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Credit Suisse fined $2.6bn in US tax evasion case

Switzerland News.Net - Wednesday 21st May, 2014

WASHINGTON - Banking giant Credit Suisse AG Monday pleaded guilty to conspiracy to aid and assist U.S. taxpayers in filing false income tax returns and other documents with the Internal Revenue Service (IRS) and agreed to pay a total of $2.6billion in fines, a move that showed no immediate impact on the market Tuesday.

Credit Suisse shares closed up 0.96 percent on Tuesday.

Of the $2.6 billion penalty to be paid, Credit Suisse will pay a total of - $1.8 billion 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. The plea agreement was filed in the Eastern District of Virginia Tuesday.

The guilty plea by the Swiss corporation is the result of years-long investigation by U.S. law enforcement authorities that has also produced indictments of eight Credit Suisse executives since 2011; two of those individuals have pleaded guilty so far.

Earlier this year, Zurich based Credit Suisse paid approximately $196 million in disgorgement, interest and penalties to the Securities and Exchange Commission (SEC) for violating the federal securities laws by providing cross-border brokerage and investment advisory services to U.S. clients without first registering with the SEC.

That settlement with the SEC was also reflected in Monday's plea agreement. Together, these actions by U.S. law enforcement and state and federal partners appropriately punish Credit Suisse for its past behavior in these matters.

Credit Suisse is the most prominent bank to plead guilty in the United States since Drexel Burnham Lambert in 1989, and the largest to do so since the Bankers Trust in 1999. For Credit Suisse, other than the fines and the reputational stain of being a felon, the implications are likely to be limited.

The guilty plea and criminal indictment for a major financial institution marks a departure for the Justice Department, which has not often pursued such convictions for fear they could destabilize large financial firms and wider markets.

But lately, lawmakers have taken a more strict stance have pressured regulators to send a signal that no bank is "too big to jail." The regulator has however not revoked the licence of the bank.

"This case shows that no financial institution, no matter its size or global reach, is above the law," said Attorney General Eric H. Holder.

"Credit Suisse conspired to help U.S. citizens hide assets in offshore accounts in order to evade paying taxes. When a bank engages in misconduct this brazen, it should expect that the Justice Department will pursue criminal prosecution to the fullest extent possible, as has happened here."

As part of the plea agreement, Credit Suisse acknowledged that, for decades prior to and through 2009, it operated an illegal cross-border banking business that knowingly and willfully aided and assisted thousands of U.S. clients in opening and maintaining undeclared accounts and concealing their offshore assets and income from the IRS.

"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," said Deputy Attorney General James M. Cole.

"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."

Some analysts are of the view that Credit Suisse could see some impact of the guilty plea though no impact has been seen in the past few weeks.

"While we expect that this event has been well-flagged and the impact likely to be muted, there is always the small risk of unintended consequences," wrote Citigroup analysts Kinner Lakhani and Nicholas Herman in a note to investors.

Another global bank, BNP Paribas, is expected to submit to a similar plea as it works to resolve a criminal probe into whether it violated U.S. sanctions on Sudan and other countries, people familiar with the matter have said, reported Reuters.

The BNP and Credit Suisse cases may set the grounds for the regulator to pursue criminal actions against American banks. While the new strategy applies to American banks like JPMorgan Chase and Citigroup, those inquiries are at an earlier stage and it is unclear whether they warrant charges.

"We deeply regret the past misconduct that led to this settlement," Credit Suisse Chief Executive Officer Brady Dougan said in a statement.

Asked whether he had considered resigning, Dougan, who took over as CEO in 2007, said it had "never been a consideration".

Desirability of replacing Dougan and others responsible for violations had been discussed by New York bank regulators, a source familiar with the negotiations said. But in the end, the option was not exercised.

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