Friday, February 21, 2014

Credit Suisse Take a Hit on U.S. Tax Evasion Business (2/21/14)

See Credit Suisse to Pay $197 Million in SEC U.S. Client Case (Bloomberg 2/21/14), here.  Excerpts:
Credit Suisse Group AG (CS) agreed to pay $197 million to regulators and admitted servicing thousands of U.S. clients without approval, leaving unsettled a criminal probe of whether it helped Americans evade taxes. 
Credit Suisse, the second-biggest Swiss bank, never registered a cross-border securities business that served 8,500 client accounts between 2002 and 2008 and collected $82 million in fees, according to a settlement today with the U.S. Securities and Exchange Commission. The accounts were valued at about $5.6 billion in 2008. 
* * * * 
Credit Suisse’s advisory and brokerage services began as early as 2002 and involved more than 107 trips to the U.S. by relationship managers. The bank was aware of the registration requirement, though the procedures it had to prevent violations weren’t properly implemented and monitored, according to the SEC. 
Credit Suisse was slow to implement rules that would have forced its bankers to follow local laws, according to the SEC. 
After some bankers were arrested in Brazil in 2006, including the head of private banking in the country, Credit Suisse started a project it called “Cross-Border+.” The head of the bank’s Switzerland-based group that handled American accounts complained that the proposed rules were too strict. 
‘No Air Left’ 
“People have no air left to breathe,” he complained to his boss in 2007, according to the SEC. “The latest changes will make this business impossible.” 
When Credit Suisse’s auditors looked into the handling of U.S. accounts in 2006, some bankers altered reports to take out references to American trips that broke securities laws, the SEC said. The auditors dropped some preliminary findings of cross-border issues from their final report. 
Credit Suisse didn’t begin taking steps to end the business until October 2008, after probes into similar conduct by UBS had been publicized, the SEC said. The majority of U.S. client accounts were closed or transferred by 2010 though the bank still held an average total of about $34 million in American client accounts by mid-2013, according to the SEC.


  1. I think that how you view this is a matter of perspective. Taxpayers renouncing because they don't like FATCA are simply making a statement that they do not want to pay the price of citizenship in the U.S. -- which means paying taxes. That is a choice that everyone can make if their desire for U.S. citizenship is driven only by their pecuniary interest in avoiding taxes. From that perspective, it is probably best that they renounce. They will be happier, and the the U.S. will be better off by having fewer people that think they have a right not to contribute their share to the country.

    Jack Townsend

  2. Jack, in sync with your personal "love affair" for Switzerland and its banks here is more :

    U.S. Examines Swiss Insurance Products In Tax Crackdown

    Products Can Be Used Legally By Americans to Defer Taxes

    .......Mr. Frowein said while Swiss Life has "been continuously reducing
    exposure to U.S. persons" where it can, it is confident there are no
    issues with the American PPLI accounts that remain...........

  3. Three figures stand out. CS is paying $197 million to the US government, it collected $82 million in fees (presumably gross, before costs) on $5.6 billion in assets of "US Persons." The $197m is 2-1/2 times the fees, but only about 4% of assets, whereas minnows pay 27.5% of assets.

  4. Jack, I think that there is additional nuance. In theory, those filing returns in two countries (country of residence plus US, the country of citizenship) would end up paying the higher of the two tax rates. In practice they end up paying much more because the two tax systems treat many items of income and deductions very differently. In addition there are the significant accounting costs paid for returns in two countries, not one. Then, because of FATCA they often end up forced to close their bank accounts and deal in cash which might have been doable 50 years ago but not possible if your employer will only pay you by direct deposit and the phone company, landlord, etc. will not take cash payments.

    I think that what "the price of citizenship in the U.S." ought to be for those residing abroad, and how much an American living and working abroad should pay to "contribute their share to the country" are open to discussion. Just imagine for a second if you were to move from Texas where you may have been born and lived most of your life (I don't know) and moved to New York, and Texas expected you to continue to file Texas tax returns and report your New York bank accounts for the rest of your life, and take 27.5% of everything you own now, because presumably you had taken your money to Texas with you in order to hide it from the state of Texas.

  5. Jack , this excerpt sums it up what I have been trying to explain to you for month now !!

    FATCA will not stop Americans from being able to hide money off shore,” Bob Mazur, a private investigator who used to work on criminal investigations for the IRS, wrote to IBTimes. “It will just involve their getting more comfortable with an additional layer to further block
    “In many cases, the beneficial owner [of funds] doesn't appear on any records,” he added.
    In the world of private tax lawyers and offshore fund managers, FATCA may seem more of a nuisance than an obstacle, even as opposition to the project builds.

    If the U.S. is successful in this, and it gets reciprocity under the agreements … the political firestorm would be enormous,” Allison Christians, a tax professor at McGill University in Montreal who opposes FATCA, told IBTimes.

    “It’s about financial surveillance. … Each and every time it has
    come to the U.S. Congress, on whether the U.S. should share information
    with other countries, on even close to a level they’re asking about
    right now, it’s been defeated,” she continued. “On the grounds that
    there was nothing to be gained by the U.S. in sharing such information.”

  6. Global Capitalism,

    Thanks for your arguments. I presume that the numbered list you provide is a succinct statement of your arguments.

    I think your arguments boil down to U.S. citizens will find some other way to cheat. That may be true for some of them. But, just because there is another way to cheat is not a valid argument for not closing one major opportunity to cheat (i.e., via Swiss banks).

    So, while you may think there is some whack-a-mole aspect of closing one door while others are still open, I think what is happening in the global community is that doors are closing one at the time. Will they all close? No. But, as the world is increasingly global and we all share in the erosion of community that is at the heart of tax cheating, the opportunities will become constricted.

    Just my view. I appreciate that you have a different view.

    Jack Townsend


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