Credit Suisse, the collapsed Swiss bank taken over by UBS Group in a rapidly arranged bailout earlier this month, may bring with it a fresh set of regulatory and legal problems for its latest owner.
For years, the bank has provided a refuge for wealthy American clients to cover assets from the IRS — even after it was caught and prosecuted for doing the identical thing greater than a decade ago, according two former Credit Suisse bankers who spoke in exclusive interviews with CNBC and are working with the U.S. government as whistleblowers.
The bank notoriously pleaded guilty in 2014 to criminal charges for “knowingly and willfully” helping hundreds of U.S. clients conceal their offshore assets and income from the IRS. It admitted on the time that it used sham entities, destroyed account records, and hand delivered money to American clients to avert IRS detection — agreeing to crack down on U.S. tax dodgers going forward as a part of its plea deal. Credit Suisse also agreed on the time to a bunch of reforms, including disclosing its cross-border activities and cooperating with authorities once they request information, amongst other things.
The now troubled bank appears to have violated that agreement, in accordance with a latest report by the Senate Finance Committee that details ongoing and rampant abuse since then. The report, released Wednesday, details the findings of the panel’s two-year investigation and takes on more urgency given the looming banking crisis. The Swiss National Bank, the country’s central bank, injected greater than $100 billion of liquidity into Credit Suisse to maintain it afloat earlier this month, while the Swiss government agreed to offer UBS with some $9 billion to backstop losses resulting from the takeover.
‘Still ongoing’
Senate investigators say the brand new revelations raise questions on just how much American money stays hidden contained in the vaults of a bank whose collapse rattled the foundations of the worldwide banking system.
The Senate report, which was prepared by the panel’s Democratic staff, accuses the bank of violating the terms of its 2014 plea agreement, which could trigger a bunch of repercussions if the Justice Department presses the case. It’s unclear how much potential liability UBS is exposed to in consequence of the report, but a lawyer for the whistleblowers argues the bank should pay as much as $1.3 billion.
Senate Finance Committee Chairman Ron Wyden, D-Ore., said his committee had received latest information just this week from Credit Suisse about additional American undisclosed accounts that the bank held after 2014.
“It remains to be occurring as of just the last couple of days — even more cash has been found to have been concealed and there are very substantial issues here,” Wyden said. “Clearly, it is time to prosecute and be sure that there are penalties that send a powerful message.”
“Credit Suisse employees aided and abetted a significant criminal tax evasion scheme,” a finance committee aide said, asking to not be named since the report had not been released yet. “To this point, no Credit Suisse employees involved within the scheme have faced any consequences from the USA government for his or her participation.”
Hiding fortunes
Senate investigators say they found that Credit Suisse enabled as many as 25 American families to cover fortunes totaling greater than $700 million within the bank within the years after Credit Suisse’s plea agreement.
“They thought they might get away with it, and so they largely did,” the aide said. “It isn’t an issue of whether Swiss banks proceed to do that, it’s an issue of which Swiss banks still do that.”
In a press release to CNBC, a Credit Suisse spokeswoman said it doesn’t tolerate tax evasion.
“In its core, the report describes legacy issues, some from a decade ago, and now we have implemented extensive enhancements since then to root out individuals who seek to hide assets from tax authorities,” the spokeswoman said, asking to not be identified because she was not authorized to talk on the record. She said the bank’s latest leadership team has been cooperating with the committee. Credit Suisse has “supported the work of Senator Wyden, including in respect of suggested policy solutions to assist strengthen the financial industry’s ability to detect undisclosed US individuals.” She said the bank’s policy requires it to shut undeclared accounts once they’re identified and discipline employees who don’t follow its policy.
An indication of Credit Suisse bank is seen at their headquarters in Zurich on March 20, 2023.
