Credit Suisse became the largest bank in 20 years to plead guilty to criminal charges when it admitted Monday to helping wealthy Americans hide billions of dollars from U.S. tax collectors, a deed that will cost the Swiss banking giant $2.6 billion in fines.
The Justice Department hailed the settlement as a major victory in its efforts to combat tax abuses. The deal resolves years of investigations into Switzerland’s second-largest bank. Yet it falls short of forcing Credit Suisse to turn over the names of all of its U.S. customers, a hurdle that Justice has struggled to clear because of the lack of cooperation by the Swiss government.
Credit Suisse pleaded guilty to conspiring to aid and assist U.S. taxpayers in filing false income tax returns. The plea agreement, filed in the Eastern District of Virginia, requires the bank to admit to creating sham entities for its U.S. clients to hide assets from the Internal Revenue Service.
Prosecutors say Credit Suisse helped these clients structure large cash transactions to avoid U.S. reporting requirements, in violation of U.S. law. Bankers also supplied clients with credit cards that enabled them to secretly draw upon the cash in their Swiss accounts. This activity went on for decades up until 2009. And when regulators began sniffing around, bank executives destroyed account records, according to the complaint.
“The bank went to elaborate lengths to shield itself, its employees and the tax cheats it served from accountability for their criminal actions,” Attorney General Eric H. Holder Jr. said in a news conference Monday.
Credit Suisse ran afoul of not only the Justice Department but also its regulators — the Federal Reserve and the New York State Department of Financial Services, both of which have exacted hefty fines against the bank. Of the total fines, $1.1 billion will go to the Treasury Department in the form of a penalty, $670 million to the IRS as restitution, $100 million to the Fed and $715 million to New York’s top financial regulator.
“We deeply regret the past misconduct that led to this settlement,” Brady Dougan, chief executive of Credit Suisse, said in a statement. “Having this matter fully resolved is an important step forward for us.”
Because of the heightened public attention surrounding the case in the past several weeks, Dougan said he expects the settlement to have no material impact on the bank’s business.
Credit Suisse began to clean up its act in 2008 when UBS confessed to its role in aiding U.S. tax evasion, which led the bank to disclose thousands of accounts as part of a $780 million settlement with Justice.
After that deal, Credit Suisse embarked on a five-year process of closing the Swiss accounts of Americans who refused to disclose them to U.S. authorities. About 18,900 wealthy Americans closed their accounts rather than pay taxes, according to a 175-page report from the Senate’s Permanent Subcommittee on Investigations released in February.
Credit Suisse did not fair as well as UBS, which entered into an agreement with Justice to defer prosecution. At Monday’s press conference, Deputy Attorney General James Cole said Credit Suisse’s agreement reflects the gravity of the bank’s actions and its lack of cooperation.
As part of the Justice plea agreement, Credit Suisse has agreed to disclose all of its cross-border activities, cooperate in treaty requests for account information and provide intelligence on other banks that transferred funds into secret accounts.
Justice has been aware of misconduct at Credit Suisse for at least four years, during which it has indicted eight executives at the bank. Two of the former bankers, Andreas Bachmann and Josef Dorig, have pleaded guilty and are awaiting sentencing in August. The remaining six are said to be hiding out in Switzerland, a country that has the discretion to deny extradition requests tied to tax offenses.
Sens. Carl Levin (D-Mich.) and John McCain (R-Ariz.) have pressed federal prosecutors to bring the indicted executives to justice. The pair have also been critical of the department’s failure to get Credit Suisse to turn over the names of about 22,000 U.S. customers.
“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,” Levin said in a statement late Monday.
Justice officials have said the department has been hampered by the Swiss government, which has prevented banks from handing over information after UBS turned over 4,700 accounts in 2009. Federal prosecutors have yielded 238 names of Credit Suisse customers through treaty requests and are confident that Monday’s plea agreement will produce even more.
There has been a noticeable shift in the U.S. relationship with the Swiss, one that could lead the European country to loosen its hold over its banks.
Swiss Finance Minister Eveline Widmer-Schlumpf met with Holder earlier this month to discuss the progress of a program to allow some Swiss banks to pay fines to avoid or defer prosecution over tax evasion. The deal has attracted 106 Swiss banks, which have agreed to disclose some information about U.S. customers.
While the deal did not cover Credit Suisse, or the other 13 Swiss banks being investigated by Justice, the plea agreement does mirror the terms of the program.
Getting a guilty plea out of a financial institution is a rare feat for Justice. The department has been subject to unrelenting criticism that it has failed to bring criminal charges against Wall Street banks out of fear of destabilizing the financial system.
Holder added fuel to the fire a year ago when he told lawmakers that some firms had become so large that it was difficult to prosecute them because of the potential impact on the economy. Earlier this month, he released a video saying that while the department would take such collateral damage into consideration, it would not back down from criminal prosecution if the evidence supports the allegations.
Speaking about the Credit Suisse case on Monday, Holder said: “No financial institution, no matter its size or global reach, is above the law. We will never hesitate to criminally sanction any company or individual that breaks the law.”