When European financial giant Credit Suisse AG pleaded guilty to assisting U.S. taxpayers evade federal income tax, there was a great deal of swagger at the Justice Department. Former Attorney General Eric Holder, in classic Clint Eastwood style, boldly proclaimed that “no financial institution. . .is above the law,” and that any other bank which dared engage in such “brazen misconduct” would be “prosecut[ed] to the fullest extent possible.” Not to be outdone, Deputy AG James Cole warned investors that, if government investigators began asking questions, “[o]nly through full cooperation will you avoid the most severe sanctions.”

Tough words, indeed. But what is behind the Justice Department’s bravado, and what options do you have if you get a not-so-friendly phone call or if authorities suddenly appear at your door with a subpoena?

Anatomy of the Case

Credit Suisse’s “brazen misconduct” began in 2009, when it began helping its customers in the United States open overseas accounts to conceal their income and assets from the IRS. Specifically, according to court documents, Credit Suisse helped clients set up sham entities. The bank then falsified IRS forms which stated that the sham corporations were the legitimate owners of these assets.

If falsifying IRS forms was more than enough to convince you of how far Credit Suisse was willing to go to perpetrate this fraud, you might be surprised to find out that that does not take the cake. Incredibly, that was only the tip of the iceberg. In classic textbook fashion, Credit Suisse attempted to cover up its misdeeds by destroying the actual records, in the same way that an assailant who, after beating his victim to a pulp, might attempt to cover up his tracks by using Clorox to “clean up” incriminating evidence left behind at the crime scene.
Not content to limiting its misconduct to violations of the Internal Revenue Code (i.e., violations of federal criminal tax statutes under Title 26 of the U.S. Code), Credit Suisse also dabbled into the Bank Secrecy Act, violating the anti-structuring statute. How so? By structuring transactions in such a way as to avoid the reporting requirements and by providing debit cards to consummate the transactions. The bank naively thought that these tricks would help its clients stay off the government’s radar.

But it doesn’t stop there. There were also technical violations. For example, some managers gave financial advice even though they were not licensed to do so in the United States. That was like waiving a red flag in front of a bull. Indeed, federal prosecutors wasted no time in adding wire and mail fraud charges as well. Every time you click send, pick up the phone or lick a stamp in furtherance of a conspiracy, that’s another count in the indictment.

In February 2011, a Virginia grand jury indicted four Credit Suisse employees. Four other indictments were returned the following July. In the early spring of 2014, two individual defendants pleaded guilty. Typically in a conspiracy case, when one defendant enters a guilty plea, the others soon follow, like a row of dominoes falling one on top of the other. This case stayed true to form, and Credit Suisse pleaded guilty in May 2014.

What was the punishment? When the smoke cleared, U.S. District Chief Judge Rebecca Beach Smith assessed a whopping $1.136 billion fine against Credit Suisse, and also ordered it to pay $666.5 million in restitution. The bank also wrote checks for $715 million to the New York State Department of Financial Services and $100 million to the Federal Reserve. Credit Suisse had already paid $ 196 million to the Securities and Exchange Commission (SEC) for violating federal securities laws.

As is often the case, Credit Suisse agreed to cooperate fully with the government in any further proceedings against it, as well as take remedial measures which prosecutors deemed appropriate. Specifically, the bank agreed to the following:

(1) To fully disclose its cross-border activities;

(2) To provide detailed information pertaining to any other banks that transferred funds into accounts maintained by U.S. accountholders or that accepted funds when “secret accounts” were closed; and

(3) To close accounts belonging to U.S. accountholders who cannot certify that they are in full compliance with U.S. reporting obligations.

This news is likely to put those with undisclosed offshore accounts at Credit Suisse on heightened alert. To the extent that the IRS learns about a taxpayer and his unreported foreign account before the taxpayer comes forward to report it, it is too late for the taxpayer to take advantage of the Offshore Voluntary Disclosure Program (OVDP). In that case, the taxpayer could potentially face criminal prosecution and/or onerous FBAR penalties.

For as bad as things might be for Credit Suisse, they could get even worse. Why? Under the plea agreement, Credit Suisse may not challenge the restitution amount. In other words, the IRS can use this as grounds for making a civil tax assessment, which would create yet another contentious legal battle, this time on the civil front.

Credit Suisse attempted “to play it off,” by claiming that it was business as usual. But with the benefit of knowing what fate has befallen similar banks that remained insubordinate in the face of U.S. investigations into their business practices, it is hard to imagine that Credit Suisse has not given at least some thought to changing its ways when it comes to marketing and conducting business with U.S. taxpayers.

On that front, Credit Suisse can learn a valuable lesson from Wegelin & Co., another Swiss banking giant. Back in 2009, Wegelin remained insubordinate in the face of a U.S. investigation into its business practices. Specifically, it encouraged its U.S. clients to “exit from all direct investments in U.S. securities …”

Four years later, Wegelin was indicted. And shortly thereafter, it was no more. While Credit Suisse has so far managed to survive the choppy seas of the new Foreign Account Tax Compliance Act (FATCA), that does not mean that it is out of the woods. If recent dents in the armor of Swiss bank secrecy are any indication, Credit Suisse will have to change its ways or suffer a fate similar to Wegelin: an untimely death.

Your Response

If you have an offshore account, there is a good chance that investigators are already looking at your books. Have an experienced financial crimes attorney examine your records, because a lawyer can identify red flags and help you deal with them. Also be prepared to give a reason for your offshore account, e.g., “I have relatives in France who need support” or “I frequently visit the Bahamas and need to access funds quickly while I’m there” or “I have business interests in Guam.”

If investigators come to your door with a subpoena, other than calling your lawyer, there are some damage control steps that you can take:

• Send all nonessential employees home. The fewer the people, the lesser the likelihood that someone says something incriminating.

• Get a copy of the subpoena and the charging instrument. You have the right to know why they are there and what they are authorized to do.

• Follow the investigators and go where they go. If you can make a video recording, that’s even better.

• Copy everything they take and everything they examine.

• Debrief employees as soon as the investigators leave.

These steps can also help your attorney prepare an effective defense in court.

You’ve worked hard to accumulate your wealth. If the government tries to take it away, know that you have legal options to keep what is rightfully yours.

Original Post By:  Michael DeBlis