By Peter Schroeder - 02/26/14 09:34 AM EST
Executives from Credit Suisse on Wednesday acknowledged to Senate investigators that their employees had helped Americans evade taxes but said the misconduct was limited to a small group acting alone.
Brady Dougan, the bank’s CEO, told the Senate Permanent subcommittee on Investigations that Credit Suisse has led the way among Swiss banks that are changing their business practices.
“Seeking out U.S. customers who want to hide untaxed assets ... is simply not acceptable,” he said. “We are working daily to build a different and better legal and cultural reality for Credit Suisse.”
Dougan said Credit Suisse management “regrets very deeply” that some bankers, years ago, aided Americans in hiding income, and said executives knew nothing about it.
Senate investigators, led by Sen. Carl Levin (D-Mich.), were unconvinced.
Levin pointed to bank documents that showed Credit Suisse employees approving travel to the U.S. for certain bankers. While Credit Suisse had a strict policy of permitting travel to the U.S. only for social purposes, the document contains approved travel for various meetings with clients and introductions to potentially new ones.
Dougan said the approved travel was simply a mistake.
“We should have caught it,” he said. “They were wantonly violating our policies.”
Levin was skeptical.
“So the people who approved the travel were not rogue, but the people who traveled were rouge?” he asked. “This isn’t hidden to me, this is pretty obvious.”
Levin accused the bank officials of hiding behind Swiss secrecy laws as an explanation for their inability or unwillingness to provide names of U.S. accountholders.
But Romeo Cerutti, the bank’s general counsel, flatly told lawmakers that executives were afraid they could be sent to prison if they provided the names in violation of Swiss secrecy laws.
“That’s my fear, absolutely,” he said.
Dougan contended that ever since the U.S. government filed charges against fellow Swiss bank UBS in 2008, his bank has taken huge steps to examine and rectify any tax evasion efforts.
Bank officials also said they would like to provide the names of Americans who took out secret accounts with the bank, but cannot do so until the Senate finalizes a new tax treaty with Switzerland.
The hearing with Credit Suisse officials came the day after Levin’s panel released a lengthy report charging that the bank for years had helped thousands of Americans hide billions of dollars in taxable income from the U.S. government. The report also faulted the Justice Department for lax pursuit of the money owed.
The document marked the latest in a years-long crusade by the retiring Levin to tackle offshore tax evasion by wealthy Americans and corporations.
Levin’s report found that at its peak, Credit Suisse helped roughly 22,000 Americans hide up to $12 billion. The panel detailed the steps the bank would take to keep those operations secret, including operating a bank branch out of the Zurich airport, and flying bank employees to the United States under pretenses of tourism to meet with wealthy clients.
Dougan maintained that any effort to skirt U.S. tax laws was done by a small group of bankers at Credit Suisse. The airport office, for example, was “an office of convenience” according to Dougan, who added that most of the 10,000 clients serviced there had “relatively small amounts of money.”
Levin and Sen. John McCain (R-Ariz.), the ranking Republican on the panel, openly scoffed at the claims that senior executives were unaware.
“You can say you’re caught between two country’s laws, but when you come to this country, send bankers to the United States ... help U.S. customers hide what they’re doing from U.S. authorities, that’s what you did, and now the jig’s up,” Levin said.
Levin also pushed back on claims from bank officials that much of the account information he is seeking would be made available once the new tax treaty is ratified.
He pointed out that the treaty won’t address information from accounts closed before 2009, and pressed the bank to provide more information now.
“It doesn’t apply to thousands of accounts of people who owe us money ... that means we lose billions of dollars in tax collections, and that’s unacceptable to us,” Levin said.
The Justice Department faced almost as much scrutiny as the bank, as Levin and others argued U.S. enforcers were deferring too much to Swiss authorities in trying to recoup taxes due. Levin said the government was taking a “totally unacceptable position, and we’re going to do what we can to change it.”
“The Justice Department appears to have abandoned its efforts,” added McCain.
Justice Department officials touted what they said are aggressive efforts to crack down on tax scofflaws.
James Cole, the deputy attorney general, told the panel that his team is “committed to global enforcement against financial institutions that engage in or facilitate cross-border tax evasion.”
Calling the use of foreign bank accounts to hide U.S. income a “longstanding challenge,” Cole said the Justice Department has been able to bring charges against more than 100 account holders and bankers, while also enticing 40,000 American taxpayers to voluntarily disclose, and pay back taxes on, foreign accounts.
— This story was updated at 4:01 p.m.