Credit Suisse pleads guilty in $2.6B settlement

Kevin McCoy and Kevin Johnson, USA TODAY8:54 p.m. EDT May 19, 2014


(Photo: Win McNamee, Getty Images)

Swiss banking giant Credit Suisse pleaded guilty to criminal conspiracy Monday and agreed to pay $2.6 billion in penalties for helping wealthy American clients evade U.S. taxes in a scheme federal investigators said spanned decades.

Becoming the largest financial institution to enter a guilty plea in at least 20 years, the bank acknowledged it willfully aided thousands of U.S. clients who opened and maintained secret offshore accounts that hid their assets and income from the IRS, said U.S. Attorney General Eric Holder.

The settlement marks a major U.S. legal victory in a continuing U.S. investigation of approximately a dozen other Swiss banks on suspicion of similar tax-evasion-related wrongdoing to lure American clients.

"When a bank engages in misconduct this brazen, it should expect that the Justice Department will pursue criminal prosecution to the fullest extent possible, as has happened here," said Holder.

Credit Suisse has a large investment banking subsidiary and is headed by American CEO Brady Dougan. Under the settlement terms, the bank agreed to change its business operations, provide information to federal investigators and hire an independent monitor to ensure it complies with the agreement.

Holder announced the agreement at a news briefing after U.S. financial markets closed, part of an effort with regulators to avoid any economic disruption from the bank's guilty plea.

The consultations were aimed at avoiding any repeat of the job losses and economic disruption caused by the 1990 bankruptcy collapse of Drexel Burnham Lambert after the investment house pleaded guilty to fraud, and the 2002 obstruction of justice conviction that led to the implosion of accounting giant Arthur Andersen.

Credit Suisse's U.S. regulators, the Federal Reserve and the New York State Department of Financial Services, coordinated federal prosecutors during settlement talks and signaled they would not seek to revoke the bank's charter or shut it down.

Holder said the financial penalties include a federal fine that tops $1.13 billion, and nearly $670 million in restitution to the IRS. Additionally, Credit Suisse will pay a $100 million penalty to the Federal Reserve's Board of Governors and $715 million to the New York banking regulator.

The settlement is expected to set a legal template for future U.S. cases that target major banks. That includes the continuing tax-related investigations of other Swiss banks and a separate investigation of French banking giant BNP Paribas for allegedly doing business with Iran, Cuba, Sudan and other nations hit with U.S. economic sanctions.

"We deeply regret the past misconduct that led to this settlement," said Dougan in a statement issued Monday night. "The U.S. cross-border matter represented the most significant and longstanding regulatory and litigation issue for Credit Suisse. Having this matter fully resolved is an important step forward for us."

According to Holder, the Zurich-based bank tried to hide the tax-evasion scheme by destroying records, concealing transactions and using offshore credit and debit cards to help American clients secretly transfer their hidden assets and income home.

"When the bank finally began to feel pressure" from a federal investigation launched in 2010, "Credit Suisse failed to retain key documents, allowed evidence to be lost or destroyed and conducted a shamefully inadequate internal inquiry," said Holder.

The bank ultimately submitted a guilty plea to a four-page criminal information. Court filings in the case cited two unidentified Credit Suisse clients, one from Charlottesville, Va., and the other from Elizabeth, N.J., who allegedly sought and received bank help with their offshore accounts.

Holder prefigured the Credit Suisse penalties with a May 5 video statement in which he declared: "There is no such thing as too big to jail."
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A Senate subcommittee hearing in February also provided an early preview of the case with a February report that said Credit Suisse bankers secretly traveled to the U.S. on tourist visas, and then met with potential clients at New York City parties and Florida golf outings.

One former client told Senate investigators a Credit Suisse banker evaded detection by passing bank account statements hidden in the pages of a Sports Illustrated magazine.

The Senate Permanent Subcommittee on Investigations report showed that Credit Suisse bankers in some cases helped U.S. clients structure transactions below $10,000 in an effort to avoid mandatory disclosure laws for higher amounts.

The bankers also referred some U.S. clients to intermediaries who helped open accounts in the names of offshore companies that existed largely on paper, Senate investigators found.

Sen. Carl Levin, the Michigan Democrat who heads the panel, complained that Monday's settlement didn't require Credit Suisse to "cough up" the names of more than 20,000 Americans who held unreported offshore accounts with the bank.

The Credit Suisse penalties dwarf the $780 million settlement that UBS, Switzerland's largest bank, reached with federal prosecutors in 2009 for similarly helping wealthy U.S. clients duck the IRS. However, the UBS deal took the form of a deferred-prosecution agreement in which the bank admitted wrongdoing and turned over financial records for thousands of American clients — but did not have a criminal conviction entered against it.

http://www.usatoday.com/story/money/...ement/8763247/