Credit Suisse Group AG is in talks with the US Justice Department to pay as much as $1.6 billion to resolve an investigation into the bank's role in helping Americans evade US taxes, a person familiar with the matter said on Monday.
The penalty could be roughly twice the amount paid by UBS AG, which settled similar charges in 2009 for $780 million and agreed to identify its customers.
Prosecutors have also been pushing for Credit Suisse to plead guilty in connection with the probe, two people with knowledge of the talks said.
The settlement talks are in progress, and the details are still being finalised. An agreement could come in the next few weeks, the sources said.Some reading of the tea leaves regarding the negotiations are (Tom Schoenberg, David Voreacos and Elena Logutenkova, Credit Suisse Said Near U.S. Tax Deal for Over $1 Billion (Bloomberg 5/6/14), here):
Credit Suisse Group AG (CSGN) is close to resolving a U.S. tax-evasion probe with an agreement that might include a penalty of more than $1 billion, after creating a separate entity last year to house the businesses involved.
The resolution of the investigation may also include a guilty plea, according to a person familiar with the talks who asked not to be identified because the matter is private. The new unit, CS International Advisors AG, was incorporated in December with a Swiss banking license. In February, Credit Suisse moved its U.S. cross-border business into the fully owned entity, according to records from the Commercial Register of the Canton of Zurich.
The Justice Department, cracking down on foreign banks that help Americans cheat the Internal Revenue Service, may charge the unit instead of the whole firm, said Scott Michel, a tax lawyer at Caplin & Drysdale in Washington. Prosecutors, who must weigh economic consequences when taking action, have expressed concern about the potential fallout from charging big banks.Addendum 5/6/14 1:15pm:
“It has the earmarks of a structural step that somebody has thought of to try to protect the bank as a whole in the event that a guilty plea is required,” Michel said. “I’ve had a couple of criminal tax cases over the years where the client created a corporate entity to enter a guilty plea.”
See also Mark Hosenball and Aruna Viswanatha and Oliver Hirt, Credit Suisse in talks to pay $1.6 billion to resolve U.S. tax probe: source (Reuters 5/5/14), here.
The penalty would exceed the 895 million Swiss francs ($1 billion) that Credit Suisse has set aside to pay potential penalties to the United States.
It's also much tougher than the settlement the Justice Department reached in 2009 with Credit Suisse's hometown rival UBS AG, which was also accused of helping Americans dodge taxes.
In that settlement, UBS paid $780 million to settle similar charges, roughly half the amount being discussed for Credit Suisse, even though the latter's offshore private banking business was much smaller than UBS's.
Also, UBS was allowed to enter a deferred prosecution agreement and criminal charges were later dropped against the firm.The article also addresses how the anticipated resolution is factored into the CS market price and certain U.S. prosecution policy factors for entity misbehavior.
Addendum 5/7/14 8:15 am:
From Andrew Velarde, Credit Suisse Settlement Will Be Benchmark for Future Cases, 2014 TNT 88-2 (5/7/14):
Thierry Boitelle of Bonnard Lawson said that given the circumstances, confirmation of the penalty amounts would be good news for Credit Suisse and all category 1 Swiss banks.
Under the DOJ's Swiss bank program, category 2 banks must agree to a penalty of 20 percent of the value of undisclosed accounts held by U.S. taxpayers. Boitelle cited Credit Suisse CEO Brady W. Dougan's admission to the Senate subcommittee that about $7 billion out of $10 billion to $12 billion of assets held at the bank by U.S. persons was undeclared, 20 percent of which would be $1.4 billion -- close to the $1.6 billion penalty the bank is reportedly facing.
"So it would be as if [Credit Suisse] finds itself in the program under category 2 after all. That would certainly be a better than expected outcome for the bank," Boitelle said.
* * * *
Boitelle said that one big open question on the purported plea and settlement is the disclosure of the names of the account holders.
"Apparently the Swiss Federal Council turned down [Credit Suisse's] request for a special emergency law allowing it to share a substantial number of names with the DOJ," Boitelle said. At the time of the UBS indictment, the council did issue an emergency decree to save UBS from prosecution, he said, adding, "According to Swiss media reports, the Federal Council doesn't want to do this again. So the million-dollar question to me is how [Credit Suisse] and the DOJ will deal with the request for the names of the account holders.