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May 22, 2014
Credit Suisse to Pay $2.6 Billion as Part of Tax Evasion Plea
by Andrew Velarde

Full Text Published by Tax Analysts®

Credit Suisse has pleaded guilty to criminal charges related to allegations that it helped some of its U.S. clients evade U.S. taxes and has agreed to pay $2.6 billion as part of its plea agreement, government officials announced May 19.
Speaking at a press conference in Washington, Attorney General Eric Holder said Credit Suisse is the largest bank to plead guilty in 20 years.

The $2.6 billion amount represents the combined fines that Credit Suisse has paid or will pay to several agencies. Holder said the bank will pay the IRS a total of $1.8 billion in the form of a fine of more than $1.13 billion and nearly $670 million in restitution. The Federal Reserve Board announced that the bank will pay a $100 million penalty for unsafe and unsound practices and failure to comply with the federal banking laws governing its activities in the United States. And according to Deputy Attorney General James Cole, Credit Suisse will pay $715 million to the New York State Department of Financial Services. The bank also paid $196 million to the SEC in February.

The settlement figure is substantially higher than the $1.6 billion that was rumored earlier in the month and more than three times the amount paid by fellow Swiss bank UBS in 2009, on similar charges. Cole said the monetary penalty is the largest of any criminal tax case ever.

Jay R. Nanavati of Baker & Hostetler LLP said the penalty was likely so high because Credit Suisse destroyed evidence following the commencement of the Justice Department investigation into its illegal practices. "This is absolutely the ultimate sin in the eyes of the Justice Department. As you know, the coverup is nearly always worse than the crime," Nanavati said.

Despite the large fines, Holder said that Credit Suisse's ability to do business in the United States will not be affected. He said the deterrent effect is instead in the reputational harm to the bank, the substantial amount of the settlement, and the guilty plea.

"We are mindful that guilty pleas by a bank can have impacts far beyond the parties to the plea," Cole said. "This plea demonstrates that the Department of Justice and bank regulators are prepared to hold banks and their relevant employees accountable while being mindful of the impacts on depositors and the American public. The coordination required for this result can take considerable time, as in this case, but it is work that we deem important."

Nanavati said that based on comments made at the press conference, it was apparent that the DOJ "greased the wheels" so that regulators would not revoke Credit Suisse's banking license and shut the bank down.


No Account Holder Names

Further differentiating Credit Suisse's deal from the UBS agreement, Cole said that the plea deal does not require Credit Suisse to provide the names of its U.S. clients who had undisclosed accounts with the bank. As part of its deal, UBS agreed to hand over the names and account information of some U.S. account holders and entered into a deferred prosecution agreement with the DOJ, as opposed to pleading guilty.

However, Cole said, Credit Suisse will provide U.S. authorities with other information that will allow the government to track down the accounts and account holders.

"Under the terms of the agreement, Credit Suisse is going to provide us a lot of information -- not the specific account names, but they will help us with treaty requests that under Swiss law can get us account names," Cole said. "But they are also providing us with a great deal of additional information that will allow us to determine where those accounts went, how many they had, the size of the accounts. Then we can go to other places to find these accounts, which accounts had correspondent relationships in the U.S., and we will find those banks."

IRS Commissioner John Koskinen said he expects the IRS to continue to receive information from a wide array of resources. "Our message is [that] uneasy lies the head that doesn't take advantage of the offshore voluntary disclosure program," he warned.

Some media outlets reported that top executives at the bank would resign, but Cole said only that the bank's board and shareholders will deal with that issue. He would not comment on whether he expects more criminal charges to be brought against executives at Credit Suisse, because that is regarded as part of ongoing investigations.

The Justice Department charged Credit Suisse AG, along with its subsidiaries Credit Suisse Fides and Clariden Leu Ltd., with one count of conspiracy to willfully aid and assist in the preparation and presentation of false income tax returns. Actions taken in furtherance of the conspiracy included assisting clients in using sham entities as nominee beneficial owners of undeclared accounts, according to the charge. The conspiracy charge was filed in the U.S. District Court for the Eastern District of Virginia. Credit Suisse AG is a wholly owned subsidiary of parent company Credit Suisse Group AG.

Nanavati said it was odd to see a bank charged with conspiracy to aid or assist in the filing of false tax returns. Far more common is a "Klein conspiracy," which is a conspiracy to defraud the United States by impairing or impeding the IRS, he said. Aiding or assisting in the filing of false tax returns is most commonly used to charge accountants and return preparers who prepare false returns for their clients, he added.

At a Senate Homeland Security and Governmental Affairs Permanent Subcommittee on Investigations hearing on February 26, Credit Suisse executives admitted to wrongdoing at the bank, accepted responsibility, and pledged future compliance with U.S. tax laws. According to the subcommittee report, in 2006 Credit Suisse had more than 22,000 U.S. clients and between 85 and 95 percent of these accounts were likely undeclared. However, CEO Brady W. Dougan said that executive management did not know of the past misconduct.

Holder called the internal inquiry that was conducted by Credit Suisse when it began to feel pressure to correct illegal practices "shamefully inadequate."

Such strong language sends a message to banks and their law firms that internal investigations that minimize the responsibility of the bank, which is paying the firm's bills for the investigation, will not be tolerated, Nanavati said.

Jaime Arora and William R. Davis contributed to this article.

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