Judge Confirms $1.8 Billion Fine Against Credit Suisse for Tax Evasion

Old street with homes in Zurich decorated with flags for the Swiss National Day, 1st of August

My discussion yesterday about international cooperation against tax avoidance was particularly timely, I suppose.  Today, U.S. District Judge Rebecca Beach Smith confirmed the deal Credit Suisse struck in May to plead guilty to conspiracy to aid and assist U.S. taxpayers in filing false income tax returns with the Internal Revenue Service (IRS). The company will pay a total of $2.6 billion, including $1.8 billion to the U.S. Treasury.

If there was a Credit Suisse whistleblower, we could know in the next year.  Credit Suisse will pay a fine of $1.136 billion and restitution of $666.5 million.  There is also the potential for a civil tax assessment.  The IRS whistleblower program pays a reward of between 15 and 30 percent of the amount collected to eligible whistleblowers in cases qualifying for §7623(b).  Similar to the Dodd-Frank programs, it also authorizes payments for “related actions”.  I haven’t taken a complete look at this issue here, but at first glance it seems that the $715 million payment to the New York Department of Financial Services could lead to a payment as a related action.

However, the IRS may not pay off on the full amount because some of it will be considered a criminal penalty.  The agency has declared criminal fines off limits to the program – they are not “collected proceeds” that can trigger a payment.  So there may not be the potential for a $500+ million award that is theoretically possible with a settlement of this size.

In February, Credit Suisse agreed to pay $196 million to settle charges the company provided services to U.S. clients while not appropriately registered in the country.  It followed that up with the settlement at issue here in May.  Here is the original press release from the DOJ in May as well as the SEC press release in February.  The latest press release is located here.

This is the second major tax case against a Swiss bank to be settled.  The 2009 settlement with UBS resulted in a penalty of $780 million to the IRS and an additional $200 million to the SEC.  It also resulted in the largest award ever to a tax whistleblower, $104 million to Bradley Birkenfeld.

Credit Suisse now holds the honors for the largest penalty in a criminal tax evasion case with the United States.  However, UBS may soon be able to reclaim its spot as #1 in the world for a tax fine.  France has also been pursuing the company for its efforts to help clients avoid taxes and the settlement amounts being discussed in the media range up to $6 billion.

The confirmation of the CS settlement extends the large fines that have been imposed on financial institutions in the 2014 calendar year.   Most recently, the CFTC imposed a $1.4 billion penalty on 5 banks for currency market manipulation.  The DOJ collected $24 billion in Fiscal Year 2014, and that doesn’t include the money from the $16 billion settlement with Bank of America.