Credit Suisse (C) will pay $2.6 billion to the federal government and financial regulators in New York after pleading guilty to charges that it illegally helped thousands of American clients avoid paying taxes to the Internal Revenue Service. The U.S. Department of Justice said that for decades through 2009 the Swiss bank ran an illegal cross-border banking business.
This is the first time in years that a financial institution has pleaded guilty to a crime. Among the accusations was that Credit Suisse knew and agreed to help thousands of Americans set up accounts and help them hide their income and assets. Attorney General Eric Holder claims that the bank even got rid of account records, hid transactions, and failed to perform even the most basic steps to make sure clients were in compliance with US tax laws.
The DOJ contends that even after the 2008 US crackdown on Swiss accounts that compelled UBS AG (UBS) and Credit Suisse to become stricter about what services they offer American customers, the latter kept getting in the way of investigators looking into tax evasion allegations. Some Credit Suisse managers even purportedly helped clients transfer their assets to other offshore banks so their assets could stay concealed. Key documents to the DOJ’s probe were either lost or destroyed. Eight ex-Credit Suisse employees have been criminally charged with aiding in the tax evasion.
The $2.6B settlement includes $100 million that will go to the Federal Reserve, approximately $1.8 billion to the Justice Department, and over $715 million to the New York Department of Financial Service. However, Credit Suisse does not have to hand over the names of the US citizens who used the bank to conceal their money. The bank will, however, give over information that should lead investigators to account holders.
Since the crackdown on tax evasion from abroad, more than 43,000 US taxpayers have voluntarily become part of an IRS disclosure program allowing them to admit to previously unknown accounts. A recent Senate report says that these taxpayers have paid over $6 billion in back taxes, penalties, and interest.
The US is still probing about a dozen Swiss banks. Over 100 other banks are participating in a self-reporting program run by the DOJ. In 2009, UBS consented to pay $780 million in a deferred-prosecution deal where it admitted to helping Americans avoid paying taxes.
US banking regulators here have agreed to not revoke Credit Suisse’s license to do business in the country. However, the guilty plea could prove problematic in other ways. A lot of mutual funds and pension funds are not allowed to work with institutions that have pled guilty in a criminal case. Other clients may decide that they no longer want to work with Credit Suisse.
Credit Suisse pleads guilty in tax evasion case, CNNMoney, May 19, 2014
Credit Suisse Pleads Guilty in Criminal Tax Case, The Wall Street Journal, May 19, 2014
More Blog Posts:
Credit Suisse Admits Wrongdoing and Will Pay $196M to Settle SEC Charges That It Provided Unregistered Services to US Customers, Stockbroker Fraud Blog, February 22, 2014
New Jersey Files Securities Lawsuit Against Credit Suisse Over $10B in MBS Sales, Stockbroker Fraud Blog, December 20, 2013
Credit Suisse Could Settle with US Over Tax Evasion Allegations for Over $800M, Institutional Investor Securities Blog, January 18, 2014