Updated Saturday, October 25, 2014 as of 10:41 AM ET

Credit Suisse Clients in Limbo Amid Tax-Evasion Probe

Thousands of Credit Suisse Group’s U.S. clients still don’t know whether tax authorities will learn their identities as prosecutors work to conclude a three- year probe of how the bank helped them evade taxes.

U.S. senators last week faulted the Justice Department for securing names for only 238 of 22,000 Americans with Credit Suisse accounts, saying the bank helped them hide as much as $10 billion from the Internal Revenue Service. The pressure of a subcommittee report and hearings will force prosecutors to act more aggressively as they negotiate a settlement with Credit Suisse to end the probe and get more names, said Jeffrey Neiman, a former federal prosecutor.

“These hearings are going to give some sort of momentum to the Justice Department,” said Neiman, now at Marcus Neiman Rashbaum in Fort Lauderdale, Fla. “Criminal cases are all about momentum, where one event leads to another, which leads to culmination.”

Credit Suisse is the largest of 14 Swiss banks under criminal investigation for helping Americans cheat the IRS. At the Feb. 26 Senate hearing, Chief Executive Officer Brady Dougan apologized, saying a small group of Swiss-based bankers appear to have broken U.S. law and fooled top managers. The bank began slashing its U.S. client list in 2008, and the 3,500 remaining comply with U.S. tax laws, General Counsel Romeo Cerutti said.

Senator Carl Levin, the Michigan Democrat who led the hearing, said that wasn’t enough. Credit Suisse, the largest Swiss bank after UBS, can’t move forward until it helps the Justice Department identify account holders still shielded by Swiss bank secrecy, he said.

BANK ACCOUNTABILITY

“If you’re serious about the future, and all of us want to talk about the future, you damn well better have accountability for the past,” Levin told reporters after the hearing.

Levin, chairman of the Senate Permanent Subcommittee on Investigations, criticized the Justice Department for failing to enforce grand jury subpoenas or file civil court actions known as John Doe summonses to identify account holders. He said prosecutors relied too heavily on requesting names under a U.S.- Swiss tax treaty, which he said is a “highly restrictive, maddeningly slow and unproductive process.”

Swiss law makes it a crime to release account holders’ names, except in treaty requests involving suspected tax fraud rather than evasion. Levin repeatedly criticized Deputy Attorney General James Cole for deferring to Swiss bank secrecy instead of enforcing U.S. laws more vigorously.

CRACKDOWN OFFSHORE

Cole pointed to successes in a five-year crackdown on offshore tax evasion, including the 43,000 Americans who told the IRS about offshore accounts and paid back taxes and penalties to avoid prosecution and the 106 Swiss banks seeking non-prosecution deals. Cole declined to answer the subcommittee’s questions about the criminal probe of Zurich- based Credit Suisse. Seven of its bankers were indicted in 2011, when prosecutors said the bank was a target of the probe.

Levin said an amendment to the U.S.-Swiss tax treaty, which has been blocked in the Senate, is intended to give Swiss regulators more authority to identify owners of accounts held after September 2009. The bank disclosure program would only reveal data for accounts held after August 2008 without naming customers. Both limitations hamper the ability of prosecutors to identify people who held accounts before 2008, Levin said.

VOLUNTARY DISCLOSURES

Bank customers driven by fear of prosecution have voluntarily disclosed their offshore accounts, said tax attorney Bryan Skarlatos. He said his firm, Kostelanetz & Fink LLP in New York, has helped 1,300 such clients since 2009.

“In large part, the Senate is focusing on last year’s problems,” said Skarlatos. “The overwhelming majority of people who hid their accounts at Credit Suisse and other places have made voluntary disclosures.”

Levin’s subcommittee detailed how Credit Suisse sent Swiss- based bankers to the U.S. to woo potential clients at golf tournaments and an annual Swiss ball. To cover their tracks, bankers delivered account statements they wouldn’t mail and advised clients to shred them. Clients came to a bank office at the Zurich airport so they could bypass a trip into town.

Dougan admitted to the panel that bankers worked with outside intermediaries to help U.S. clients set up offshore shell entities with money deposited at Credit Suisse in the names of the entities rather than the clients. Such conduct, Dougan said, was egregious. While two intermediaries are under U.S. indictment, prosecutors know of three others, Cerutti said. He said no one had been fired for such conduct at Credit Suisse.

UBS LESSONS

In questioning U.S. tax prosecutors, Levin urged Cole to draw lessons from the case five years ago against UBS.

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