Credit Suisse Taken by Surprise in Five-Nation Tax Probe

EghtesadOnline: Credit Suisse Group AG and its home country of Switzerland were surprised by a tax evasion and money laundering investigation that spans five countries from Australia to the U.K. and potentially involves thousands of account holders.

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01 April 2017

Two people were arrested by Dutch authorities, who also seized a gold bar, paintings and jewelry and are still probing dozens more suspected of concealing millions of euros in Swiss accounts, the Netherlands’ Fiscal Information and Investigation Service said Friday. Criminal investigations are also underway in France, Germany, the U.K. and Australia, and the roles of bank employees are part of the inquiries, Bloomberg reported.

“The sheer volume of data and its international scope makes this an exceptional case,” said Thierry Boitelle, a lawyer with Bonnard Lawson in Geneva.

The probes could jeopardize Chief Executive Officer Tidjane Thiam’s efforts to focus Credit Suisse on wealth management and to boost capital depleted by fines for past misbehavior. The bank said its offices in London, Paris and Amsterdam were “contacted” on Thursday by authorities in connection with client tax matters, and that it’s cooperating with the authorities.

‘Proactive Stance’

The timing of the investigation came as a surprise, said Iqbal Khan, the head of the bank’s international wealth management unit. He added that the probe concerns individuals outside the bank and said that no assets held at Credit Suisse were confiscated. “We’ve taken a proactive stance” on tax compliance in Europe, Khan said.

The raids were done without informing authorities in Switzerland, that country’s attorney general’s office said in a statement. The Swiss aren’t conducting a criminal probe into the matter, a spokeswoman said.

“If the Swiss authorities wish to receive information on the investigation, we, the other countries involved and Eurojust, are always willing to discuss with them," said Marieke van der Molen, spokeswoman for the Dutch public prosecutor’s office. She added that they received no information about Swiss residents.

Credit Suisse fell 1.2 percent to 14.90 francs in Swiss trading, the second-worst performance in the Bloomberg Europe Banks Index.

In a statement Friday from Zurich, Credit Suisse said it has “implemented Dutch and French voluntary tax disclosure programs and exited non-compliant clients,” and has applied a withholding tax agreement with the U.K. since 2013.

Dutch Tipoff

The tip that triggered the investigation came from one or more informers to a team in the FIOD, the criminal investigation service of the Dutch Tax and Customs Administration, said spokeswoman Wietske Visser. The five countries coordinated their actions through the European Union’s Judicial Cooperation Unit, which said in a statement that the investigation started in 2016 and that further actions are likely in the next few weeks.

Thiam, 54, had been looking to shake off the negative publicity from a series of tax evasion scandals that plagued his predecessor. Credit Suisse was fined $2.6 billion in 2014 after admitting it helped Americans cheat on their tax obligations, and conducting what then-U.S. Attorney-General Eric Holder called a “shamefully inadequate internal inquiry” into the wrongdoing.

In Europe, Credit Suisse agreed in October to pay about 109.5 million euros ($117 million) to Italian authorities to resolve a probe into the bank’s use of insurance policies allegedly designed to help clients evade taxes, five years after paying 150 million euros to settle a tax evasion dispute with the German government.

Evasion Crackdown

Thiam, who took over the top job less than two years ago, has pledged to focus on wealth management, and has had to deal with fresh scandals and fines unrelated to tax evasion. Credit Suisse has had to defend its role in allegations of criminal fraud and negligence to the detriment of Russian and Turkish clients by former employees of its wealth management unit. The bank also agreed in December to pay a $2.48 billion civil penalty to resolve a U.S. investigation into its mortgage-backed business.

“The impact for the bank is very hard to assess right now, but generally I’d say it’s a setback for every private bank when you are being investigated,” said Chirantan Barua, an analyst at Sanford C. Bernstein & Co. in London. “The pressure on offshore private banking will be relentless over coming years.”

Credit Suisse isn’t alone. Eighty Swiss banks have entered into non-prosecution agreements with the Department of Justice in return for disclosing details on how tax evasion by their banking clients worked. UBS Group AG, Switzerland’s largest bank, turned over client names and paid $780 million in 2009 to settle its own dispute over tax evasion with the U.S. government.

The fresh investigations come as Credit Suisse begins implementing a new global standard for the automated exchange of information for its European locations. About 100 countries, or jurisdictions, including Switzerland, have agreed to collect data from banks to share annually with other tax authorities, making it harder for tax dodgers and money launderers to hide money with private banks.

International Reach

The Netherlands has shared information about 55,000 people with accounts at a Swiss bank with authorities outside the country, Van der Molen at the Dutch public prosecutor’s office said. Information about a further 3,800 Dutch people was also received, and in the Netherlands there are "dozens of suspects," she said.

“The investigation has brought to light several thousand bank accounts opened in Switzerland that weren’t declared by their owners to French tax services,” The French financial prosecutor said in a statement.

The U.K. tax authority is investigating “senior employees” at a global financial institution, it said in a statement. “The international reach of this investigation sends a clear message that there is no hiding place for those seeking to evade tax,” the U.K. authority said in its statement.

Australia’s Serious Financial Crime Taskforce said it had identified 346 of its citizens “with links to Swiss banking relationship managers alleged to have actively promoted and facilitated tax evasion schemes.”

“Taskforce agencies are working through their intelligence to determine the taxpayers in this group who have done the right thing, and those who have been concealing the true nature of their tax affairs,” Australia’s Minister for Revenue and Financial Services Kelly O’Dwyer said in a statement. “The message from these investigations makes it clear that governments worldwide are shining a light on offshore tax evasion, and it’s only a matter of time before you’re in the spotlight.”