Swiss banks are turning over thousands of employee names to U.S. authorities as they seek leniency for their alleged role in helping American clients evade taxes, according to lawyers representing banking staff.
At least five banks supplied e-mails and telephone records containing as many as 10,000 names to the U.S. Department of Justice, according to estimates by Douglas Hornung, a Geneva- based lawyer representing 40 current and former employees of HSBC Holdings Plc’s Swiss unit, Credit Suisse Group AG (CSGN) and Julius Baer Group Ltd. (BAER) The data handover is illegal, said Alec Reymond, a former president of the Geneva Bar Association, who is representing two Credit Suisse staff members.
“The banks are burning their own people to try and cut deals with the DOJ,” said Hornung. “This violation of personal privacy is unprecedented in the Swiss banking industry.”
While Swiss companies are usually prohibited from sending evidence to assist foreign legal proceedings, the country’s governing Federal Council authorized an exemption in April at the request of an undisclosed number of banks.
“The Federal Council had no right to grant permission for banks to send any information to a foreign authority,” said Marcel Niggli, a professor of law at the University of Fribourg. “The companies know the risk of penalties in Switzerland is insignificant compared with the business risk in the U.S. It’s a cold-blooded action by the banks.”
The banks have sent copies of employees’ passports as well as packages of correspondence to the Justice Department, according to Hornung, who has lodged complaints on behalf of four HSBC and Credit Suisse employees with the Swiss federal Attorney General’s Office and regional prosecutors in Geneva and Zurich.
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The deterrent value of having the names of bank employees and prosecuting them may be even greater to the Justice Department than getting details of all U.S. client accounts, said Milan Patel, a partner at Zurich-based law firm Anaford AG.
“If one banker is indicted or detained in a hotel room as a material witness, that resonates in Switzerland,” said Patel. “Even if the DOJ does not prosecute anyone, Swiss bankers are still concerned about their names being sent to the DOJ.”The Swiss banks' throwing of their employees under the bus may be analogized to KPMG's similar conduct in the early 2000s when the DOJ prosecutors were conducting a grand jury investigation of abusive tax shelters in which KPMG played a major role. But, it seems to me, the KPMG situation was different. KPMG was being threatened with a death penalty for the organization if it did not cooperate by delivering up its partners / employees by setting them afloat without any support. I don't think the Swiss banks are really staring a potential death sentence. They are just trying to avoid greater penalties. As always with the Swiss, it is all about money, and if they have to serve up employees, well that is just a cost of conserving the money.
Addendum 8/21/12: Tax Notes reports (Shamik Trivedi, Swiss Attorney General Declines to Prosecute Banks That Turn in Their Own 2012 TNT 162-4 (8/21/12)):
Switzerland's Office of the Attorney General on August 20 declined to file criminal charges against government officials and Swiss bank executives involved in authorizing the transfer of information to the Justice Department identifying current and former bank employees, according to the employees' lawyer.
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The DOJ is investigating 11 Swiss banks for allegedly assisting clients to evade U.S. tax obligations. Hornung [a Swiss lawyer] represents 40 current and former employees of Julius Baer, HSBC, and Credit Suisse. In addition to those banks, Basler Kantonalbank and Zürcher Kantonalbank have made employee disclosures to the DOJ, he said.
Most employees who have been reported to the DOJ likely had little contact with U.S. clients, Hornung said. As an example, he claimed that of the 1,200 employees reported by HSBC, only 17 had any direct contact with U.S. clients. Most employees caught up in the disclosure were administrative personnel whose emails may have contained specific key words, such as "U.S. person," "U.S. account," "U.S. tax," or some derivation of that, he said.Jeffrey A. Neiman, formerly a DOJ prosecutor on the UBS matter who is now in private practice is quoted as questioning this is a sincere response on behalf of the Swiss banks or just another example of smoke and mirrors. The Swiss banks may be just serving up of these employees to get a better deal (meaning having to pay less).