Once again a Swiss bank in the United States is implicated in tax fraud. Three years ago it was UBS in the hot seat; now Credit Suisse faces a criminal inquiry.
The political and legal climate has changed considerably since 2008 and lawyers and clients of Credit Suisse see the position of Switzerland’s second largest bank as more serious than that of its competitor UBS.
Before indicting four former bank employees, the US Department of Justice sent a letter to Credit Suisse earlier this month warning that it was the target of an inquiry.
The four new indictments bring to eight the number of Credit Suisse employees accused of having helped Americans to commit tax fraud.
The spokeswoman for Credit Suisse in the US declined an interview request from swissinfo.ch. But in a communiqué Victoria Harmon emphasised the commitment of the Zurich bank “to a fully compliant cross-border business”.
"Subject to our Swiss legal obligations and throughout this process we will continue to cooperate with the US authorities in an effort to resolve these matters," she wrote.
As lawyers for UBS and Credit Suisse clients, Scott Michel and Lawrence Horn are very close to the issue. They see the situation of Credit Suisse as worse than that of UBS.
“The very serious allegations against Credit Suisse relate to a wider range of conduct extending beyond a tax conspiracy into a broader range of criminal activity,” Michel of the Washington firm Caplin & Drysdale told swissinfo.ch.
“These are not just allegations that a Swiss bank opened accounts that they knew would not be reported to the IRS [Internal Revenue Service], there are also allegations that employees of the bank lied to the Federal Reserve, engaged in destruction of records, helped people try and evade DOJ [Department of Justice] investigation and provided unlicensed banking services to customers,” the lawyer representing some 30 Credit Suisse clients said.
Michel, along with Lawrence Horn of the firm Sills, Cummis & Gross in Newark, interpret the measures taken in the past week by the US authorities as pointing to the imminent indictment of the bank itself.
“Credit Suisse is on the verge of being indicted, unless the bank negotiates with DOJ and gives names of its American depositors,” Michel said.
The letter sent to Credit Suisse is known in legal jargon as a target letter, and its meaning is clear, according to Horn. “It means that the Department of Justice has enough evidence to indict you”.
The DOJ refuses to comment on the case but the analysis of the lawyers involved is backed up by news agency reports citing “high level government sources” who indicate that the US is planning to charge Credit Suisse.
Is the DOJ bluffing? “No. The DOJ does not issue target letters lightly, they’re definitely not bluffing,” said Horn, a former federal prosecutor. Michel agrees: “The DOJ does not bluff; I’ve been practising as an attorney for 30 years and I would never ever think that they’re bluffing.”
Furthermore, developments in the legal and political environment since the UBS scandal complicate the situation for Credit Suisse.
At the beginning of July, the Swiss Federal Court ruled that the transfer of confidential UBS bank details to United States tax investigators in 2009 was legal.
In Washington the political climate is marked by the federal debt crisis; not a good backdrop for Credit Suisse to be in trouble. “There’s no sympathy anywhere in the government for people who are not paying their fair share in the context of big budget problems.”
Added to this, the US government seems to want to act swiftly against Credit Suisse as it moves to tackle the problem of tax evasion not just connected to Switzerland but with inquiries looking elsewhere in Europe and in Asia.
The fact that the prosecutor submitted the new indictments to the federal court of Alexandria in Virginia reflects the government’s haste because the court is known for its rapid handling of cases.
According to Michel, “the court in Alexandria is an exceptionally good group of judges and they believe in moving cases along quickly, it’s a hallmark of that court which is often chosen as a venue when the government wants to act fast”.
Investigators also benefit from information provided by Credit Suisse clients who are cooperating in exchange for reduced penalties. “Some of them are clients of mine, it’s fairly widespread and it’s going to continue,” Michel said.
Reported by a Swiss newspaper, the Sonntagszeitung, and Reuters, rumours of a breakdown in negotiations between Bern and Washington over a framework accord on fiscal matters have been denied by the Swiss embassy in Washington.
“Switzerland is conducting talks with US authorities regarding current bilateral financial issues. Switzerland is striving for a solution within the framework of the Swiss judicial system and has no comment about the course of these talks,” Salome Ramseier of the Swiss embassy in Washington told swissinfo.ch.
“If reports that negotiations have stopped are true, it would have an impact on the US probe of Credit Suisse and other Swiss banks in the sense that DOJ prosecutors would feel like going full speed,” Michel said.
Faced with this unfavourable climate and at risk of losing its US licence if indicted, it is in the bank’s interest to cooperate and make amends honourably, the lawyers say.
As Horn predicts: “Credit Suisse will go the way of UBS, it will enter into a deferred prosecution agreement, it will pay millions of dollars in fines and it will turn over a number of its American depositors.”
“There’s no escape for Credit Suisse because it wants to continue to do business in the United States,” he added.
July 21, 2011: United States federal prosecutors charge four US-based bankers linked to Credit Suisse, including three ex-managers, with conspiracy in what they say was a long-running tax evasion scheme.
July 14, 2011: Credit Suisse receives a letter from the US Justice Department informing the bank it is the target of a criminal investigation.
February 2011: Three former and one current Credit Suisse employee indicted for tax fraud. The US Justice Department claims that as of late 2008 Credit Suisse was maintaining thousands of secret accounts for US customers with as much as $3 billion (SFr2.5 billion) in total assets under management.
January 2011: Police in the US arrest a former Credit Suisse employee who is to face trial in Florida.
UBS was hit by a US tax evasion probe that resulted in a $780 million fine in 2009. In addition, the bank was forced to break the Swiss banking secrecy code by handing over the confidential details of thousands of clients.
The Swiss parliament ratified a deal between Switzerland and the US that allowed UBS to hand over confidential client data without facing prosecution in its home country.
UBS was also the worst hit European bank from the subprime mortgage crisis, writing down some $50 billion between the end of 2007 and 2009.
(Translated from French by Clare O'Dea), swissinfo.ch