Subcommittee details Swiss bank involvement in U.S. tax evasion, weak U.S. response

Tuesday, February 25, 2014

WASHINGTON – Credit Suisse opened Swiss accounts for over 22,000 U.S. customers with assets that, at their peak, totaled roughly $10 billion to $12 billion, the vast majority of which were hidden from U.S. authorities, but U.S. law enforcement officials have been slow to collect the unpaid taxes or hold accountable the tax evaders and bank involved, according to the findings of a two-year investigation by the U.S. Senate Permanent Subcommittee on Investigations.

In connection with the investigation, the Subcommittee is releasing a 175-page bipartisan staff report [PDF - 1.6 MB] detailing how Swiss banks aided and abetted tax evasion by their U.S. customers, using Credit Suisse, Switzerland’s second largest bank, as a case study. The subcommittee will hold a hearing at 9:30 a.m. Wednesday at which witnesses from Credit Suisse and the Justice Department are scheduled to appear.

"The battle against tax havens using secrecy laws to facilitate U.S. tax evasion has bogged down, causing a huge loss to our treasury," said Sen. Carl Levin, D-Mich., the subcommittee chairman. "The Credit Suisse case study shows how a Swiss bank aided and abetted U.S. tax evasion, not only from behind a veil of secrecy in Switzerland, but also on U.S. soil by sending Swiss bankers here to open hidden accounts. In response, the Department of Justice has failed to use the U.S. legal tools that won the UBS case and has instead used treaty requests for U.S. client names, relying on Swiss courts with predictably poor results. It’s time to ramp up the collection of taxes due from tax evaders on the billions of dollars hidden offshore."

"For too long, international financial institutions like Credit Suisse have profited from their offshore tax haven schemes while depriving the U.S. economy of billions of dollars in tax revenues by facilitating U.S. tax evasion," said Senator John McCain, ranking member of the subcommittee. "As federal regulators begin to crack down on these banks' illicit practices, it is imperative that they use every legal tool at their disposal to hold these banks fully accountable for willfully deceiving the U.S. government and seek penalties that will deter similar misconduct in the future."

The subcommittee held a series of hearings in 2008 and 2009 into how banks including UBS, Switzerland’s largest, colluded with U.S. tax evaders, aided by Switzerland’s bank secrecy laws. UBS acknowledged its wrongdoing at a subcommittee hearing and later identified thousands of previously undisclosed U.S. accounts to the IRS, including providing U.S. client names.

The latest report outlines how Credit Suisse engaged in similar conduct from at least 2001 to 2008, sending Swiss bankers into the United States to recruit U.S. customers, opening Swiss accounts that were not disclosed to U.S. authorities, including accounts opened in the name of offshore shell entities, and servicing Swiss accounts here in the United States without leaving a paper trail.

After the UBS scandal broke, Credit Suisse began a series of Exit Projects, and took five years to close Swiss accounts held by 18,900 U.S. clients, leaving just 3,500 U.S. customers still with the bank. Credit Suisse also conducted an internal investigation, but produced no report and identified no leadership failures that allowed the bank to become involved in tax evasion. Despite, in 2011, indictment of seven of its bankers and a DOJ letter notifying the bank that it was itself an investigation target, Credit Suisse has not been held legally accountable by DOJ, and none of its bankers has stood trial.

Despite earlier testimony pledging to use important U.S. legal tools such as grand jury subpoenas and John Doe summonses to obtain the names of U.S. tax evaders, the investigation found that DOJ had failed to use them, choosing instead to file treaty requests with little success. In the past five years, DOJ has not sought to enforce a single grand jury subpoena against a Swiss bank, has not assisted in the filing of a single John Doe summons to obtain client names or account information in Switzerland, and has prosecuted only one Swiss bank, Wegelin &Co., despite more than a dozen under investigation for facilitating U.S. tax evasion. In addition, over the past five years, DOJ has obtained information, including U.S. client names, for only 238 undeclared Swiss accounts out of the tens of thousands opened offshore.

The report also outlines Swiss efforts to preserve bank secrecy by enacting legislation limiting the ability of U.S. treaty requests to obtain U.S. client names, and insisting that a 2013 Swiss bank amnesty program set up by DOJ to issue non-prosecution agreements will not require Swiss banks to disclose U.S. client names.

