The spectre of tax evasion has come back to haunt Switzerland following the indictments of four current or former Credit Suisse staff in the United States.
Efforts by the Swiss authorities to purge the financial centre of ill-gotten gains, following the UBS debacle, have failed to deter countries from pursuing aggressive legal measures against other banks.
The US indictments on Thursday follow the arrest of another Credit Suisse employee and - in a separate case – another raid by the German authorities on the bank’s offices in that country.
One US tax lawyer has likened the latest action by the Department of Justice to the successful case brought against UBS in 2008. UBS was fined $780 million while the Swiss government had to lift the veil of banking secrecy a year later by releasing details of thousands of the bank’s clients.
“In 2009 we knew that UBS would be the tip of the iceberg and that other Swiss banks would follow,” Asher Rubinstein told swissinfo.ch. “We have now reached that moment.”
“There has long been a belief that other Swiss banks have to some extent facilitated tax fraud and the IRS (Internal Revenue Service) is now going after them.”
Guilty by association
This week, a federal grand jury in Virginia charged four bank wealth advisors with aiding and abetting US citizens to dodge taxes. It is alleged that the bankers - only one of whom is still at Credit Suisse – created thousands of offshore accounts with a combined value of $3 billion (SFr3 billion).
The incriminating evidence appears not to have been sourced from a whistleblower but could have come either from the handover of UBS client data or a US tax amnesty that netted 15,000 tax dodgers in 2009.
Credit Suisse has distanced itself from the charges by stating that they are aimed at individuals and not the bank. The bank said it is cooperating with the US authorities.
One of those accused told the Associated Press on Sunday that he would not cooperate and that he would not to travel to the US to answer the indictment. In an interview with the Der Sonntag newspaper, he also criticised the US authorities.
Under US corporate law, a company can be held culpable for the offences of its staff, according to US tax lawyer Scott Michel.
“If an employee, or group of employees, of a corporation is found to have committed a criminal offence related to their work then the corporation itself can also be charged with criminal conduct,” he told swissinfo.ch.
In other words, if the charges against the four suspects stick in court, it would be at the discretion of the Department of Justice (DoJ) whether to indict Credit Suisse.
Swiss coming clean?
In such a case prosecutors would judge whether senior managers encouraged the actions of individuals or if the bank’s compliance systems were negligently lax, Michel added. A lack of such evidence would still leave the bank liable, but could result in a more lenient stance from the US authorities.
Switzerland has vowed to clean up its act following the UBS prosecution. In addition to cutting the UBS client data deal with the US, Switzerland has promised to offer more legal assistance to countries investigating tax fraud and is negotiating a series of revised double taxation agreements.
But the latest legal strong arm tactics show that the US authorities are not entirely convinced that Switzerland is doing enough to clean up its act, according to Michel.
“There is a feeling that people in some Swiss banks were advising clients not to reveal their hidden accounts and were frustrating efforts to uncover information at the same time that the Swiss and US governments were negotiating to open things up,” he told swissinfo.ch.
Some other Swiss banks, including the Basel Cantonal Bank, have been recently linked in the US media to the continued tax evasion crackdown.
Michel added that it would be no coincidence that the Credit Suisse employee indictments followed just weeks after the announcement of another tax amnesty programme in the US. A large slice of the success of the 2009 programme was put down to the UBS prosecution a year earlier.
In the meantime, the German authorities this week launched another raid on Credit Suisse offices in Germany. The raids started last year, shortly after German tax offices bought several CDs of client data stolen from Swiss banks.
Switzerland announced at the end of last year that it would negotiate special treaties with both Germany and Britain that would oblige Swiss banks to pay backdated and future withholding taxes on offshore accounts held by citizens of those countries.
Credit Suisse chief executive Brady Dougan has repeatedly stated over the past two years that his bank is fully compliant with regulations of other countries. It appears that those assertions will be put to the test by the US and German authorities in the coming months.
Banking secrecy was enshrined in Swiss law in 1934. Switzerland has been under continuous attack since the outbreak of the financial crisis for helping foreign tax evaders hide their assets.
The OECD placed Switzerland on a “grey list” of uncooperative tax havens in April 2009.
The Swiss were removed from the list six months later after renegotiating several double taxation treaties. In February 2011, the Swiss government relaxed the terms of legal assistance further but still refused to automatically transfer information to tax investigators without proof of crimes.
The most damaging tax evasion case involved the activities of UBS bank in the US. In February 2009, UBS was fined $780 million after admitting helping US citizens dodge taxes. It also handed over data of 285 account holders.
Last year the Swiss parliament ratified a 2009 deal to transfer 4,450 UBS client files to the US – in effect violating Swiss banking secrecy to prevent a ruinous court case for UBS.
Several CDs of stolen client data have been stolen from Swiss banks in the past two years and sold to foreign tax investigators.
A former employee of the HSBC private bank in Geneva ran away with client data that he handed over to the French authorities in 2009.
Several CDs of stolen Swiss banking data have been bought by the German authorities, resulting in two separate raids on German offices of Credit Suisse.
Last year, Switzerland agreed to negotiate deals with Germany and Britain that would compel banks to pay withholding tax on offshore Swiss accounts.end of infobox