US prosecutors file criminal charges against Credit Suisse

Credit Suisse is expected to pay more than USD 2.5 billion to the U.S. Department of Justice, the Federal Reserve and the New York State Department of Financial Services to settle the charges.

Reuters| Updated: May 20, 2014, 03:19 AM IST

Washington/New York/Zurich: U.S. prosecutors criminally charged Credit Suisse and two of its units with conspiring to willfully help Americans evade taxes, and the Swiss bank is expected to plead guilty later on Monday.

Credit Suisse is expected to pay more than USD 2.5 billion to the U.S. Department of Justice, the Federal Reserve and the New York State Department of Financial Services to settle the charges.

A plea hearing is scheduled for 1730 EDT, a filing in the Eastern District of Virginia court showed.

The bank will be submitting to a rare criminal conviction, three sources said, amid a push by U.S. politicians for tougher punishments for big banks.

The Justice Department has not frequently pursued such convictions of financial firms, especially global companies that could become destabilized following an indictment.

Chief Executive Brady Dougan, who has come under pressure from Swiss politicians to resign, and Chairman Urs Rohner, would both stay in their jobs as part of the settlement, a person close to Credit Suisse said on Monday.

"There are no plans for a senior management shake-up or board changes," this person said, adding that contracts of some people lower in the bank would be terminated. The person did not give any individual names.

Spokesmen for Credit Suisse and the New York State Department of Financial Services, a spokeswoman for the Fed, and the Department of Justice declined to comment.

A source familiar with the negotiations said the settlement was expected to be more than USD 2.5 billion, with about USD 2 billion going to the federal government, while the New York`s Department of Financial Services potentially would get roughly another USD 700 million.

The bank feared that a bigger financial settlement would threaten its credit rating, a separate source said.

Credit Suisse helped clients use sham entities to disguise the ownership of the accounts, destroyed account records, and structured fund transfers to evade reporting requirements, prosecutors said. The Swiss bank also facilitated withdrawals from the undeclared accounts by either providing hand delivered cash to the United States or using Credit Suisse`s correspondent bank accounts in the U.S., the Justice Department said.


New York bank regulators expressed concern about management during the talks, and discussed replacing Dougan and others, a source familiar with the negotiations said. But in the end, the option was not made a condition of the deal.

Christoph Blocher, vice president of the right-wing Swiss People`s Party (SVP) this weekend called for Dougan and Rohner to step down, joining similar appeals from Social Democrat and Conservative Democrat politicians.

Some on Credit Suisse`s board were also unhappy with how Dougan had handled the case, another source familiar with the matter said last week, though it was not clear who the board members were, or what consequences, if any, this would have.

They were blaming Dougan for the fact that the bank`s U.S. woes were dragging on for far longer than the case of rival bank UBS , this person said, which settled a similar probe in 2009 by paying a USD 780 million fine.

A Credit Suisse spokesman declined to comment about Dougan and Rohner.

U.S. authorities have not often sought criminal convictions against a financial institution, fearing it could put a firm out of business, and result in lost jobs for people that had nothing to do with the crime, or jeopardize the financial system.

Lloyd Blankfein, who heads Goldman Sachs , has warned that guilty pleas from banks such as Credit Suisse would have an unpredictable effect on markets, the FT reported last week, though he would try to keep trading with such banks.

Financial markets so far have been calm in the face of potentially stiff penalties against Credit Suisse. There have been no indications other banks have stopped doing business with the Swiss bank. It is still obtaining short-term funds in the repo and commercial paper markets, analysts said.