Holder Warns On Offshore Accounts, Says No Bank Is 'Too Big To Jail'
That gasp you heard yesterday? It was the international banking community reacting to the announcement that Credit Suisse AG had pleaded guilty to conspiracy. It was the largest bank to plead guilty to criminal charges in 20 years according to the Justice Department.
How big is Credit Suisse exactly? Last year, the private banking division alone reported net new assets of $36 billion (US) and managed $1,437 billion of assets by year-end. Private Banking is one of four divisions in the bank: the others are Investment Banking, Asset Management, and a Shared Services Group.
The bank, headquartered in Zurich, Switzerland, was founded by Alfred Escheras “Schweizerische Kreditanstalt” in 1856. Escher started the bank to finance the expansion of the railroad network in Switzerland. The bank proved to be a huge success and moved westward to New York in 1870, though it was not granted a license as a full-service bank in the U.S. until 1964. Today, the bank has operations in over 50 countries.
By total assets, Credit Suisse is ranked 26th in the list of the world’s largest banks. That makes what has happened incredibly significant in the world of banking. Attorney General Eric Holder Jr. has said about ramped up prosecutions that no bank “is too big to jail.”
The actual charge that Credit Suisse pleaded to was conspiracy to aid and assist U.S. taxpayers in filing false income tax returns and other documents with the Internal Revenue Service (IRS) in violation of Title 18, U.S. Code section 371. Richard Weber, Chief IRS Criminal Investigation, said, “Quite simply put, Credit Suisse assisted thousands of US banking clients with concealing assets and income from the IRS – causing those taxpayers to file false income tax returns.”
Under the plea agreement, Credit Suisse will pay a total of $2.6 billion. Of that, $1.8 billion will be paid to the Department of Justice for the U.S. Treasury, $100 million to the Federal Reserve, and $715 million to the New York State Department of Financial Services. Credit Suisse has already paid $196 million to the Securities and Exchange Commission (SEC) for violating the federal securities laws.
In addition, Credit Suisse has agreed to prospectively disclose its cross-border activities and cooperate with tax authorities on requests for account information for international clients. The settlement terms also included an affirmation to honor obligations under the Foreign Account Tax Compliance Act (FATCA), which is a bit confusing since they had a responsibility to do that anyway.
With that, the total plea count from Credit Suisse and its executives now stands at three: eight Credit Suisse executives were previously indicted on criminal charges and two have pleaded guilty.
The plea announcement was made public by Attorney General Eric H. Holder, Deputy Attorney General James M. Cole, Assistant Attorney General Kathryn Keneally for the Justice Department’s Tax Division, U.S. Attorney Dana J. Boente for the Eastern District of Virginia, and Commissioner John Koskinen of the IRS.
IRS Commissioner Koskinen said, about the plea, “[p]ursuing international tax evasion is a priority area for IRS Criminal Investigation, and we will continue to follow the money here in the United States and around the world.” He further emphasized that he wanted to “commend the special agents in IRS-Criminal Investigation for all of their hard work in this area and the close cooperation with the Department of Justice. Today’s guilty plea is another important milestone in ongoing law enforcement efforts to investigate the use of offshore accounts to evade taxes. People should no longer feel comfortable hiding their assets and income from the IRS.”
Credit Suisse (Photo credit: Wikipedia)
For its part, the bank appears to be assuming that it’s business as usual, saying, “Credit Suisse expects no impact on its licenses, nor any material impact on its operational or business capabilities.” Brady Dougan, CEO of Credit Suisse, went even further, saying: “We have seen no material impact on our business resulting from the heightened public attention on this issue in the past several weeks.”
Maybe that’s just a brave face? The reaction across the private wealth and tax communities has not been as dispassionate. Deputy Attorney General James Cole acknowledged this on Monday, saying, “We are mindful that guilty pleas by a bank can have impacts far beyond the parties to the plea.”
It’s clear that the IRS and the Department of Justice are making headway in the fight against hiding assets offshore. With significant crackdowns against UBS and now Credit Suisse, we’re seeing chinks in the traditionally impenetrable Swiss banking armor. That’s not lost on Chief Weber, who said in response to the announcement, “Our presence in the global banking arena has become very prominent and IRS-CI is changing the conversation in corporate board rooms – in the international banking communities – and in foreign countries around the world. The shroud of secrecy has been lifted and IRS-CI will continue to aggressively investigate those who assist US taxpayers from evading their tax obligations. Credit Suisse let greed cloud their judgment when it came to instructing US clients on how to conceal their offshore accounts – this business was just too profitable to give up. Through the use of CI agents’ financial expertise, we are gaining access to more and more information on institutions and individuals involved in offshore tax fraud.”
The use of the progressive present tense in that statement can’t be overlooked. Despite assurances from Credit Suisse management that they’re ready to move on, it’s clear that this isn’t a final chapter. When it comes to investigating offshore activities – from taxpayers to clients to executives and yes, to financial institutions – this is far from over.