Swiss banking giant Credit Suisse helped wealthy Americans hide billions of dollars from U.S. tax collectors for several years and federal prosecutors have done little to hold violators accountable, according to a U.S. Senate subcommittee report due out Wednesday.
The allegations were particularly stunning in the face of the budget cuts and deficits that the United States faces, lawmakers said. The report casts the Justice Department as a hapless enforcer that has dragged its feet in getting Credit Suisse to turn over the names of some 22,000 U.S. customers.
Lawmakers have accused the bank of helping wealthy Americans avoid paying taxes on as much as $12 billion in assets held at the institution. Prosecutors have been aware of the misconduct at Credit Suisse for at least four years, in which time they have indicted seven bankers and launched a probe of the institution, according to the report. But no one has stood trial, and the bank has not been held legally accountable, the report says.
Justice spokeswoman Emily Pierce bristled at the report’s characterization of the department, pointing out that it has charged 73 account holders and 35 bankers and advisers with offshore tax evasion offenses since 2009.
“We have acknowledged that as many as 14 Swiss financial institutions are currently under investigation, and we won’t hesitate to indict if and when circumstances merit,” Pierce said.
Prosecutors have been hampered by the Swiss government, which has prevented banks from handing over information after its largest bank, UBS, turned over 4,700 accounts in 2009. Justice has yielded 238 names of Credit Suisse customers through treaty requests.
Sen. Carl M. Levin (D-Mich.), chairman of the subcommittee on investigations, insisted at a news conference Tuesday that the department could do more, including using civil summons and a grand jury subpoena to get information.
“The Department of Justice must use the legal tools that it has and not depend on Swiss courts,” he said. “Collecting taxes owed by tax evaders is vitally important for our fiscal situation. Beyond that, there is a basic question of fairness. These individuals are cheating not just the government but honest Americans who pay what they owe.”
Credit Suisse chief executive Brady W. Dougan and Deputy Attorney General James M. Cole were scheduled to appear at a subcommittee hearing Wednesday.
The 175-page report, the culmination of a two-year investigation, alleges that from 2001 to 2008 Switzerland’s second-largest bank helped customers disguise Swiss accounts by opening them in the name of offshore shell entities. Bankers used cloak-and-dagger tactics to conceal their misdeeds, according to the report.
One former customer told investigators that a Credit Suisse banker once handed him bank statements hidden in a Sports Illustrated magazine during a breakfast meeting at a Mandarin Oriental hotel.
About 1,800 Credit Suisse bankers were opening and servicing Swiss accounts for wealthy Americans by 2008. Some of those bankers helped American clients structure large cash transactions to avoid U.S. reporting requirements, in violation of U.S. law. The bank also used outside parties to supply clients with credit cards that enabled them to secretly draw upon the cash in their Swiss accounts, according to the report.
The situation at Credit Suisse changed in 2008 when UBS came clean about 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. 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 the accounts rather than pay taxes, according to the subcommittee.
Investigators initiated the probe after a 2008 hearing on UBS, during which Credit Suisse bankers acknowledged having U.S. accounts that had not been disclosed to the Internal Revenue Service. The subcommittee collected about 100,000 documents from the bank and conducted 23 interviews with bankers, U.S. government officials and Americans who evaded taxes using hidden Credit Suisse accounts.
“Credit Suisse has greatly profited from an infamous business model,” Sen. John McCain (R-Ariz.), ranking Republican on the subcommittee, said at the news conference. “This organization must be held fully accountable for decades of ill-gotten profits.”
It has been a trying month for Credit Suisse. Last week, it became the largest bank to admit wrongdoing to the Securities and Exchange Commission, paying $196 million to settle charges of advising clients in the United States without registering with the agency. Credit Suisse served 8,500 clients and collected $82 million in fees from 2002 to 2008, according to the SEC.
The bank declined to comment for this article. This month, Credit Suisse said that it was in talks with Justice to resolve the investigation but that the timing remained unclear. The bank has said that only a small group of Swiss-based employees were involved in misconduct.
At the heart of the tax evasion mess is a long-running dispute between the United States and Switzerland, whose centuries-old culture of banking secrecy has made the country a sanctuary for the world’s rich, analysts say.
In August, the two countries struck a deal to allow some Swiss banks to pay fines to avoid or defer prosecution over tax evasion by wealthy American customers. The deal has attracted 106 Swiss banks, which have agreed to disclose some information about U.S. customers. It does not cover the 14 Swiss banks, including Credit Suisse, that are being investigated by Justice.
Critics of the agreement say it falls short of forcing banks to give up the names of their American customers, the information most useful for finding tax evaders. They have also expressed concern that Justice is only asking for information from 2008 to 2014.
Justice officials said the department believes that time period will produce significant information about Americans who had accounts or moved money around once they learned of prosecutors’ investigations.
In the wake of the UBS settlement, the United States has made progress in combating tax abuses. More than 43,000 taxpayers have voluntarily told the IRS about their hidden offshore accounts and paid the government more than $6 billion in back taxes, interest and penalties.
Congress has also enacted the Foreign Account Tax Compliance Act, requiring banks to disclose American customer accounts every year or pay a 30 percent tax on their U.S. investment income. But there are loopholes in the law that, among other things, allow foreign financial firms to protect U.S. offshore shell companies.
The subcommittee is calling on the Treasury Department and the IRS to close gaps in the law as part of the response to recommendations to curb tax evasion. It is also urging Congress to amend tax laws to streamline procedures to uncover the names of citizens evading taxes.