Today, a Senate subcommittee led by Senators Levin (D. MI) and McCain (R. AZ) held a hearing bringing a new wave of attention to U.S. efforts at recapturing foregone tax revenues and penalties in connection with tax evasion facilitated by Swiss bank secrecy. The hearing, conducted by the Permanent Subcommittee on Investigations of the Homeland Security and Governmental Affairs Committee, was titled, “Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts.”  The witnesses were representatives from Switzerland’s second-largest bank, Credit Suisse, and from the Department of Justice. Credit Suisse is currently under investigation by U.S. authorities and reportedly on the verge of a multi-million dollar settlement. Appearing for the Department of Justice were Deputy Attorney General James Cole and Kathryn Keneally, Assistant Attorney General of the Tax Division. Ms. Keneally is spearheading the Department’s Non-Prosecution Agreement (NPA) Program for Swiss banks, as agreed between the United States and Switzerland last August.

REPORT: Offshore Tax Evasion:The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts (1.59 MB) was released on the eve of the hearing that was sharply critical of Credit Suisse, the Department of Justice and the NPA program. The perspective of the Report, echoed in opening comments by Senator Levin, is that the level of bank cooperation is still insufficient, and that the Department of Justice’s enforcement is lax. The Report was particularly critical of the NPA program for offering a guarantee against prosecution without obtaining the names of U.S. account holders. At key fact in the controversy is a limitation in the Swiss-US tax treaty that limits information exchange to cases of tax fraud. A 2009 protocol would expand the scope of information exchange to information “relevant to” a tax investigation, but this protocol, while ratified by Switzerland, is still on hold in the United States.

Credit Suisse officials took a cooperative tone, explaining that they have worked to eliminate any non-compliant U.S. accounts and are cooperating in disclosing information to U.S. tax authorities within the limits of existing Swiss law. Senator Levin suggested that Credit Suisse officials should abide by U.S. law when undertaking operations in the United States, notwithstanding that disclosing information required by U.S. law could result in criminal prosecution in Switzerland.  Credit Suisse took the position that the inappropriate behavior at Credit Suisse was by a small number of employees and not a matter of company policy. “Credit Suisse acknowledges that misconduct, centered on a small group of Swiss based private bankers, previously occurred at our Bank. While that employee misconduct violated our policies, and was unknown to our executive management, we accept responsibility for and deeply regret these employees’ actions.” (Mr. Brady Dougan, CEO of Credit Suisse Group AG, Credit Suisse AG).

The questioning to Department of Justice officials focused on the Treaty Protocol and the availability of other means to access account holder names, in particular the use of a John Doe summons. Senator McCain criticized the Swiss government for enacting legislation that would impede the exchange of information for tax matters even after the Treaty Protocol is adopted. (Bundesbeschluss über eine Ergänzung des Doppelbesteuerungsabkommens zwischen der Schweiz und den Vereinigten Staaten von Amerika March 16, 2012). These changes, according to the hearing’s report, require the establishment of a pattern of conduct to which the person to be identified has contributed significantly. Ms. Keneally took the position that the NPA program will make the treaty information exchange much more effective.

Testimony and additional information can be accessed via:http://www.hsgac.senate.gov/subcommittees/investigations/hearings/offshore-tax-evasion-the-effort-to-collect-unpaid-taxes-on-billions-in-hidden-offshore-accounts