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Dan ReevesRetired Senior Advisor, IRS Offshore Compliance Initiatives
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On Credit Suisse Pleading Guilty to Criminal Charges of Tax Evasion

May 21, 2014 by Dan Reeves

 

 After a six year long criminal investigation by the U.S. Department of Justice, Credit Suisse AG pleaded guilty in federal court on May 19, 2014 to federal charges that it had engaged in a decades long criminal conspiracy to aid and assist U.S. taxpayers in filing false income tax returns and other documents with the Internal Revenue Service (IRS).  According to the plea agreement, Credit Suisse has agreed to pay a total of $2.6 billion; $1.13 billion fine to the Department of Justice, $670 million restitution to the IRS, $100 million to the Federal Reserve, and $715 million to the New York State Department of Financial Services. Credit Suisse had previously agreed to pay approximately $196 million in disgorgement, interest and penalties to the Securities and Exchange Commission (SEC) for violating federal securities laws by providing cross-border brokerage and investment advisory services to U.S. clients without first registering with the SEC. 

According to the statement of facts filed with the plea agreement, Credit Suisse employed a variety of means to assist U.S. clients in concealing their undeclared accounts, including: 

    assisting clients in using sham entities to hide undeclared accounts; 

    soliciting IRS forms that falsely stated, under penalties of perjury, that the sham entities were the beneficial owners of the assets in the accounts; 

    failing to maintain in the United States records related to the accounts; 

    destroying account records sent to the United States for client review; 

    using Credit Suisse managers and employees as unregistered investment advisors on undeclared accounts; 

    facilitating withdrawals of funds from the undeclared accounts by either providing hand-delivered cash in the United States or using Credit Suisse’s correspondent bank accounts in the United States; 

    structuring transfers of funds to evade currency transaction reporting requirements; and 

    providing offshore credit and debit cards to repatriate funds in the undeclared accounts. 

Deputy Attorney General James A. Cole said that “Credit Suisse’s guilty plea is just the latest effort by the department to slam the door shut on undeclared bank accounts, phony trusts and other foreign schemes used by U.S. taxpayers to evade taxes.  We will continue to hold to account the bankers, the brokers and other professionals in Switzerland and around the world as well as the institutions that trained and directed them to use bank secrecy laws to protect U.S. tax cheats.” 

If this all sounds vaguely familiar, it should.  In February of 2009, UBS AG, the largest international bank in Switzerland admitted in a deferred prosecution agreement that it had conspired with United States taxpayers in committing the very same criminal acts of tax evasion.  UBS ultimately pleaded guilty to a criminal charge of conspiracy, paid a $780 million fine, agreed to exit the U.S. cross-border banking business and most importantly, later agreed in settlement of a separate civil John Doe summons case to turn over to the IRS the identities and account records of nearly 5,000 high wealth U.S. clients with secret offshore bank accounts.

To be clear, the Credit Suisse case is no small accomplishment, and the Department of Justice and IRS should be justifiably proud of the work they did in bringing this to closure.  But correct me if I’m wrong, isn’t there something missing here, isn’t there one glaring difference between the Credit Suisse resolution and the UBS resolution … where are the names and account records of the high wealth U.S. taxpayers that were criminally assisted by Credit Suisse who provided them with secret offshore bank accounts?  Deputy Attorney General Cole is correct that this should send a clear message to the offshore banks, bankers and other professionals around the world that knowingly assist, facilitate and enable U.S. taxpayers who use offshore accounts and financial structures to cheat on their taxes … but what message does it send to the taxpayers themselves? 

Assistant Attorney General Kathleen Keneally has said that DOJ and IRS will now be pursuing that information by making treaty requests of Switzerland … but I thought that had already been done?  According to a report issued by the Senate Permanent Subcommittee on Investigations, DOJ made treaty requests for the information in 2011 that ultimately resulted in approximately 230 of the 22,000 U.S. owned accounts being turned over more than two years later (about 1% of the total).  So why is it expected that the very process that didn’t work then will somehow, suddenly work now?

As Senator Carl Levin said about this settlement, “… it is a mystery to me why the US government didn’t require as part of the agreement that the bank cough up some of the names of the U.S. clients with secret Swiss bank accounts. More than 20,000 Americans were Credit Suisse account holders in Switzerland, the vast majority of whom never disclosed their accounts as required by US law. This leaves their identities undisclosed, with no accountability for taxes owed.” 

In settling the UBS John Doe summons, something that was also noticeably absent from this investigation, the Swiss agreed to implement a new tax treaty that would have enabled Credit Suisse to turn those records over, but the U.S. Senate has never ratified the treaty.  So the bottom line is this … the information isn’t coming and won’t be coming unless and until the U.S. Senate ratifies the new treaty, and even then it will only be information about accounts in existence since 2009 when the Swiss originally ratified the treaty.

So at the end of the day, DOJ, the IRS, the Swiss government and Credit Suisse all get to declare victory and put this matter behind them, Credit Suisse gets to continue its business operations in the United States even as the value of it’s stock soars dramatically following news of the settlement, everyone gets to keep their jobs, no one goes to prison, and most importantly … Swiss bank secrecy remains solidly intact.  Meanwhile, ordinary Swiss citizens get to pick up part of the tab for the Credit Suisse penalty to the extent of more than half a billion dollars as the penalty is tax deductible for the bank in Switzerland, and ordinary U.S. citizens get to pick up the tab for the U.S. tax evading clients of Credit Suisse who aren’t paying the taxes they owe.

So who are the winners and losers … you decide.

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