Credit Suisse Deal Under Scrutiny

On August 12, 2014, in Alexandria, Virginia, U.S. District Court Judge Rebecca Smith will hold a sentencing hearing on the proposed Credit Suisse guilty plea.

Will the judge rubber stamp the Credit Suisse settlement agreement with the government?

And will the taxpayer victims of the the Credit Suisse crime challenge the agreement?

Under the agreement, Credit Suisse will plead guilty to one felony charge and pay $2.6 billion.

The equivalent of a parking ticket. A rounding error.

So says James Henry, a senior fellow at the Columbia University Center for Sustainable International Investment.

And he’s looking at pulling together a coalition of parties to intervene before Judge Smith at the August 12 sentencing hearing.

“We will know shortly whether we have the critical mass to proceed with this,” Henry told Corporate Crime Reporter in an interview last week. “It’s a big job to intervene. You just don’t want to do it as a pro forma exercise. To get a hard hitting analysis together is a big job. And this would be all pro bono. But the settlement is window dressing. And it sets a very bad precedent for these other banks. If they are all able to get off with parking tickets, then this kind of behavior and variations of it will continue.”

“The Justice Department is missing a great opportunity. How often are you going to catch these people red handed? Next time they will be much more careful. They will move the assets into the names of Swiss trustees who are not technically doing business in the United States.”

“The fine is tax deductible in Switzerland,” Henry said. “It’s $1.8 billion after taxes. Taxpayers in Switzerland are going to be hit with about $800 million of the $2.6 billion. And the $1.8 billion is on the order of two quarters of net earnings for the bank. And they had already reserved about half of that. And the stock price went up in the wake of the settlement. Even though formally, it was a guilty plea to a felony — one count of a conspiracy to evade taxes — it effectively had no impact. They had arranged with the other regulatory agencies in the United States, like the Federal Reserve, to allow them to retain their status of a bank operating in New York. And they had full access to the financial centers. And they were allowed to stay as a prime dealer of United States debt — which is kind of ironic since tax evasion leads to increased borrowing.”

“No Credit Suisse bankers had to leave their jobs. There were no senior management changes. Same chairman of the board. Same vice chairman of the board. Bradley Dougan, who was the CEO of the bank since 2007 — he’s still there. As he said after the settlement was announced — this will have a trivial effect on our performance.”

“The most glaring thing about the settlement was that the Justice Department did not demand the names of the U.S. taxpayers who were involved here. Under the terms of the UBS deal, the bank was required to give up the names of the U.S. taxpayers. But under the Credit Suisse deal, there had been no violation of bank secrecy. In fact, it has been reinforced. Switzerland argues — these are our laws and we have to respect our laws. But the Justice Department could have made that a condition.”

“They really chose not to. At the end of the day, the other 13 banks lined up for plea bargains are looking toward this settlement as an indication of what they would get. You have major banks like HSBC, which had a Geneva office — they are under investigation. There are three Israeli banks with Geneva offices. Julius Baer, which is a big Swiss bank. And there are several cantonal banks under investigation as well.”

“I look at this as a very weak settlement, especially as compared to the BNP settlement that is reportedly coming down soon. And the question is — why would Credit Suisse walk away with such a light tap? The public looks at $2.6 billion as a big number. But it’s really a rounding error for these folks.”

And why would they walk away with “such a light tap”?

“Political influence,” Henry says matter of factly.

“The Obama administration is absolutely riddled with people who have Swiss bank connections. Eric Holder worked as a partner at Covington & Burling. He was the Assistant Attorney General back in 2001 when the Marc Rich pardon came down. Rich was indicted. He was a fugitive from justice. It was the largest tax case in U.S. history up until that point. He and his partner fled to Switzerland to evade the indictment. The pardon was uniformly condemned by everyone except Holder and the lawyers for Marc Rich.”

“Roll forward to 2009. Covington represented UBS Financial Services. In the last four years, they have been retained by Credit Suisse. I’m sure Holder wants to go back to Covington.”

“Credit Suisse also went out and hired John Podesta’s consulting firm. John Podesta was chief of staff to President Clinton. And now he’s a counselor to President Obama.”

“More generally, Swiss interests are everywhere in this administration. The general counsel at the Internal Revenue Service, William J. Wilkins, was a partner at WilmerHale, another big DC firm with lots of revolving door connections to this administration. In the 1990s, he was a registered foreign agent for the Swiss Bankers Association. Lloyd Cutler negotiated a representation agreement in the summer of 1992. And in December 1992, you had Wilkins sitting down with the head of the Swiss Banking Association in Zurich.”

“He continued in the 1990s to be a registered representative. But then in late 1996, there was an interesting change in the federal law. They got rid of this foreign registration requirement for law firms. And they just are allowed to register as lobbyist. WilmerHale continued to represent the Swiss Banking Association throughout the 1990s and into the 2000s. Wilkins gets appointed chief counsel of the IRS in 2009, and he’s presiding over these whistleblower cases.”

What would have been a just settlement against Credit Suisse?

“The bank should have lost some licenses,” Henry says. “It should have lost — at the least — it’s prime dealership. The settlement still has to be approved by the federal judge in Virginia on August 12. The judge has to review and accept the sentence. There will be a review of the plea.”

Will Henry lead a group of intervenors?

“The judge is free to consider victims’ statements,” Henry said. “And the victims in this case are the American people, the American taxpayers. And this is a serial offender. We are not talking about an institution that was engaged in casual activity here. This was a case of more than 680 Credit Suisse bank employees over decades, running a secret operation out of Zurich, Geneva and New York. They came to the United States sub rosa, they helped people falsify tax returns and the reporting requirements Americans with foreign bank accounts are required to make to the IRS. They set up a secret office in the Geneva airport available to at least 22,000 Americans.”

“This wasn’t a casual activity. It’s just an incredible admission. The only admission that rivals it in particularity is Credit Suisse’s admission statement from December 2009, when they negotiated a deferred prosecution with Holder for violating our sanctions against trading with enemies like Iran and other sanctioned countries.”

“Look at the Justice Department back in the late 1980s, during the savings and loan crisis, which maybe had one seventieth the impact of the more recent crisis in 2008. In the savings and loan case, you had maybe thousands of bank executives investigated. The Bush administration sent 880 bank executives to jail. The Obama administration sent almost nobody to jail. There are eight lower level Credit Suisse bankers under indictment. Two of them are awaiting trial. But they are all junior people.”

“The only way we can explain that is to look in detail at the network of influence that major banks have acquired through lobbyists, through their political contributions. The financial services industry, if you add up all their spending on lobbyists, have averaged about $2,500 per day per Congressman from 1990 to 2008 — and that leaves out the last five years.”
“Since 2010, Credit Suisse and UBS have averaged about $5 million a year each on lobbying and campaign contributions in Washington.”

[For the complete q/a transcript of the Interview with James Henry, see 28 Corporate Crime Reporter 24(12), June 9, 2014, print edition only.] 


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