Credit Suisse now finds itself under the scrutiny of United States tax evasion investigators after four bankers were charged with helping clients avoid taxes.
Investigators have now escalated the probe and are attempting to implicate the bank in hiding some $3 billion (SFr2.46 billion) of client assets from the Internal Revenue Service (IRS).
They must prove that the bank’s hierarchy sanctioned staff actions before client data can be demanded in a re-run of the UBS case two years ago. But unlike UBS, no known whistle-blower has come forward.
The change of tack by the US Department of Justice (DoJ) is a worrying development for Credit Suisse that places the bank in the spotlight, rather than “rogue staff”.
In February, one current and three former employees were indicted in the US for aiding tax cheats. Credit Suisse argued then that the accusations were made against individuals and not the organisation.
“Subject to our Swiss legal obligations, we will continue to cooperate with the US authorities in an effort to resolve these matters,” the bank said in a statement.
Small print demon
Credit Suisse has an obligation to protect the confidentiality of its clients, but this Swiss law was weakened after UBS admitted to systematically helping US clients evade taxes in 2009.
After months of intense diplomatic negotiations, the Swiss parliament rubber-stamped a deal last year to hand over the data of 4,450 UBS clients to the US.
The deal came with some small print that committed Switzerland to “review and process additional requests for information … if they are based on the pattern and facts and circumstances that are equivalent to those of the UBS case.”
That clause could come back to haunt Switzerland, according to financial legal expert Peter V. Kunz of Bern University.
“This small footnote is a very dangerous area, but nobody was talking about it much at the time,” he told swissinfo.ch. “It allowed the US authorities to keep one foot in the room that could allow them to make the same claim [for Swiss banking data] again.”
Legal grey area
The SonntagsZeitung newspaper published a story last week claiming to have uncovered confidential correspondence between the bank and a legal advisor. The advice was that Credit Suisse could release client data without the need for another parliamentary decision.
Kunz admitted that the footnote in the UBS client data deal presented a “grey area that might be at the centre of future disputes.” But he did not believe the UBS deal set a precedent that other banks were obliged to follow.
“I cannot see a way that Credit Suisse could release client data without first receiving parliamentary approval,” he told swissinfo.ch.
The IRS has received evidence of thousands of UBS account holders and at least two tax cheats testified in court to hiding money in Credit Suisse vaults. Other Swiss banks have also been named as UBS clients shifted their hidden assets to other financial institutions.
The missing piece in the DoJ jigsaw is an insider, like UBS whistle-blower Bradley Birkenfeld, who could link the pattern of tax evasion to Credit Suisse policy or at least show that managers turned a blind eye.
The four bankers connected to Credit Suisse that were charged earlier this year are not in US custody. Another Credit Suisse banker, who was arrested in January for alleged tax evasion offences while working for UBS in a previous job, has declined US overtures to turn whistle-blower.
This could have had something to do with Bradley Birkenfeld being imprisoned for more than three years in January 2010 despite toppling UBS with his testimony, according to Michael Kohn, president of the National Whistleblowers Center in the US.
“There is now a sizeable roadblock in the way of people who have engaged in wrongful activity but who now want to reach out to correct those wrongs,” Kohn told swissinfo.ch.
“The result is that it will be more difficult for the authorities to achieve the same kind of successful prosecution against other banks that they gained against UBS.”
The Swiss authorities, keen to avoid another UBS-style fiasco, have been working behind the scenes to negotiate a blanket deal with the US that would allow banks to come clean about tax evasion offences without being prosecuted.
The exact details of the proposed deal, that would also include other European banks, have not been made public. But the success of such a scheme would appear to hinge on whether the US demands the transfer of more client data – something Switzerland is desperate to avoid.
Banking secrecy was enshrined in Swiss law in 1934. Since the outbreak of the financial crisis, Switzerland has been under continuous attack 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.
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.
Last year, Switzerland agreed to negotiate deals with Germany and Britain that would compel banks to pay withholding tax on offshore Swiss accounts.
Under the microscope
Several other Swiss and international banks have also been identified as attracting the attention of US tax evasion investigators.
In Switzerland, beside UBS and Credit Suisse, Julius Bär, Wegelin, Basler Cantonal Bank and Neue Zürcher Bank have also come under scrutiny.
The Swiss branches of HSBC, Bank Leumi and Bank Hapoalim have also been mentioned in dispatches.end of infobox