Justice Department Targets Credit Suisse, Israeli Banks for Tax Dodging

Bankers at Credit Suisse helped their affluent American clients hide billions in assets from the IRS, according to a Senate investigative report released Tuesday.

The Swiss banking giant is currently under investigation by the U.S. Justice Department for allegedly aiding tax evasion by its rich clients, is even accused of opening a special Zurich airport branch to enable their customers to fly in, meet with their private bankers and then go skiing after conducting business, CNN reported the Senate investigators as saying.

According to this new Senate report, Credit Suisse held more than 22,000 accounts for American customers, and the assets of these accounts are valued at between $10 billion and $12 billion. Furthermore, about 95% of the accounts weren’t reported for to the IRS for tax purposes, CNN reported.

In a recent statement, Credit Suisse acknowledged that misconduct had occurred at the bank in the past. A small group of Swiss-based private bankers had violated its policies, without the knowledge of executive management, according to CNN.

“We accept responsibility for and deeply regret these employees’ actions,” it said.

The bank also claimed to have terminated the business that provided offshore banking to U.S. residents and was involved in the alleged violations, and the bank had also cooperated with investigations as far as it was able to under Swiss law.

As CNN explained, Credit Suisse is the latest bank to be scrutinized under business practices that U.S. authorities say has illegally helped customers avoid paying billions in taxes. The government has cracked down on the practice – Swiss Bank UBS paid $780 million in 2009 to settle similar charges.

CNN has reported that a total of 14 banks are currently under criminal investigation.

Sen. Carl Levin, a Democrat who heads the Senate investigations panel that produced the 175-page report, criticized Justice, the bank and Swiss authorities.

“After years of investigating, negotiating and jaw boning the U.S. has names for just 238 of those 22,000 Credit Suisse customers,” Levin said. UBS, as part of its 2009 settlement, turned over the names of 4,700 account holders.

The practice isn’t exclusive to Switzerland, and that is not the only nation U.S. officials are pursuing. According to the Times of Israel, “Israel was named specifically as a country where US authorities were tracking down tax cheats, implementing policies that leave banks little choice but to comply and hand over account information to the American authorities.”

The investigations into Credit Suisse and Israeli banks are part of an overall effort Washington began in 2010 to collect taxes from Americans abroad.

As the Times of Israel explained it, the strength in the U.S. tax collection effort is FATCA — the Foreign Account Tax Compliance Act. FATCA targets financial institution and imposes “rules that are likely to make them much more amenable to helping the US tax man get his due. Beginning July 1, banks in countries around the world — including Israel — will have to report to the US government the existence of accounts in their institutions belonging to US citizens. If they don’t, the government will require that 30% of all funds transferred to that institution be withheld.”

But the government is not waiting for FATCA to begin before pursuing tax cheats and has actively been pursuing them since the UBS settlement in 2009.

The investigation program has been wildly successful, according to the Times of Israel, which cited as sources  Deputy US Attorney General James M. Cole and Assistant Attorney General, Tax Division, Kathryn Keneally.

In a statement to the Senate during a hearing about tax compliance, both officials said the real success has been in persuading people to pay back taxes without legal action.

“These high-profile enforcement actions created pressure on non-compliant taxpayers to correct their tax returns to report previously undisclosed accounts,” the statement said. “According to the IRS, since the inception of the investigation against UBS, over 40,000 taxpayers have reported previously secret accounts through the IRS’s offshore voluntary disclosure programs, and have paid over $6 billion in back taxes, interest, and penalties.”

The two officials now state that institutions in other countries, including Israel, will be getting the “Swiss Bank treatment.”

“While the Department’s enforcement focused initially on cross-border activities in Switzerland, it has expanded to include wrongdoing by US account holders, financial institutions, and other facilitators globally, including publicly disclosed enforcement concerning banking activities in India, Israel, Liechtenstein, Luxembourg, Barbados, and other Caribbean countries,” the officials said.

Chaim Korn, an authority on US tax issues, told the Times of Israel that Israel is being targeted because it is “apparently related to the banking activities of Swiss branches of three major Israeli banks,” including Bank Leumi, Hapoalim, and Mizrachi. “These banks, along with many banks in Switzerland, have been under investigation from the US authorities for suspicion of helping their customers avoid reporting and paying taxes to the IRS. The Treasury has decided, it seems, to investigate the parent banking institutions in Israel and several other countries, as well.” Regardless of the reason, said Korn, American citizens in Israel would do well to get their tax house in order, as the process of having the IRS do it for them is likely to be painful, to say the least.

Credit: Jewish Voice