Fabrice Coffrini | AFP | Getty Images
The 2 former Credit Suisse employees, who worked as whistleblowers with the U.S. government and Senate investigators, told CNBC among the bad behavior continued long after Credit Suisse’s 2014 plea agreement. CNBC agreed to mask their identities on camera and to keep up their anonymity because they say they fear retaliation from the bank. They were interviewed within the weeks before Credit Suisse collapsed earlier this month.
Although the bank did disclose and shut many American accounts after its 2014 plea agreement, some bankers worked with high net price clients to maintain certain Americans on the bank, by changing the nationalities listed on their accounts and ignoring evidence that the account holders were Americans. In other cases, they helped American clients move money to other banks, without reporting those transfers to U.S. authorities, the whistleblowers say.
‘Tremendous pressure’
The report and interviews offer a rare take a look at the inner workings of the secretive Swiss banking, a world rarely penetrated by outsiders. They usually show how compliance systems inside Credit Suisse broke down within the years before its collapse this month and rescue by the Swiss government and rival bank UBS.
Bankers are under constant pressure, the whistleblowers said, to maintain and produce in deposits on the bank.
“You are under tremendous pressure to usher in these net latest assets, which ultimately translate into revenue,” the primary whistleblower said in describing a culture where bankers were expected to maintain the assets of rich clients contained in the bank, even in the event that they needed to cheat to do it. “And that is the rationale for the fraud. You do not need to lose assets. So, what you do is you are trying to keep up them in any way, shape, or form.”
Senior executives would call out individual bankers at quarterly meetings where they’d read out the asset numbers for every banker. If a banker’s number declined, the second whistleblower said, “you’d get exposed in front of your colleagues.” And in consequence, he said, “there may come moments where people simply omit saying things.”
“‘Don’t Ask, Don’t Tell’ is possibly a superb explanation to what happened,” he said. “They’d have clients which might be Americans, but they’d switch their passports around to point out and flag as in the event that they usually are not.”
Credit Suisse bankers, as an illustration, repeatedly flew to Miami to satisfy with American clients and yet didn’t flag them as U.S. residents, Senate investigators said.
Secrecy drives the complete Swiss banking industry, the primary whistleblower said – to some extent that the sector may not have the ability to survive without it.
“Swiss banks are way more expensive, and there is a reason for that,” he said. “For those who could select anywhere on the planet you wish to be, why would you pay more? Why would you be in a spot which underperforms by way of your return on assets?”
If a client is not hiding assets in Switzerland, the primary whistleblower said, “there is no other reason to be there.”
‘Congratulation!!!!!’
Emails obtained by the Senate Finance committee show just how far the bankers went to maintain identities secret and to make sure wealthy Americans were capable of switch nationalities — at the least for the bank’s internal record-keeping.
In a single email, one among Credit Suisse’s banker writes to a different bank worker, “please don’t write or document these topics.”
One American client, an heir to a $200 million fortune deposited at Credit Suisse, emailed to say they renounced their U.S. citizenship.
“I attempted to succeed in you, congratulation!!!!!” their private banker emailed back. “This can be a big step for you and I comprehend it was hard.”
The heir to the fortune replied, “Thanks … hopefully this must also make Credit Suisse now more relaxed.”
The heir closed the message with a smiley face.
The Family
“The committee’s investigation uncovered major violations of Credit Suisse’s plea agreement, including an ongoing and potentially criminal tax conspiracy involving nearly $100 million dollars and undeclared offshore accounts belonging to a family of dual U.S./Latin Americans,” a committee aide told CNBC.
The aide said Credit Suisse closed accounts held by that family price nearly $100 million in 2013 and moved funds to other banks in Switzerland and elsewhere, but didn’t inform U.S. authorities in regards to the transfer of assets until 2021 – which was months after whistleblowers informed U.S. authorities of the existence of the accounts.
Within the Senate report the clients usually are not named, but simply known as “The Family.”
While it’s legal for Americans to carry funds in foreign bank accounts, they have to file forms with the IRS disclosing the assets and pay taxes on any relevant gains. Americans must file a disclosure document called a Report of Foreign Bank and Financial Accounts, which is referred to within the industry as an “FBAR.”
