suisse will recoup the cost of the settlement within a few months, as the Huffington Post’s Mark Gongloff notes. American officials reportedly spent a lot of time and energy making sure that a guilty plea would not force Credit Suisse out of business, and they are making no effort to go after the bank’s U.S. charter. The bank still isn’t turning over the names of its American tax cheat clients, something that has been a key point of contention in U.S.-Swiss law enforcement negotiations in recent years. Other information from Credit Suisse should make it possible to identify American tax cheats, but the Justice Department has earned a reputation for lackadaisical pursuit of those individuals in similar cases. Its deal with UBS produced a lengthy sheet of identifying information for 4,700 Americans who likely ducked taxes, but just 71 have been prosecuted in the five years since.
3. Megabanks are still “too big to jail.” The tax evasion operation was well organized, according to Senate investigators, and Credit Suisse employees solicited Americans to participate in it “with the full knowledge of senior bank personnel.” The bank’s transgressions, which often involved Swiss bankers behaving like Hollywood spies, concealed at least $5 billion and probably more like $12 billion from the Internal Revenue Service (IRS). Yet despite the size and formality of the scheme, senior executives do not face criminal charges and will not even be forced out of their jobs under the settlement. A handful of junior bankers have been charged but that’s where the individual consequences end. Compare Credit Suisse’s experience with that of Wegelin & Co., a much smaller bank that was also Switzerland’s oldest. That firm pleaded guilty to American charges and then closed its doors forever.