Tuesday, March 1, 2011

More on Credit Suisse and Its Enablers (3/1/11)

I have previously blogged the recent indictment of 4 Credit Suisse enablers for offshore account skullduggery.  (See "More Enablers Indicted", FTCB (2/23/11).)  According to a Reuters Legal report here:

1. Mr. Agostini, one of the defendants, shifts the focus to Credit Suisse:

"I always acted in the name of the bank and according to their instructions," Agustoni told Reuters via telephone.

"It's not the case that I did anything independently, the bank was always informed and my actions were checked by my bosses," Agustoni said.

2. A Credit Suisse spokesman says that Credit Suisse is not the target of the probe. Of course, persons (including entities) do not determine their own status. Wonder what the prosecutors would say about that? I have previously noted the phenomenon that, when prosecutors have to declare someone's status relative to an investigation, for those who are clearly not just witnesses or bystanders, the default status is subject rather than target. Then, that subject will turn into a target about a few nanoseconds before presenting the indictment to the grand jury for action. (I overstate the nanoseconds business, but in my limited anecdotal experience, prosecutors have described persons as subjects when their objective behavior made it clear that they considered the persons targets; see my discussion below.)

Interesting. If Credit Suisse is really not a target and it really should be a target (however long it takes the prosecutors to have that Eureka moment), the defendants in this case may have some bargaining power to deliver up Credit Suisse in return for favorable treatment from the U.S. Government (think the big bucks like UBS had to pay). Or maybe the defendants will just stay out of the country and hope that Credit Suisse is appreciative enough to do right by them. Or whatever.

For those wanting to pursue the subject / target distinction, see USAM 9-11.151 Advice of "Rights" of Grand Jury Witnesses. The definitions are:

A "target" is a person as to whom the prosecutor or the grand jury has substantial evidence linking him or her to the commission of a crime and who, in the judgment of the prosecutor, is a putative defendant. An officer or employee of an organization which is a target is not automatically considered a target even if such officer's or employee's conduct contributed to the commission of the crime by the target organization. The same lack of automatic target status holds true for organizations which employ, or employed, an officer or employee who is a target.

A "subject" of an investigation is a person whose conduct is within the scope of the grand jury's investigation.
Basically, as so defined, "subject" could be viewed as the broader class, with "target" being a specific subset of "subject" status. (Many practitioners, I think, view them as mutually exclusive classes, with a subject then being potentially turned into a target later, at which times he or she loses subject status.)  So, I suppose, although in context a bit disingenuous, a prosecutor could describe someone as a subject even though the prosecutor knows (or should know) that the person has already reached the status of target. But that person, believing himself or herself to be a subject and not a target, may then be prejudicially mislead into taking further actions. That would be a mistake. So the better part of wisdom when dealing with prosecutors is to obtain the representation that he or she is a subject and not a target (conjunctive representations).  Of course, the danger is that the prosecutor would be disingenuous even the representation that he or she is not a target, a status which can change at the whim of the prosecution and can ultimately be based on facts that the prosecutor already knew when he made the "not target" representation.  (Remember the nanoseconds.)


  1. Very interesting all this subject versus target sematics. If you look back at the big insider trading cases, when the hedge funds were raided in CT, MA and NY, each of Diamondback and Level Global made a big deal about saying to investors that it "their counsel" had been informed that it was not a "target" of the investigation. In the context of having your business raided by burly FBI agents wearing guns, many found this amusing and most investors, wisely IMHO, pulled their money out. It all seemed liked silly lawyer speak covering up their involvement, and that is exactly how it was interpreted. Although the designation may be important legally, I think your advice is good: assume the worst, hope for the best.

    Good post and explanation Jack.

  2. Let's play out Credit Suisse's claim of non-involvement.

    UBS offered services for Americans to hide income from the IRS. Credit Suisse, a main competitor of UBS and a rival bank that offered substantially the same financial services in every other regard, did not offer similar services to Americans with respect to hiding income from the IRS. Instead, certain Credit Suisse employees themselves offered these services, lone rogues not acting on behalf of Credit Suisse.

    Surely DOJ follows this logic and Credit Suisse is not a target. Surely.

  3. To Mr. Rubinstein, On what information are you basing your conclusory statements?

    Credit Suisse did in fact offer these services that you declaim it did not offer. I know this from direct experience. Lone rogues....Come on! This has been the constant refrain of high ups in large financial services firms regrettably.

    Even the circumstantial evidence is pretty damning, I suggest:

    Our protagonists left UBS to join CS. Now why do you think they might be hired? What was their expertise? Pointedly, how do you think a banker sells himself when he moves: his book of business and expertise.

    Perhaps CS was not as blatant as UBS (or perhaps an analogue to Mr. Birkenfeld did not come forward, more likely explanation IMHO), or perhaps it was. The facts have not been developed yet.

    CS is under criminal investigation by the French and German tax authorities. Objectively, do you think that they left the richest market alone, the US, when they knew that UBS were makings oodles of money from a practice that seemed to be working and would have continued to work sans Mr. Birkenfeld (by the DOJ's admission).

    Something else to bear in mind: the Swiss private banking community is tight knit and shares information; Swiss banks are less in competition with each other than the laws of foreign governments. They share information that is beneficial to their community, especially since they perceive safety in numbers--everyone is doing it.

