Credit Suisse DOJ Investigation Status and New NY Investigation (4/7/14)

The NYT Dealbook reports that Credit Suisse is nearing the end of the investigation by DOJ for its offshore banking for U.S. taxpayers, but is facing a new investigation.  Ben Protess and Alexandra Stevenson, Credit Suisse Is Said to Be Facing Double-Barreled Inquiries (NYT Dealbook 4/6/14), here.

Regarding the DOJ investigation, the article reports:

The biggest danger to Credit Suisse, suspected of sheltering billions of dollars for American clients who evaded taxes, comes from federal prosecutors. While the Justice Department has considered a so-called deferred-prosecution agreement that would suspend any indictment in exchange for a large cash penalty and other concessions, it is also pushing for a guilty plea from a Credit Suisse subsidiary, people briefed on the case said, a punishment that banks generally avoid in all but the gravest cases. The cash penalty, the people said, is expected to exceed the $780 million that Switzerland’s largest bank, UBS, paid to resolve a similar case in 2009. 

The Credit Suisse case, the outcome of which depends on settlement talks in the coming weeks, will most likely strike a blow at overseas tax shelters, a hallmark of Switzerland’s banking system. And while the case will resolve a major liability for Credit Suisse, it won’t put the shelter problem to rest. 

The article reports a separate investigation by New York's financial regulator, Benjamin Lawsky as follows:

Just as the [DOJ] criminal inquiry is reaching its conclusion in Washington, a civil investigation has started from scratch in New York. Benjamin M. Lawsky, New York State’s top financial regulator, has requested documents from Credit Suisse and is expected to demand additional records this week, two people briefed on that case said. 

Mr. Lawsky, who will examine whether Credit Suisse lied to New York authorities about engineering tax shelters, has also petitioned a Senate subcommittee for a trove of internal Credit Suisse documents. 

The subcommittee [the U.S. Senate Permanent Subcommittee on Investigations] questioned bank executives, including Brady W. Dougan, the bank’s American chief executive, at a hearing in February, and produced a scathing report exposing “a classic case of bank secrecy.” In late March, the Senate agreed to release the internal Credit Suisse documents to “a state regulatory agency.” The people briefed on the case, who were not authorized to speak publicly, identified that agency as Mr. Lawsky’s Department of Financial Services.

* * * * 

And Mr. Lawsky’s case could bring a fine of its own. In its investigation, the New York State Department of Financial Services is expected to examine what role, if any, the bank’s New York employees played in creating the tax shelters. The agency, the two people briefed on the case said, is also seeking to recover any lost tax revenue for New York.

It is unclear which tax shelters are involved in the NY Investigations.  U.S. citizens' use of offshore banks to hide income is a form of tax sheltering.  But, at least generally, I think, the term tax shelter generally refers to engineered financial products, such as the ones hawked by KPMG, E&Y, etc., in the late 1990s and early 2000s.  In those tax shelters, offshore banks (some of the biggest names), played prominent and key roles in the engineered structures, making phony "loans."  And, of course, offshore banks, including Credit Suisse, have played prominent roles in the big tax shelters that I refer to as "bullshit" tax shelters.  I suspect that this is what the NY investigation involves.

Note in this regard, the NY will get the benefit of the fruits of the DOJ/IRS investigations because amended federal income tax returns should be mirrored with additional collections of NY revenue based on sharing of information with NY.