On May 19, 2014, Credit Suisse plead guilty to criminal charges that it facilitated tax evasion by helping US clients avoid paying taxes to the IRS. The $2.6 billion fine imposed is the largest ever monetary penalty in a criminal tax case. The guilty plea by Credit Suisse is the result of a years-long investigation by the US Department of Justice that has also produced indictments of eight Credit Suisse executives, two of those individuals have plead guilty so far. No Credit Suisse employees were required to plead guilty as part of Credit Suisse’s plea agreement.
As part of the plea, Credit Suisse acknowledged that, prior to and through 2009, it operated an illegal cross border banking business that “knowingly and willfully” aided and assisted thousands of US clients in opening and maintaining undeclared accounts and concealing their offshore assets and income from the IRS. According to the statement of facts filed with the plea agreement, Credit Suisse employed a variety of means to assist US clients in concealing their undeclared accounts, including by:
- Assisting clients in using sham entities to hide undeclared accounts;
- Soliciting IRS forms that falsely stated, under penalties of perjury, that the sham entities were the beneficial owners of the assets in the accounts;
- Failing to maintain in the United States records relating to the accounts;
- Destroying account records sent to the United States for client review;
- Facilitating withdrawals of funds from the undeclared accounts by either providing hand-delivered cash in the United States or using Credit Suisse’s correspondent bank accounts in the United States.
As part of the plea agreement, Credit Suisse agreed to make a complete disclosure of its cross-border activities, cooperate in treaty requests for account information, provide detailed information as to other banks that transferred funds into secret accounts or that accepted funds when secret accounts were closed, and to close accounts of account holders who fail to come into compliance with US reporting obligations. However, as part of the plea agreement, Credit Suisse did not have to disclose the names of US account holders, which drew condemnation from Congress. In a joint statement, US Senators John McCain and Carl Levin said that they “cannot comprehend why” federal prosecutors didn’t require name disclosures, stating “with more than 20,000 unidentified Americans having held accounts at Credit Suisse in Switzerland during the relevant period – most of whom never disclosed their accounts as required by US law – this agreement provides no direct accountability for those taxes owed.”40 The DOJ released a statement after the pleas, stating that “this case shows that no financial institution, no matter its size or global reach, is above the law.”41
Despite the guilty plea and unprecedented fine imposed, Credit Suisse retained its bank’s license to operate in the United States, but sets a precedent for the nearly two dozen other banks currently under criminal investigation by the DOJ. The plea is also much tougher than the UBS settlement reached with the DOJ in 2009. UBS was allowed to enter in to a deferred prosecution agreement and pay a fine of $780 million to settle similar charges. The criminal charges were later dropped against UBS after turning over names of US customers. Credit Suisse’s CEO Brady Dugan said, “We deeply regret the past misconduct that led to this settlement. The US cross-border matter represented the most significant and long-standing regulatory and litigation issue for Credit Suisse. Having this matter fully resolved is an important step forward for us.”
It may take time to determine how the plea and settlement will adversely affect Credit Suisse’s operations in the United States. As for US taxpayers, the Justice Department reminded taxpayers that the IRS continues to offer an offshore voluntary disclosure program for taxpayers with unreported foreign banks accounts and related unreported income. The time for voluntary disclosure is running out.