Excerpt: "Credit Suisse has agreed to pay a $2.5 billion fine to authorities in the United States for helping Americans evade taxes after becoming the largest bank in 20 years to plead guilty to a U.S. criminal charge."



The logo of the Swiss banking giant Credit Suisse in Zurich. (photo: AFP)

Credit Suisse Pleads Guilty to Aiding Tax Evasion, Escapes the Worst

By Katharina Bart, Karen Freifeld and Aruna Viswanatha, Reuters

redit Suisse has agreed to pay a $2.5 billion fine to authorities in the United States for helping Americans evade taxes after becoming the largest bank in 20 years to plead guilty to a U.S. criminal charge.

The bank's guilty plea resolves its long-running dispute with the United States over tax evasion, but could have implications for the clients and counterparties that do business with the group.

Credit Suisse said it had not seen a material impact in the past few weeks on its business, and that clients faced no legal obstacles from doing business with it despite the guilty plea.

Switzerland's second largest bank escaped what could have been the worst outcome for its business - its top management stayed in place and it will not have to hand over client data, protected by Swiss secrecy laws. And the New York state bank regulator decided not to revoke the bank's license in the state.

U.S. prosecutors said the bank helped clients deceive U.S. tax authorities by concealing assets in illegal, undeclared bank accounts, in a conspiracy that spanned decades, and in one case began more than a century ago.

"This case shows that no financial institution, no matter its size or global reach, is above the law," Attorney General Eric Holder said at a news conference in Washington.

"We deeply regret the past misconduct that led to this settlement," Credit Suisse CEO Brady Dougan said on Tuesday.

The Justice Department has not often pursued such convictions of financial companies, especially large ones that could become destabilized following an indictment. But U.S. politicians have pushed for tougher punishment for big banks in response to the 2007-2009 financial crisis.

Credit Suisse will pay the penalties to the U.S. Department of Justice, the Internal Revenue Service, the Federal Reserve and New York's banking regulator, the New York State Department of Financial Services. It had already paid just under $200 million to the Securities and Exchange Commission.

Switzerland's left-wing Social Democrats renewed a call first made last week for Dougan and other executives to step down to allow the bank to make a fresh start.

Asked whether he had considered such a move, Dougan, a 24-year veteran of the bank who took over as CEO in 2007, said resignation had "never been a consideration" and he remained committed to the bank.

New York bank regulators discussed replacing Dougan and others, a source familiar with the negotiations said. But in the end, the option was not made a condition of the deal.

The Swiss government said its main concern was that Credit Suisse was managed well and could move on, and that any change in leadership "wasn't the concern of politics."

The bank's chairman, Urs Rohner, told Swiss radio on Tuesday that he and CEO Dougan personally had a clean record, but the same could not be said for the bank's behavior in past decades.

Switzerland's regulator effectively cleared the two, saying it had found no evidence that Credit Suisse top management knew of specific misconduct.

APPEASING INVESTORS

Credit Suisse will take an after-tax charge of 1.6 billion Swiss francs ($1.79 billion) in the second quarter for the fine, which dwarfs a $780 million penalty Swiss rival paid to settle a U.S. tax dispute in 2009.

To appease investors, the bank will begin paying out roughly half its profits to shareholders once it hits a key capital ratio. It will also reduce assets, sell real estate and take other actions to help to meet the 10 percent capital ratio, which it expects to achieve by year-end.

Credit Suisse shares were up 2.2 percent by 5:17 ET (0917 GMT), outpacing a 0.6 percent firmer European banking sector.

"We see the size of the fine as affordable given the high ROE (return on equity) of Credit Suisse's businesses," Nomura analyst Jon Peace said. Peace, who rates the stock as a "buy", said the payout guidance gave the bank a yield premium compared to the sector.

But some analysts said clients and counterparties could pull their business due to the guilty plea.

"While we expect that this event has been well-flagged and the impact likely to be muted, there is always the small risk of unintended consequences," Citigroup analysts Kinner Lakhani and Nicholas Herman wrote in a note to investors.

HAND-DELIVERED CASH

The United States has been trying to wrest client data from Swiss banks in a long-standing fight with Switzerland and its bank secrecy laws. The standoff has already forced Wegelin & Co, the oldest Swiss private bank, to close shop after a guilty plea to charges of helping U.S. clients evade taxes.

Credit Suisse, which has a large business managing wealthy clients' money, helped them withdraw funds from their undeclared accounts by either providing hand-delivered cash to the United States or using Credit Suisse's correspondent bank accounts in the United States, the Justice Department said.

Prosecutors said Credit Suisse had around 22,000 U.S. client accounts worth around $10 billion, which included both declared and undeclared accounts, although the bank will not hand over any data of its American clients as part of the deal.

Bank account data, protected by Swiss secrecy laws, has proven a sticking point in the Credit Suisse probe and in the wider U.S. crackdown on the industry.

Credit Suisse's plea raises questions about roughly a dozen other Swiss banks including Julius Baer and Bank Pictet & Cie, also under criminal investigation in the U.S.

On Tuesday, Swiss finance minister Eveline Widmer-Schlumpf said there were no metrics to determine potential fines or other measures for those banks, but she expected their settlement talks to be resolved in coming months.

Credit Suisse pleaded guilty not only because of its complicity in tax evasion, but also because of its poor cooperation in the investigation, prosecutors said. It did not begin an internal probe until early 2011, and did not preserve some evidence of the wrongdoing, documents showed.

New York's banking regulator said it would place a monitor of its choosing inside Credit Suisse, while the Fed said it was investigating whether other individuals should be subject to actions such as fines or bans. It did not name the individuals.

The last major international bank to plead guilty was France's Credit Lyonnais, which admitted in 2004 to lying to U.S. regulators about its role in the takeover of a failed California insurer. The bank was acquired in the year before the agreement by bigger rival Credit Agricole.

Mary Jo White, chair of the U.S. Securities and Exchange Commission, on Monday said no bank was immune from criminal charges. Holder has expressed a similar view, saying prosecutors are working closely with other regulators to address potential consequences before taking action.

Still, negotiations overall had not gone well for Credit Suisse, a source familiar with the situation said.

Credit Suisse's legal team had initially tried to keep the fine below $600 million or $800 million, but the numbers quickly outstripped that target, this source said.