WASHINGTON -- Credit Suisse Group executives were further pressed to furnish the names of U.S. investors who stashed assets with the Swiss bank in a bid to dodge federal taxes, raising new allegations about the company's role in facilitating tax evasion, during questioning by a Senate investigative subcommittee.
Over the course of more than three hours of testimony Wednesday, officials at Switzerland's second biggest bank acknowledged that a small division of the firm had previously engaged in illicit activities to shield U.S. funds from tax authorities, but insisted that they had since implemented significant internal reforms to curb those abuses.
BROKERAGE & ADVISORY SERVICES
Skeptical lawmakers pointed to a report released Tuesday by the Permanent Subcommittee on Investigations that detailed the findings of a long-running probe, suggesting that efforts to help U.S. clients evade taxes involved more than the handful of Credit Suisse employees that officials acknowledged, and that they extended beyond the firm's banking arm.
"Many provided broker-dealer and investment advisory services for U.S. clients," said subcommittee Chairman Carl Levin (D-Mich.), recalling the landmark 2009 settlement the Justice Department reached with UBS involving thousands of secret U.S. accounts parked overseas.
"The bottom line is that Credit Suisse was in it as deep as UBS," Levin said.
The subcommittee hearing comes less than a week after Credit Suisse reached a settlement with the SEC in a related probe involving the provision of cross-border brokerage and advisory services without having registered with the regulator. In that settlement, Credit Suisse acknowledged wrongdoing and agreed to pay $196 million.
The subcommittee's investigation concluded that Credit Suisse had opened Swiss accounts for more than 22,000 U.S. customers that at one point totaled between $10 billion and $12 billion. The vast majority of those assets were concealed from U.S. authorities, according to the subcommittee's report.
The investigation found that in spite of an internal protocol aimed at keeping U.S. offshore accounts managed by a small, specially trained division, Credit Suisse bankers frequently traveled to the U.S. to court new business -- using the Swiss tax haven as a selling point -- and, at one point, more than 1,800 employees were opening and servicing U.S. accounts.
Credit Suisse executives countered that there were far fewer bad actors within the firm. They claimed that in the time since the subcommittee first began probing the role of Swiss banks in U.S. tax evasion, Credit Suisse has conducted its own internal investigation, implemented substantial reforms and dramatically reduced the business line that manages U.S. funds in Swiss accounts.
"We fully recognize that despite of its efforts, Credit Suisse has not been free of its own problems," said CEO Brady Dougan, the first American ever to head the Swiss banking colossus. "Seeking out U.S. customers who want to hide untaxed assets and profiting from these untaxed assets is simply not acceptable."
OFFSHORE TAX-EVASION PROPE
The focus on Credit Suisse, which the subcommittee report branded a "case study in Swiss secrecy," is the latest turn in an ongoing investigation focusing on the ability of U.S. taxpayers to stash assets in hidden offshore accounts that has been marked by friction between the American and Swiss governments. The subcommittee initially set its sights on UBS and the private bank LGT. UBS would later reach a deferred prosecution agreement with the Justice Department, paying a $780 million fine and turning over about 4,700 previously unreported U.S. account names to the IRS.
The subcommittee report hails "significant progress" since that settlement, citing support from world leaders to crack down on offshore tax abuse and an IRS initiative that has enticed more than 43,000 U.S. residents to enter into a voluntary disclosure program and pay back taxes. Congress also enacted the Foreign Account Tax Compliance Act, aimed at requiring foreign banks to disclose the holdings of U.S. customers (though lawmakers have criticized loopholes in the way the law has been executed).
But the news is not altogether good.
"On the negative side of the ledger, despite evidence of widespread misconduct by Swiss banks in facilitating U.S. tax evasion, Switzerland has continued to severely restrict the ability of Swiss banks to disclose the names of U.S. customers with undeclared Swiss accounts," the subcommittee concluded. "As a result, the United States has obtained few U.S. names and little account information."
The subcommittee also had harsh words for the DoJ, writing that "despite the passage of five years," the department "has failed to hold accountable the vast majority" of the UBS accountholders whose names were provided under the deferred prosecution agreement.
In 2011, the Justice Department brought indictments against seven Credit Suisse bankers, though none have stood trial. The same year, the department notified the bank that it was opening an investigation into its handling of U.S. assets.
For members of the investigations subcommittee, the results have been disappointing. In response to inquiries by U.S. law enforcement authorities, Credit Suisse has turned over the identities of 238 American account holders, just over 1% of the total number of U.S. accounts the firm managed.
"Getting names is where this whole story goes bust," Levin said.
SWISS BANK SECRECY LAWS
Credit Suisse executives insisted that they are barred by Swiss banking secrecy laws from divulging the identities of their account holders without a dispensation from the government. Romeo Cerutti, the bank's general counsel, said that Credit Suisse officials would likely face hefty fines and potentially jail time for making such disclosures.
Subcommittee members objected that leaders of a bank with an established presence in the U.S. would flout U.S. laws in favor of Swiss statutes in matters involving the assets of U.S. citizens who potentially owe billions to the IRS.
"You have double jeopardy," said Sen. Tom Coburn (R-Okla.), suggesting that continuing to refuse to share account holders' identities could invite legal trouble with U.S. authorities. "Where would you like to spend time?"
"That's a tough decision," Cerutti responded.
The Credit Suisse executives indicated that they would continue to adhere to Switzerland's bank secrecy laws, but urged the senators to ratify a U.S.-Swiss treaty that would aim to expand the flow of financial information between the two countries. The Swiss parliament has approved the treaty, which has cleared the Senate Foreign Relations Committee but never made it to the floor.
"We are ready to provide any information that we can provide legally," Dougan said.
Levin said he is in favor of the treaty, though he notes that it is hardly a panacea for the problem of tracking down the names of U.S. tax dodgers, particularly those whose activities predate the 2009 drafting of the document.
"Don't tell us the treaty's going to get us what we want. It won't," he said.
Levin also pointed to a modification Swiss legislators have made that would require U.S. authorities to produce certain specific information about the banks and the accounts that he said sets an unreasonably high burden of proof.
"If we don't have the names, how do you show the bank contributed to aiding and abetting the tax evasion?" he said. "It's a chicken and egg problem."
Later in the day, Levin and his colleagues had a chance to air their frustration with the U.S. approach to offshore tax havens when a pair of Justice Department officials appeared before the panel.
Deputy Attorney General James Cole said that the department has broadened its probe of foreign banks beyond Switzerland, and is now looking into institutions in India, Israel, Lichtenstein, Luxembourg and "several Caribbean countries." The Justice Department is currently investigating potential criminal cases involving 14 foreign banks, though Cole would not name them as the investigations are ongoing.
Cole argued that there is no single approach that will stanch the flow of undocumented assets overseas, or crack down on the safe havens that provide cover for U.S. tax cheats, though like the Credit Suisse officials, he urged the Senate to pass the taxation treaty.
But the DoJ has concluded that criminal probes, such as the one that ultimately compelled UBS to settle, are more likely to bring illicit accounts to light than softer approaches, such as subpoenas and John Doe summons, which have failed to get around Swiss bank secrecy laws.
"I don't think that has proven to be an effective method to get the records. The Swiss block it," Cole said. "They are subject to our laws as well as the laws of their home country."
For Levin, that sounded a little too close to what he had heard from the Credit Suisse executives earlier in the day.
"It's an unacceptable explanation," he shot back. "That's their explanation. It shouldn't be your explanation."