WASHINGTON — A Senate subcommittee investigation accused Swiss banking giant Credit Suisse of using elaborate "cloak and dagger" methods to hide the accounts of 22,000 wealthy American citizens with a total of up to $12 billion in assets from U.S. authorities so they could avoid paying taxes.
The bipartisan probe also sharply criticized the Justice Department for being lax in using subpoenas and other legal tools to pressure the bank to reveal most of the names of account holders, which have been withheld as part of a long Swiss tradition of bank secrecy.
"The key to piercing the cocoon of bank secrecy and collecting the taxes owed by tax evaders is getting the names on those accounts," said Sen. Carl Levin (D-Mich.), chairman of the Senate Permanent Subcommittee on Investigations.
"Yet after years of investigations, negotiations and jawboning, the United States has names for just 238 of those 22,000 Credit Suisse customers," he said Tuesday in unveiling a 175-page report on the bank's practices.
The subcommittee will hold a hearing Wednesday on the report's findings. Senators will question Credit Suisse Chief Executive Brady Dougan, other company executives and two top Justice Department officials.
The report and the hearing are part of a six-year crusade led by Levin to highlight offshore tax evasion by U.S. citizens and companies, which he said costs the Treasury $100 billion annually in lost revenue.
Last year, the subcommittee focused on Apple Inc., releasing an investigative report alleging the company used Irish subsidiaries to avoid paying billions of dollars in U.S. taxes on foreign earnings. A high-profile hearing featured the testimony of Apple Chief Executive Tim Cook.
In 2008 and 2009, Switzerland's largest bank, UBS, was the target of subcommittee hearings that helped lead to the bank providing nearly 5,000 names of U.S. account holders.
The latest report, based in part on 100,000 documents from Credit Suisse, said that the bank used tactics to help U.S. customers avoid paying taxes from at least 2001 to 2008.
Employees took dozens of trips to the U.S. to meet customers and personally recruit new ones at golf tournaments and other bank-sponsored events, avoiding paper trails while telling U.S. officials the visits were simply for tourism.
One former customer told the committee a Credit Suisse employee once delivered the customer's bank statements hidden in a copy of Sports Illustrated magazine during a breakfast at a Mandarin Oriental Hotel in the U.S.
The unidentified client also described visiting the bank in Switzerland and being taken to a special meeting room via an elevator that was controlled remotely with no buttons. At the end of each meeting, the client signed an order to destroy the account statements that had been reviewed.
"I'm sure similar types of James Bond environments exist in other banks," Levin said. The subcommittee focused on Credit Suisse, based in Zurich, because it is the second-largest bank in Switzerland.
A Credit Suisse spokesman said the bank was working on a response but did not provide one.
The subcommittee investigation began in 2011 after the Justice Department indicted seven Credit Suisse employees on charges of aiding and abetting U.S. tax evasion. The bank itself also has been under criminal investigation by Justice officials since at least 2011.
Last week, Credit Suisse agreed to pay $196 million and admitted wrongdoing to settle allegations by the Securities and Exchange Commission that the bank provided brokerage and investment advisor services to as many as 8,500 U.S. customers without registering with the agency.
So far, the Justice Department's efforts have produced few names of U.S. Credit Suisse account holders amid the difficulties of dealing with complex international treaties and Switzerland's bank secrecy laws, the report said.
The Justice Department said Tuesday it is investigating 14 Swiss financial institutions for activities related to offshore tax evasion and has charged 73 account holders and 35 bankers and advisors with offenses related to offshore tax evasion since 2009.
The department also said its investigations have helped spur voluntary disclosures by U.S. taxpayers through an Internal Revenue Service program, started in 2009, that offers reduced penalties for people who owe back taxes, interest and penalties.
"The prospect of U.S. prosecution has been forceful enough to cause 43,000 taxpayers to self-report and pay nearly $6 billion in taxes and penalties," the Justice Department said.
"Additionally, more than 100 Swiss financial institutions have applied for a program where they fully disclose their illegal conduct, cooperate and pay steep penalties," the department said. "That program will help the department root out tax evasion throughout the world."
Levin and Sen. John McCain of Arizona, the subcommittee's top Republican, said the Justice Department has failed to use tools that were successful in prying names of U.S. account holders from UBS.
After a similar investigation into practices by UBS, the subcommittee held hearings in which UBS executives acknowledged helping U.S. citizens avoid paying taxes. The bank also apologized.
UBS entered into a deferred prosecution agreement with the Justice Department, paid a $780-million fine and later provided the names of about 4,700 U.S. account holders to the Internal Revenue Service.
The names provided were less than 10% of about 52,000 UBS accounts held by U.S. citizens, the report said.
But that's a much higher percentage than the 1% of account holder names that Credit Suisse has turned over as Justice Department officials have tried to obtain the information through an existing tax treaty with Switzerland rather than use other legal tools, the Senate report said.
McCain said tax evasion deprives the U.S. of billions of dollars in tax revenue and that the Justice Department's "ineffective response allowed this conduct to persist."
The tax treaty was amended in 2009 to make it easier to obtain information about U.S. accounts in Swiss banks. But the amendments have not been approved yet by the Senate and only cover accounts opened after Sept. 23, 2009.
The Senate report said the 22,000 U.S. customers had accounts as of 2006 and the holders of those accounts are liable for paying back taxes on them.
The report's recommendations include calling for the Senate to approve the 2009 treaty amendments and for the Justice Department to use more legal pressure to obtain names of U.S. taxpayers with undeclared foreign bank accounts and collect unpaid taxes, as well as punish banks that assisted the tax evaders.Copyright © 2014, The Baltimore Sun