U.S. weighs Credit Suisse tax evasion charges-sources

FAIRFIELD, Conn./ZURICH/LONDON Fri Jul 15, 2011 5:29pm EDT

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FAIRFIELD, Conn./ZURICH/LONDON (Reuters) - Authorities are considering indicting Swiss bank Credit Suisse (CSGN.VX) over its role in providing offshore private banking services that enabled scores of wealthy Americans to evade taxes, according to current and former senior government sources briefed on the matter.

The possibility, according to these persons, emerged after the bank disclosed on Friday that it is the target of a criminal investigation by U.S. federal authorities over its offshore banking activities.

Credit Suisse said in a statement from its Zurich headquarters that it had "received a letter notifying it that it is a target" of a U.S. Justice Department investigation concerning "historical private banking services provided on a cross-border basis to U.S. persons."

While it has been known for months that Credit Suisse, Switzerland's second-largest bank, was part of a broad investigation by the Justice Department into an array of European banks and other financial institutions that sold offshore banking services to Americans, the disclosure marks the first time that Credit Suisse has publicly pinpointed its place -- and stakes -- in the criminal investigation.

When four current and former Credit Suisse bankers were charged in February with helping Americans dodge taxes, the bank said it was not a target of the broad investigation and was cooperating with the general probe.

Offshore tax havens have come under attack in recent years as cash-strapped governments seek to boost revenues in the wake of the financial crisis, forcing countries like Switzerland to pledge to cooperate more to help hunt tax cheats.

BROADER PROBE

Banks involved in the broader probe include HSBC (HSBA.L), Europe's largest bank; Julius Baer (BAER.VX), a private bank based in Zurich; and Basler Kantonalbank (BSKP.S), a Swiss cantonal bank. Credit Suisse, which shut its U.S. offshore business in 2008/09, has always said it had tighter controls in place than UBS did.

Credit Suisse said in its statement that it "had been responding to requests for information, including subpoenas," from the Justice Department. But it also said that "subject to our Swiss legal obligations, we will continue to cooperate with the U.S. authorities in an effort to resolve these matters."

It was not immediately clear whether the reference to "Swiss legal obligations" meant adhering to Swiss bank secrecy laws that generally prohibit the disclosure of client names, or to separate talks between Bern and Washington on revising a broad, existing tax treaty between the two countries. The showdown with UBS centered on a clash between Swiss secrecy laws and U.S. insistence that they did not apply to Swiss business conducted on American soil, for American clients.

The target letter to Credit Suisse signals that "the bank stands more than a risk of being indicted," said Jeffrey Neiman, a former federal prosecutor who played a central role in the federal case against UBS AG over its offshore private banking services.

In 2009, that probe led UBS to enter into a deferred-prosecution agreement with the authorities, pay a $780 million fine, admit to having violated U.S. banking, securities and tax laws, and disclose an initial 255 or so U.S. client names to the U.S. Internal Revenue Service and Justice Department.

After a legal and diplomatic showdown, UBS agreed in 2010 to disclose a further 4,450 names.

Neiman said that with Credit Suisse, "I can't imagine that cooperating to the extent they can under Swiss law will be seen as full cooperation by the U.S." In addition to disclosing client names, authorities are insisting that Credit Suisse admit to criminal wrongdoing and pay a hefty fine.

Victoria Harmon, a spokeswoman for Credit Suisse in New York, declined to comment on the matter.

TARGET LETTERS

Target letters, according to the United States Attorneys' Manual, are sent by U.S. authorities to institutions or persons for whom prosecutors have "substantial evidence" of having committed a federal crime.

The letters appear only after months or more of investigation and signal that the authorities have convened a grand jury in the matter, a serious level of scrutiny.

Scott Michel, a tax lawyer at Caplin & Drysdale in Washington, D.C., who is also the firm's president, said that in general, "the issuance of a target letter almost always results in an indictment."

But Michel, who has represented numerous clients and banks in the broad probe by the Justice Department, though not Credit Suisse, said he thought that Credit Suisse "would enter into negotiations with the government to try to reach a disposition of the case" in the form of a deferred-prosecution agreement.

A lower Swiss court, the Federal Administrative Court, ruled in 2010 that the decision by Swiss regulatory body FINMA to disclose the initial 255 UBS client names was unlawful.

But on Friday, the Swiss Federal Supreme Court said in a statement that the handover was lawful and necessary because of the threats to UBS and the Swiss economy.

"Such an indictment would have led to the bankruptcy of the bank which in turn would have caused serious and virtually uncontrollable economic repercussions for Switzerland," the Swiss Federal Supreme Court said.

Separately, Switzerland and the United States have been in talks on a multibillion-dollar deal to get the broad investigation of other banks dropped in return for those banks under scrutiny paying a fine, exiting undeclared offshore banking businesses for Americans, and turning over client names to the Internal Revenue Service.

Those talks have become bogged down due to Swiss insistence any deal leave Swiss bankers free from prosecution in the United States, sources said last month.

(Additional reporting by Silke Koltrowitz; Editing by Howard Goller)

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