Tuesday, November 8, 2011

Credit Suisse tells U.S. clients it will disclose names

Nov 7 (Reuters) - Credit Suisse AG, Switzerland's second-largest bank, has begun notifying certain U.S. clients suspected of offshore tax evasion that it intends to turn over their names to the U.S. Internal Revenue Service, with the help of Swiss tax authorities. Credit Suisse's notification by letter, a copy of which was obtained on Monday by Reuters, says the handover of names and account details will take place following a recent formal request for the information by the IRS.

The move by Credit Suisse to disclose American client names and account information is the latest twist in a showdown between Switzerland and the United States over the battered tradition of Swiss bank secrecy. U.S. authorities, who suspect tens of thousands of wealthy Americans of evading billions of dollars in taxes through Swiss private banks in recent years, are conducting a widening criminal investigation into scores of Swiss banks, including Credit Suisse.

The letter, on Credit Suisse letterhead, is dated Nov. 2, comes from the bank's Zurich headquarters and is signed by two senior Credit Suisse executives. It cites a formal request made by the IRS to the Swiss Federal Tax Administration, or SFTA, via a tax treaty between the two countries.

Seeking information.  "The IRS is seeking information with regard to accounts of certain U.S. persons owned through a domiciliary company (as beneficial owners) that have been maintained with Credit Suisse AG," the letter said. It added that the recipient of the letter, whose name was redacted in the copy obtained by Reuters, fell into the category of clients sought by the IRS. Domiciliary companies are a type of shell company.

"In connection with the IRS treaty request, the SFTA has issued an order directing Credit Suisse to submit responsive account information to the SFTA," the letter said. "This order is immediately executable and Credit Suisse as an information holder has no right to appeal."

It was unclear how many U.S. clients had been sent the letter. David Walker, a spokesman for Credit Suisse, declined to comment on the matter. The letter says that the IRS request covers accounts maintained at any time over the period from Jan. 1, 2002, through Dec. 31, 2010. The letter was signed by Michel Ruffieux and Stephan Gussman, both managing directors at Credit Suisse.

Credit Suisse in July received a target letter from the U.S. Justice Department notifying it that it was the subject of a federal criminal investigation into its offshore private banking services. Switzerland is trying to craft a deal with the United States that would cover its entire banking industry of some 355 banks.
It is unclear how many American clients of Credit Suisse hold private banking accounts that have gone undeclared to U.S. tax authorities.

Two choices. The Credit Suisse letter gives the client two choices: either agree in writing to the turnover of the client's data to the Swiss tax authorities, which will then forward it to the IRS, or hire a lawyer in Switzerland and contest the process. Under U.S. law, contesting a handover requires the American client to inform the U.S. attorney general that he is doing so — a move that effectively discloses the identity of the suspected tax evader to U.S. authorities.

Switzerland has broadly interpreted its tax treaty with the United States to mean that the United States must generally already possess the names of suspected American tax evaders in order to gain further information on their Swiss bank accounts.

Switzerland recently showed signs of softening on that interpretation. In August, Swiss government officials said they would consider processing treaty requests based on "behavioral patterns," as opposed to concrete names. Many Swiss banks turned over broad statistical data, meaning behavioral patterns, for their American clients in September, following a request from the U.S. Justice Department's second in command, Assistant Attorney General James Cole, to do so.
Scott Michel, a tax lawyer with Caplin Drysdale in Washington, D.C., said that the letter could mean one of two things: either the United States was taking softer steps to bolster the thrust of its target letter to the bank, or Credit Suisse was in the process of reaching a settlement with U.S. authorities. Such a settlement, following the receipt of a target letter, would typically be a deferred-prosecution or non-prosecution agreement. He said the fact that the Swiss tax authorities had ordered Credit Suisse to provide it the data to hand over to the IRS represented "a further erosion of longstanding Swiss bank secrecy."