Oldest Swiss private bank to offer US client names

Wed Nov 9, 2011 6:29pm EST

* Credit Suisse AG, owner of Clariden, took similar action

* Disclosure is latest breach in Swiss financial secrecy

* Comes amid US crackdown on offshore tax evasion

*

By Lynnley Browning

Nov 9 (Reuters) - Clariden Leu AG, with roots that make it Switzerland's oldest private bank, has begun telling certain U.S. customers suspected of offshore tax evasion that it will disclose their names to the U.S. Internal Revenue Service, with the help of Swiss authorities.

The move by the Zurich-based bank, whose parent is Credit Suisse AG , marks a watershed in the battle against Swiss banking secrecy. Credit Suisse acknowledged on Tuesday a Reuters report that it had mailed out its own letters, on its own letterhead, to certain U.S. clients.

Clariden Leu, once a stand-alone subsidiary of Credit Suisse AG, Switzerland's second largest bank, absorbed other private banking divisions of Credit Suisse in 2007. The bank's forerunner was founded in 1755 in Zurich.

Clariden Leu's notification by registered-mail letter, a copy of which Reuters obtained on Wednesday, is similar in wording to one sent out by Credit Suisse. Clariden Leu acknowledged its mailings to an unnamed number of clients in a statement on Wednesday.

The fact that Clariden Leu and Credit Suisse have mailed separate letters on separate letterhead suggests that Credit Suisse is ensuring that all divisions and units of its sprawling private banking operations serving U.S. clients are covered under the latest IRS data request.

SHOWDOWN INTENSIFIES

The move by the two Swiss banks to disclose American client names and account information is the latest event in a showdown between Switzerland and the United States over the withering tradition of Swiss bank secrecy.

U.S. authorities, who suspect tens of thousands of wealthy Americans of evading billions of dollars in taxes through Swiss private banks in recent years, are conducting a widening criminal investigation into scores of Swiss banks and international banks with Swiss operations, including Credit Suisse, HSBC Holdings plc , and Basler Kantonalbank, a large Swiss cantonal, or regional, bank.

Both banks say in their letters that the handover of names and account details will take place following a recent formal request for the information by the IRS. The Clariden letter, like the Credit Suisse letter, says that the IRS request covers accounts maintained at any time over the period from Jan. 1, 2002, through Dec. 31, 2010.

"The US Internal Revenue Service (IRS) recently submitted a request for administrative assistance to the Swiss Federal Tax Administration (SFTA) pursuant to the 1996 double tax treaty between Switzerland and the USA, seeking information with regards to accounts of domiciliary companies belonging to certain US persons as beneficial owners (the Treaty Request)," Clariden said late on Wednesday on its website. "In connection with the IRS Treaty Request, the SFTA has issued an order directing Credit Suisse AG to submit responsive account information to the SFTA."

MAY PRESAGE CREDIT SUISSE DEAL

The Clariden letter, on company letterhead, is dated Nov. 2 and comes from the bank's Zurich headquarters. It is signed by two senior bank executives -- Marcel Schmocker, head of legal and compliance for the bank's executive board, and Peter Schoch, a managing director. Like the Credit Suisse letter, it cites a formal request made by the IRS to the Swiss Federal Tax Administration, or SFTA, via a tax treaty between the two countries.

It was not immediately clear how many U.S. clients had been sent the Clariden letter or the Credit Suisse letter.

The letters may presage the entry by Credit Suisse into a deferred-prosecution agreement with the U.S. Justice Department, which is conducting a criminal investigation of the bank, according to U.S. sources briefed on the matter.

Credit Suisse in July received a target letter from the Justice Department, a formal notice that it was the subject of a federal criminal investigation into its offshore private banking services.

Switzerland is trying to craft a deal with the United States that would cover its entire banking industry of some 355 banks. Switzerland had wanted a deal that covered accounts dating back to early 2009, when UBS AG , Switzerland's largest bank, averted indictment and reached a $780 million deferred-prosecution arrangement with U.S. officials. But the two letters from Credit Suisse and Clariden Leu suggest that U.S. authorities are unwilling to accept a deal that would start with 2009 rather than the January 2002 date cited in the letters.

UNPOPULAR CHOICES

The Credit Suisse letter gives the client two choices: either agree in writing to the turnover of the client's data to the Swiss tax authorities, which will then forward it to the IRS, or hire a lawyer in Switzerland and contest the process, a move that some U.S. lawyers have generally said is futile. Under U.S. law, contesting a handover requires the American client to inform the U.S. attorney general that he is doing so -- a move that effectively discloses the identity of the suspected tax evader to U.S. authorities.

Switzerland has broadly interpreted its tax treaty with the United States to mean that the United States must generally already possess the names of suspected American tax evaders in order to gain further information on their Swiss bank accounts.

Switzerland recently showed signs of softening on that interpretation. In a little-noticed sea change, Swiss government officials said in August that they would consider processing treaty requests based on "behavioral patterns," as opposed to concrete names.

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