The committee said the family held assets at Credit Suisse dating way back to 1979, and so they found evidence Credit Suisse bankers visited members within the family in Miami as early as 2000, holding meetings on the Mandarin Oriental hotel and having fun with meals on the Capital Grille restaurant in Miami’s fashionable Brickell neighborhood overlooking Biscayne Bay.
But aides say they didn’t find any evidence the family ever filed required paperwork with the U.S. government or paid taxes on their assets. As an alternative, the assets were held under one member of the family’s dual Latin American passport.
Legal jeopardy
Consequently, the aide said, “They’re potentially in legal jeopardy, to place it mildly.”
Committee aides say the family’s assets were overseen by a high-level Credit Suisse executive in its Latin American division, and that official participated within the meetings in Miami. That is notable, aides said, because that very same official was the supervisor of several other Credit Suisse bankers who were previously indicted in reference to the 2014 American offshore accounts.
Committee aides complained that Credit Suisse declined to offer the names of any of the staff involved or the Swiss banks that received the funds – but said they were capable of determine that information through other sources.
The Miami case “will not be small potatoes,” a Senate aide said. If proven, it “can be one among the most important FBAR violations in United States history.”
Former Justice Department prosecutor Jeffrey Neiman, who’s representing the whistleblowers, said he believes fraud remains to be ongoing and the DOJ should claw back tons of of hundreds of thousands of dollars in fines that the bank agreed to pay in 2014, but ultimately didn’t need to pay. The bank agreed to pay $2.6 billion, but a federal judge only imposed a penalty of $1.3 billion on the time.
“I believe Credit Suisse is aware of Americans who’re still hiding money today. And I believe the bank is doing whatever it may possibly to contain whatever this damage is,” Neiman said.
$1.3 billion
“At a minimum, the U.S. government needs to gather that $1.3 billion for the American taxpayers. This bank must be made an example of,” he said. “We hear tough talk out of the Justice Department about holding repeat corporate offenders accountable. Let’s have a look at if those words have actual meaning.”
The whistleblowers stand to realize financially if there are further payments to the U.S. government. Under the law, whistleblowers stand to gather between 15% and 30% of any money recovered by the U.S. government as a direct result of data they supply.
The Senate Finance Committee doesn’t think U.S. prosecutors have gone far enough in holding Credit Suisse accountable, the aide said. The report is a component of a campaign to up the pressure on the DOJ to crack down on the Swiss bank, and the recent takeover of the bank puts it squarely within the highlight.
“DOJ must correct its lax oversight of Credit Suisse and hold Credit Suisse accountable for any violations of its plea agreement,” he said.
The aide cited recent indications of a white-collar crackdown. “DOJ said we are going to go after anybody at banks who commits tax evasion,” the aide said. “Then do it. We will drop you twelve names on this report. Go after them.”
The Justice Department declined to comment when contacted for this story.
‘Never say never’
It isn’t clear what liability, if any, UBS assumed for all this in consequence of its emergency government-brokered takeover of Credit Suisse on March 19. It’s also not clear how much of this potential legal overhang was disclosed to UBS before its acquisition of Credit Suisse, although a source aware of Credit Suisse’s pondering said UBS officials are aware of the situation.
Officials at UBS didn’t reply to a request for comment for this story.
An individual aware of Credit Suisse’s pondering told CNBC that it’s “disquieting” for the Senate Finance Committee to release its report at the same time as global regulators are attempting to shore up the worldwide banking system by facilitating the sale of Credit Suisse to UBS. “The financial services sector and its importance to the world economy has grow to be blatantly obvious to everyone,” the person said.
When asked if he could say for certain that there aren’t any undeclared American dollars within the bank today, the person said: “I do not believe there’s anything there that could possibly be described in this fashion. Now, you’ll be able to never say never.” He said Credit Suisse has investigated and never found any more illicit accounts. “I do not believe there’s anything there.”