Credit Suisse case called warning to foreign banks

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Associated Press

Posted on May 20, 2014 at 3:00 AM

Updated Tuesday, May 20 at 8:07 AM

WASHINGTON (AP) — Credit Suisse AG's guilty plea and $2.6 billion payment in a high-profile case brought by the Justice Department are being held out as a warning to foreign banks believed to be helping U.S. taxpayers conceal assets.

Culminating a yearslong criminal investigation, Switzerland's second-largest bank pleaded guilty Monday to helping wealthy Americans avoid paying taxes through secret offshore accounts. Credit Suisse was the largest bank to plead guilty in more than 20 years.

The settlement resolves the investigation into allegations that Credit Suisse, Switzerland's second-largest bank, recruited U.S. clients to open Swiss accounts, helped them conceal the accounts from the Internal Revenue Service and enabled misconduct by bank employees.

The case is part of an Obama administration crackdown on foreign banks believed to be helping U.S. taxpayers hide assets. Justice Department officials said their investigations into secret bank accounts held by Americans in Switzerland and other countries likely will bring forth additional resolutions.

"We are mindful that guilty pleas by a bank can have impacts far beyond" the parties involved in the case, Deputy Attorney General James Cole told reporters.

"This plea demonstrates that the Department of Justice and bank regulators are prepared to hold banks and their relevant employees accountable while being mindful of the impacts on depositors and the American public," he said.

Switzerland's largest bank, UBS, in 2009 entered a deferred prosecution agreement with the Justice Department in which it agreed to pay $780 million in fines and turn over the names of thousands of customers suspected of evading U.S. taxes. The country's oldest bank, Wegelin & Co., pleaded guilty in January 2013 to U.S. tax charges, admitting that it helped American clients hide more than $1.2 billion from the IRS.

In the Credit Suisse case, officials said a criminal charge was necessary to account for the bank's pattern of misconduct, which included a lack of cooperation and document destruction. But the deal was structured in such a way as to allow the bank to continue operating. Zurich-based Credit Suisse is on a regulators' list of 29 "global systemically important banks" whose failures would be considered a threat to the entire financial system.

The $2.6 billion in penalties — which happens to be roughly equivalent to Credit Suisse's net income for 2013 — will be paid to the Justice Department, the Federal Reserve and the New York State Department of Financial Services.

Attorney General Eric Holder, criticized last year after telling Congress that large banks had become hard to prosecute, appeared to foreshadow the guilty plea in a video message earlier this month in which he said no financial institution was "too big to jail."

"A company's profitability or market share can never and will never be used as a shield from prosecution or penalty," Holder said Monday. "And this action should put that misguided notion definitively to rest."

The criminal resolution follows a Senate subcommittee investigation that found the bank provided accounts in Switzerland for more than 22,000 U.S. clients totaling $10 billion to $12 billion. The report said Credit Suisse sent Swiss bankers to recruit American clients at golf tournaments and other events, encouraged U.S. customers to travel to Switzerland and actively helped them hide their assets. In one instance, a Credit Suisse banker handed a customer bank statements hidden in a Sports Illustrated magazine during a breakfast meeting in the United States.

Credit Suisse chief executive Brady Dougan has said previously that senior executives at the bank were not aware that some Credit Suisse bankers were helping U.S. customers evade taxes. More than a half-dozen former bankers have been charged for their role in aiding the tax evasion. The case was filed in federal court in suburban Alexandria, Virginia, where individual bankers have been charged.

"We deeply regret the past misconduct that led to this settlement," Dougan said in a statement Monday.

Because the deal puts the longstanding legal dispute to rest and does not hinder the bank's operations, the market reaction Tuesday in Zurich was calm. Shares in the Swiss bank edged down 0.9 percent after opening higher.

The administration's action against Credit Suisse, a banking fixture on Wall Street, comes amid public outrage that boiled over from the financial crisis that plunged the economy into the deepest recession since the Great Depression of the 1930s. Calls for holding big Wall Street banks accountable, and sending top executives to jail, have come from consumer advocates, lawmakers and others, putting the Justice Department on the defensive.

The case against Credit Suisse was intended in part to counter criticism that the U.S. government has not been aggressive enough in its pursuit of banks. A report from the Senate subcommittee that investigated Credit Suisse accused the Justice Department of lax enforcement and faulted the government for gleaning only 238 names of U.S. citizens with secret accounts at Credit Suisse, or just 1 percent of the estimated total.

The Justice Department's highest-profile settlement over sales of risky mortgage securities in the run-up to the financial crisis — the $13 billion deal among the department, state regulators and JPMorgan Chase — was a civil case, and no bank executives were charged. Federal prosecutors in California have been conducting a related criminal investigation.

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Associated Press writer John Heilprin in Geneva contributed to this report.

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