Credit Suisse has agreed to plead guilty today to conspiracy to aid tax evasion, the culmination of an investigation into offshore tax shelters that started in 2014. The bank will pay penalties and restitution of just over $2.6 billion: a $1.13 billion fine, $673 million in restitution to the federal government, a $100 million penalty paid to the Federal Reserve, and $715 million to New York state’s financial regulator.
Federal prosecutors “discovered that Credit Suisse engaged in an extensive and wide-ranging conspiracy to evade taxes,” Attorney General Eric Holder said today.
This is the first guilty plea by a major financial institution to criminal charges since the investment bank Drexel Burnham Lambert pleaded guilty to securities fraud in 1989.
The bank said that after taxes the payout would results in a $1.8 billion charge and that it “expects no impact on its licenses, nor any material impact on its operational or business capabilities.”
The charges mark a departure from the huge settlements reached by the Justice Department and other regulators in lieu of pursuing criminal cases. “The bank actively helped its account holders to deceive the IRS by concealing assets and income in illegal, undeclared bank accounts,” Holder said, “this conspiracy spanned decades,” Holder said. Prosecutors said that Credit Suisse also destroyed records so as to hide money from U.S. tax authorities.
“Credit Suisse not only knew about this illegal cross-border activity, they willfully aided and abetted it,” Holder said. “They failed to take even the most basic steps to comply with tax laws.”
“We deeply regret the past misconduct that led to this settlement. The US cross-border matter represented the most significant and longstanding regulatory and litigation issue for Credit Suisse,” Credit Suisse’s CEO Brady Dougan said in a statement, “We can now focus on the future and give our full attention to executing our strategy.”
New York State’s Department of Financial Services will also install an independent monitor to review the role of individual Credit Suisse employees in aiding tax evasion and the bank’s efforts to comply with rules. DFS additionally ordered Credit Suisse to terminate three employees, who are already under indictment but were still getting paid by Credit Suisse. It included Markus Walder, who was the head of Credit Suisse’s Offshore Banking Division and who was charged with conspiracy to aid tax evasion in 2011. Seven more Credit Suisse employees were indicted.
In March, one of the indicted executives, Andreas Bachmann, plead guilty, and in February, the bank settled with the Securities and Exchange Commission over charges that it provided brokerage and investment advising services to U.S. clients without properly registering with the Commission.
The $715 million is the largest payout extracted by DFS and its aggressive chief, former federal prosecutor Ben Lawsky — more than double the $340 million payout it won from the British bank Standard Chartered over accusations that it violated sanctions rules in transferring money to Iran. Lawsky threatened the bank’s charter, which would have killed off its U.S. business.
This time, Lawsky got more money without going after Credit Suisse’s ability to work in the United States. “It is necessary that Credit Suisse and its top management go above and beyond to ensure the Bank is playing by the rules and that management acts to prevent misconduct within the firm,” Lawsky said in a statement.
The Federal Reserve, which won a $100 million penalty from Credit Suisse, said in a statement that the bank had an “inadequate risk-management and compliance program” and that it was continuing to investigate “whether other specific individuals that may have been involved in the actions that resulted in violations of U.S. banking laws.”
Earlier this month, Attorney General Eric Holder said in a video posted to the Justice Department’s website that “it is fully possible to criminally sanction companies that have broken the law, no matter the size.” Holder’s comments were part of an effort by federal prosecutors to answer critics who say they have not aggressively pursued criminal prosecutions against large banks, either for their role in the 2008 financial crisis, tax evasion, money laundering, or avoiding U.S. sanctions laws. “This case shows that no financial institution, no matter its size or financial reach, is above the law,” Holder said.
While regulators have reached out to banks to assure them that Credit Suisse’s U.S. business won’t collapse overnight thanks to the plea, according to Bloomberg, no one knows exactly how the financial system would react to a guilty plea. Goldman Sachs CEO Lloyd Blankfein told reporters after the bank’s annual meeting last week, “People transact, and no one can ever understand the full integration and the full knock-on effects of pulling a thread out.”
“Facilitating tax evasion was a strategy and business model that the firm engaged in for decades. It was decidedly not the result of the conduct of just a few bad apples,” Lawsky said.
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