Credit Suisse Faces Fresh Pressure Over Untaxed Americans - Wall street journal

Credit Suisse CS -4.07% Group AG pleaded guilty in 2014 to conspiring to help thousands of Americans cheat on their taxes. Eight years later, a set of problematic customer accounts still haunts the bank. U.S. Justice Department officials have found deficiencies in the bank’s handling of its 2014 plea agreement, according to people familiar with the case. In a sign of the seriousness the bank places on the tax case, new general counsel Markus Diethelm attended recent meetings with the DOJ to give personal pledges toward reaching a resolution. The re-emergence of the tax cheating case is the latest challenge for the Swiss lender’s new management team, which is working on an overhaul and recapitalization. Financial losses, scandals and lawsuits battered Credit Suisse over the past two years. Credit Suisse’s lawyers have told the Justice Department that they want to turn a corner and to demonstrate the bank’s compliance, according to the people familiar with the case. In addition to the DOJ case, the Senate Finance Committee started a probe last year and is expected to release a report in the coming weeks highlighting tax-related problems that continued at Credit Suisse after 2014. “Credit Suisse is in regular contact with the DOJ to report on the post-plea account remediation work undertaken pursuant to the bank’s 2014 plea,” a bank spokeswoman said. “The bank has devoted substantial resources to these efforts and is committed to a continuous improvement culture regarding compliance.” A Justice Department spokeswoman declined to comment. NEWSLETTER SIGN-UP The 10-Point. A personal, guided tour to the best scoops and stories every day in The Wall Street Journal. PREVIEW SUBSCRIBE Credit Suisse is at a delicate moment in its 166-year history. Later this month, shareholders are expected to approve a $4 billion capital call from investors. The bank said it would cut 9,000 jobs, spin off its investment bank and sell whole business lines. Shares in the bank remain depressed and its executives’ nerves are raw after an internet frenzy in September questioned Credit Suisse’s health. The restructuring is meant to heal wounds, especially the $5 billion loss from the collapse of Archegos Capital Management in spring 2021. The bank’s new general counsel, Mr. Diethelm, who joined from rival UBS Group AG, is seeking to clear the bank’s substantial legal troubles. Earlier this year, Credit Suisse was ordered by a Bermuda court to pay $607 million to a billionaire former client, who sued for breach of contract and fiduciary duty after his private banker made unauthorized stock bets. Mr. Diethelm attended a second trial in Singapore in September, at which Credit Suisse’s Singapore trust unit admitted breaching its duties. The tax case was mostly resolved years ago. Credit Suisse agreed in 2014 to root out and shut any remaining undeclared accounts, following a purge. It paid $2.6 billion to settle the matter with the Justice Department and other authorities, and for years had a monitor on-site acting for New York’s Department of Financial Services. It promised to provide the DOJ with information on the accounts it shut and where the money went next. Failing to do so left it open to further punishment. Unlike some other agreements made between prosecutors and companies, that promise—a kind of corporate probation—doesn’t have an end date. Bank executives hope the current talks could lead to the probation ending. Credit Suisse and the Justice Department haven’t discussed further monetary penalties, the people familiar with the case said. Justice Department officials have questioned the bank about hundreds of millions of dollars in accounts belonging to U.S. citizens that the bank closed soon after its guilty plea, but didn’t immediately report, according to the people familiar with the case. That gave some taxpayers scope to move their accounts elsewhere undetected. The department is also concerned that Credit Suisse didn’t implement uniform policies globally to make sure bank employees handled such accounts appropriately, according to the people. Bloomberg News previously reported details of the Justice Department’s investigation. The Justice Department under the Biden administration has cast a sharper eye on allegations of misconduct at companies after they admit to crimes. Deputy Attorney General Lisa Monaco said last year that prosecutors would take a tougher stance on companies with long rap sheets. This year, the department has taken other steps highlighting a more aggressive approach to white-collar crime. For decades, Swiss banks were seen as fortresses to store untaxed assets with ultimate secrecy. Swiss bankers ferried money to American customers at discreet meetings in airport lounges and resorts, and opened offshore trusts for them to avoid detection by the Internal Revenue Service. In the 2000s, U.S. authorities launched multiple probes of Swiss banks, leading to a slew of criminal and civil actions. To avoid its banks being shut out of the U.S. financial system, Switzerland agreed they could share information on American account holders. Shortly after Credit Suisse agreed to the 2014 settlement, a former employee alleged to the Justice Department that Credit Suisse was still concealing accounts. In 2016, a University of Rochester professor pleaded guilty to amassing $200 million that wasn’t declared to the IRS. In a lawsuit last year filed in federal court in Virginia, the former Credit Suisse employee claimed the bank continued to conceal some Americans’ assets after the plea agreement, which the employee said defrauded the U.S. government. The lawsuit was an unusual one, brought under a law that is used to combat fraud in government contracting and healthcare programs. The ex-employee, a former banker on Credit Suisse’s Israel desk in Zurich, was unnamed in the case. The DOJ asked for the lawsuit to be dismissed, saying it could interfere with continuing discussions with Credit Suisse about remaining Swiss accounts held by U.S. citizens. The bank didn’t respond to the lawsuit before a judge dismissed the case. A lawyer for the former employee, Jeffrey Neiman, said his client is hopeful that the Justice Department holds Credit Suisse to account over the matter. The bank declined to comment on the ex-employee’s allegations. Write to Margot Patrick at margot.patrick@wsj.com and Aruna Viswanatha at aruna.viswanatha@wsj.com Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8 WHAT TO READ NEXT...