Credit Suisse and American Tax Evaders: Two Sets of Regulators

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For many years, the United States Congress and the Department of Justice have searched for clues on the role Credit Suisse (NYSE:CS) has played in helping American customers hide their wealth on foreign soil. The two-year review conducted by Senate Permanent Subcommittee on Investigations’ culminated in a congressional hearing and a 176-page report that chronicled how Credit Suisse bankers actively recruited American clients and assisted them avoid taxes by hiding funds offshore. The picture that emerged from the inquiry was a “classic case of banking secrecy,” as lawmakers explained. February’s Senate hearing concluded with searing indictment of the Swiss bank’s willingness to help Americans hide assets and evade taxes and of the Justice Department’s slowness in proceeding to prosecute or settle with Swiss banks under investigation. However, in recent weeks, the Justice Department has taken steps closer to inking a so-called deferred prosecution agreement with the institution.

But the Justice Department is not the only regulator with Credit Suisse under its microscope. The Zürich, Switzerland-based financial institution is in the midst of a double-pronged inquiry. While the Justice Department’s criminal investigation is drawing to a close, the civil inquiry launched by Benjamin Lawsky — New York State’s Superintendent of Financial Services — has just begun. Sources familiar with the situation informed The New York Times that office of the state’s top financial regulator has already requested documents from Credit Suisse and petitioned the Subcommittee on Investigations for its collection of internal Credit Suisse documents. Even though this new spotlight on the bank’s will keep Credit Suisse embroiled in legal problems for even longer, the bigger threat to the bank is the pressure of federal prosecutors.

The Justice Department is pushing for a deferred-prosecution agreement, which would defer an indictment in return for a large cash penalty and other concession. It is expected that any fine levied on the bank by the Justice Department will exceed the $780 million that UBS (NYSE:UBS) — Switzerland’s largest bank — paid in 2009 to settle similar charges. Plus, the Lawsky case could bring a fine of its own. Federal prosecutors also want an admission of guilt from a Credit Suisse subsidiary, as people briefed on the case told the Times. A guilty plea is a punishment banks generally avoid in all but the most serious cases.

Last week, in preparation for a settlement, the bank announced it had set aside approximately $528 million for legal expenses.

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