    Hopefully, the DOJ will probe CS as a target. The whole Swiss banking system is based on tax evasion, in substantial part. And if CS has nothing to hide, then why are they harboring these individuals. They still work at CS even with the indictments.

    But what do I know. You may be right, Mr. Rubenstein, that CS is clean as cucumber, but perhaps you should think about the situation again, maybe?

  4. I can't speak with any authority as to CS's actions vis-a-vis their U.S. depositors. However, my anecdotal experience with several other Swiss banks is that they did what their competitors did to make money. If that required raiding foreign fiscs, that is what they did. (These are the banks and the culture which permitted the accounts of holocaust victims to disappear in their systems; see the quote below from the Bergier Commission report (a commission established by the Swiss).) The Swiss are quite capable of racing to the bottom when there is money to be made. Now, some of the banks were smarter about how they did it (i.e., minimizing U.S. contacts of the type the UBS and apparently CS exploited). But one way or another most of them appear to have engaged in it in their own ways.

    From the Bergier Commission report:

    After the war, when victims of the Holocaust or relatives of victims tried to access bank accounts that had be dormant during the war, Swiss banking authorities hid behind an interpretation of banking secrecy laws to block access and restitution. Such behavior was deemed to have been determined by institutional self-interest rather than the interests of the victims of the Nazi state who had transferred their assets to Switzerland for safekeeping.

    The report is here: http://en.wikipedia.org/wiki/Bergier_Commission

  5. Anonymous,

    First, please note my first sentence, where I wrote that these are Credit Suisse's claims, not my own.

    I appreciate your points. My comments were written tongue-in-cheek, which obviously was not conveyed effectively via an Internet post. My basic point was the UBS did it, Credit Suisse did it too, and DOJ knows that.

  6. Anonymous, please note that my comment was based on Credit Suisse's claim of non-involvement. I did not support that position. Tongue-in-cheek comments often do not come across properly on the Internet.

    I appreciate your comments. I think various Swiss banks offered services for Americans to hide income from the IRS, including of course UBS and probably also its competitors. I also think that DOJ knows this as well.

  7. Of course I now appreciate that Mr. Rubinstein was being sarcastic! My outrage overcame my objectivity. No offense intended Mr. Rubenstein, and I hope you were not offended.

  8. One other thing on Credit Suisse's claim about not being a target of the investigation. It depends upon what is is, or more specifically what the investigation is. It is conceivable that Credit Suisse is not a target of the investigation leading to the indictment of the four bankers who did its bidding. But, slicing the inquiry that way, perhaps Credit Suisse is a target of its own investigation which, it seems to me, could be out of SD FL rather than ED VA. I don't know whether these are conceptualized as one monolothic investigation with a number of parts all around the country. More likely, when they start focusing on targets, the investigations become separate investigations. So perhaps that is the game that Credit Suisse is playing. In any event, it seems to me, that Credit Suisee would have to be incredibly stupid not to realize that it could turn into a target in a nanosecond (if indeed it is not already a target of some investigation).

  9. Word on the street in Switzerland is Credit Suisse is working very hard behind the scenes to avoid being a target; they have an American as their CEO and they may just be able to avoid becoming the next UBS; there is certainly a lot of back room lobbying going on and who knows, they may be willing to sacrifice a few employees to save the bank's reputation in the press...I believe they are as guilty as UBS

    Swiss bankers have very similar morality on tax issues to American bankers. Look at the March 2, 2011 letter signed by every congress person from the state of Florida to President Obama that specifically asks President Obama to dis-allow the IRS to share account information with foreign governments about their citizens who have accounts in the US. The letter of course sites the importance of all of this foreign un-disclosed money to the US economy.

    FBAR rules are so draconian (IRS rules state that 50% of account value per year can be taken, could be over 300% and the shame is they are even targeting individuals' foreign pension accounts) as to probably be against the 8th Amendment to the Constitution (if people did not sign up for VD and give away their rights) against excessive fines and many of the 5 million Americans who live overseas and are complying with all of the local tax laws where they live, get caught in this web since the US tax laws for international individuals are too complex for most CPAs I have met...I have no sympathy for the real tax evaders, but there are many US people overseas who are being terrorized by their own government. the whole VD program is a bonanza for the legal community and the government but too many individuals are being pushed like sheep into VD...Clearly what UBS and CS and other Swiss banks (and many of their US based clients) did was wrong, but this is really just modern day economic warfare. I can't see where the US is some how holding the moral authority here.

    The Economist did a very good article on this same subject last year. the US is formidable challenger to Switzerland as the largest offshore tax haven. When I asked one of the IRS heads of their foreign offices why they would not share info with for example Mexico and Brazil (who volunteered to comply with FATCA only if the US provided the same information about Brazilian and Mexican accounts in the US); the answer was "we can not break US banking secrecy laws". When I asked why the IRS then demanded that the Swiss break their laws, the answer was SILENCE....the US is rather hypocritical on tax evasion, don't you think?....

    Great site Jack...


Please make sure that your comment is relevant to the blog entry. For those regular commenters on the blog who otherwise do not want to identify by name, readers would find it helpful if you would choose a unique anonymous indentifier other than just Anonymous. This will help readers identify other comments from a trusted source, so to speak.