Credit Suisse Pressed by Senator on $200 Million Tax Fraud
(Bloomberg) -- Credit Suisse Group AG, already under pressure for losing $5.5 billion in the collapse of Archegos Capital Management, must now answer questions from a powerful U.S. senator about a seven-year-old tax evasion scandal.
Senate Finance Committee Chairman Ron Wyden wrote Tuesday to Credit Suisse and the Justice Department, asking their leaders to explain how the lender’s banking unit could have pleaded guilty in May 2014 to enabling U.S. tax evasion but failed to disclose more than $200 million in accounts held by an American.
Wyden asked Credit Suisse Chief Executive Thomas Gottstein and Attorney General Merrick Garland about the bank’s handling of accounts held by former business professor Dan Horsky. After whistle-blowers told the Justice Department about the accounts in July 2014, Internal Revenue Service agents approached Horsky in 2015. He cooperated with U.S. authorities and pleaded guilty to tax fraud in 2016.
“If Credit Suisse did not report Mr. Horsky’s accounts to the DOJ, IRS or any other element of the government prior to July 2014, please explain why,” Wyden wrote. “Is this attributable to a lapse in internal controls in which Credit Suisse failed to identify Mr. Horsky as the beneficial owner of these accounts, or a willful decision not to report the existence of these accounts?”
Wyden said “important questions” exist “as to whether Credit Suisse fully complied” with its plea agreement. He gave Gottstein and Garland -- President Joe Biden’s newly appointed AG -- until May 11 to reply.
“Following our settlement in 2014, Credit Suisse has cooperated fully with U.S. authorities and will continue to do so,” a bank spokesperson said. A Justice Department spokesperson declined to comment.
Wyden, an Oregon Democrat, sent his letters two weeks after IRS Commissioner Charles Rettig told the Senate Finance Committee that tax evasion in the U.S. may total $1 trillion a year, with complex offshore structures playing a major role in hiding money from the IRS. Finance Committee members are discussing bipartisan ways to address the problem.
In plea talks with the bank, prosecutors set a criminal fine range of $1.33 billion to $2.66 billion. They allowed Credit Suisse to pay the lower amount as part of an overall $2.6 billion settlement in 2014. Lingering questions about the plea deal could open the door to collecting more money from the bank.
The Wyden letter to Credit Suisse asked about February 2014 testimony in the Senate by former CEO Brady Dougan, who said the bank “will be completely compliant going forward” with the Foreign Account Tax Compliance Act. FATCA required foreign banks to report accounts held by “U.S. persons.” Wyden also asked whether Horsky’s accounts were among 22,000 that Dougan testified were held by U.S. customers.
The letter to Garland said the bank had promised to close “any and all accounts of recalcitrant account holders” but didn’t disclose those held by Horsky.
Bloomberg News reported in November 2016 that U.S. investigators wanted to know why the Swiss bank neglected to tell them about the Horsky accounts. He cooperated with criminal investigators examining whether the bank helped clients with ties to Israel evade U.S. taxes. His accounts were considered “toxic” on the bank’s Israel desk because they were hidden from the IRS using methods like those that led to Credit Suisse’s guilty plea, the people said.
In 2017, Horsky was sentenced to a seven-month jail term and paid back taxes, fines and penalties of $125 million. He has since moved to Israel. The status of the Justice Department’s investigation of Credit Suisse couldn’t immediately be determined.
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