"Ending tax evasion through offshore accounts is important for our fiscal health," Levin said. "More importantly, ending these abuses is critical to the fairness of our tax system."

The Subcommittee investigation reaches several findings of fact:

(1)      Bank Practices that Facilitated U.S. Tax Evasion. From at least 2001 to 2008, Credit Suisse employed banking practices that facilitated tax evasion by U.S. customers, including by opening undeclared Swiss accounts for individuals, opening accounts in the name of offshore shell entities to mask their U.S. ownership, and sending Swiss bankers to the United States to recruit new U.S. customers and service existing Swiss accounts without creating paper trails.  At its peak, Credit Suisse had over 22,000 U.S. customers with Swiss accounts containing assets that exceeded 12 billion Swiss francs.

(2)      Inadequate Bank Response. Credit Suisse’s efforts to close undeclared Swiss accounts opened by U.S. customers took more than five years, failed to identify how many were undeclared accounts hidden from U.S. authorities, and fell short of identifying any leadership failures or lessons learned from its legally-suspect U.S. cross border business.

(3)      Lax U.S. Enforcement. Despite the passage of five years, U.S. law enforcement has failed to prosecute more than a dozen Swiss banks that facilitated U.S. tax evasion, failed to take legal action against thousands of U.S. persons whose names and hidden Swiss accounts were disclosed by UBS, and failed to utilize available U.S. legal means to obtain the names of tens of thousands of additional U.S. persons whose identities are still being concealed by the Swiss.

(4)      Swiss Secrecy. Since 2008, Swiss officials have worked to preserve Swiss bank secrecy by intervening in U.S. criminal investigations to restrict document production by Swiss banks, pressuring the United States to construct a program for issuing non-prosecution agreements to hundreds of Swiss banks while excusing those banks from disclosing U.S. client names, enacting legislation creating new barriers to U.S. treaty requests seeking U.S. client names, and managing to limit the actual disclosure of U.S. client names to only a few hundred names over five years, despite the tens of thousands of undeclared Swiss accounts opened by U.S. clients evading U.S. taxes.

Based on those findings, the report makes the following recommendations:

(1)      Improve Prosecution of Tax Haven Banks and Hidden Offshore Account Holders. To ensure accountability, deter misconduct, and collect tax revenues, the Department of Justice should use available U.S. legal means, including enforcing grand jury subpoenas and John Doe summons in U.S. courts, to obtain the names of U.S. taxpayers with undeclared accounts at tax haven banks. DOJ should hold accountable tax haven banks that aided and abetted U.S. tax evasion, and take legal action against U.S. taxpayers to collect unpaid taxes on billions of dollars in offshore assets.

(2)      Increase Transparency of Tax Haven Banks That Impede U.S. Tax Enforcement. U.S. regulators should use their existing authority to institute a probationary period of increased reporting requirements for, or to limit the opening of new accounts by, tax haven banks that enter into deferred prosecution agreements, non-prosecution agreements, settlements, or other concluding actions with law enforcement for facilitating U.S. tax evasion, taking into consideration repetitive or cumulative misconduct.

(3)      Streamline John Doe Summons. Congress should amend U.S. tax laws to streamline the use of John Doe summons procedures to uncover the names of taxpayers using offshore accounts and other means to evade U.S. taxes, including by allowing a court to approve more than one John Doe summons related to the same tax investigation.

(4)      Close FATCA Loopholes. To obtain systematic disclosure of undeclared offshore accounts used to evade U.S. taxes, the U.S. Treasury and IRS should close gaping loopholes in FATCA regulations that have no statutory basis, including provisions that allow financial institutions to ignore account information stored on paper, and allow foreign financial institutions to treat offshore shell entities as non-U.S. entities even when beneficially owned and controlled by U.S. persons.

(5)      Ratify Revised Swiss Tax Treaty. The U.S. Senate should promptly ratify the 2009 Protocol to the U.S.-Switzerland tax treaty to take advantage of improved disclosure standards.

Wednesday’s hearing will begin at 9:30 a.m. Wednesday in Room G-50, Dirksen Senate Office Building.

For more information, see the Permanent Subcommittee on Investigations website for the hearing page: Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts.

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