Department of Justice. (Photo: Diego M. Radzinschi/NLJ.)
The U.S. is pressing for guilty pleas from the parent companies of banks under investigation, including Credit Suisse Group AG, in a marked departure from the past, according to a person familiar with the negotiations.
Whether prosecutors would be willing to accept a guilty plea from a smaller unit rather than insisting on the bank holding company has been debated since authorities started speaking this year about imminent criminal actions in speeches, tweets and even a video this week from the U.S. Attorney General.
Credit Suisse is trying to settle a U.S. tax evasion probe that could include a penalty of more than $1 billion, according to another person familiar with the talks. Discussions could lead to a penalty of $1.6 billion or more, according to a third person. All the people asked not to be identified because the talks are confidential.
A guilty plea by the bank’s holding company or a unit isn’t a foregone conclusion, said the person who described the government’s focus on the parent company. While prosecutors have won guilty pleas from subsidiaries of large banks, they haven’t gone after holding companies since the financial crisis. Such an action against Credit Suisse could alarm customers and other banks that do business with it, said Bryan Skarlatos, an attorney at Kostelanetz & Fink LLP in New York who teaches on subjects including tax prosecutions at New York University School of Law.
“There could be serious regulatory consequences that would prevent the bank from engaging in its usual business in the U.S.,” he said. “The ultimate victims would be the employees and shareholders.”
U.S. Attorney General Eric Holder is seeking to blunt criticism from lawmakers that the Justice Department considered large banks immune from prosecution after the 2008 financial crisis because of their size and importance to the economy. Holder has been faulted for settlements that let banks escape criminal charges while paying fines, admitting wrongdoing and improving controls.
At least 20 such agreements with financial firms including Credit Suisse, UBS AG, HSBC Holdings Plc, and JPMorgan Chase & Co. have been entered into during Holder’s five-year tenure, according to reports published by law firm Gibson Dunn & Crutcher LLP.
Prosecutors also have extracted guilty pleas from Japanese units of Royal Bank of Scotland Group Plc and UBS AG as part of settlements involving the manipulation of the London interbank offered rate, or Libor. Those agreements didn’t affect the main bank holding companies.
At the same time they’re seeking to levy harsher punishment for wrongdoing by banks, prosecutors are wary of pushing the banks too far. Justice officials have met with regulators for assurances that charging the parent company doesn’t result in the revocation of their charters or the failure of the bank, one of the people said.
The U.S. is also seeking a guilty plea from the parent company of Paris-based BNP Paribas SA, which is under investigation for possible violations of sanctions barring business with prohibited countries, the person said. BNP Paribas said last week that it may need to pay more than the $1.1 billion it had already set aside for the case. The probe focuses on dealings tied to Iran, Sudan and Cuba, a person with knowledge of the matter said earlier this year.
The conduct in both cases, including the behavior of the banks during the probes, is what’s driving the push for a criminal charge, said one of the people.
Prosecutors may ultimately charge a Credit Suisse unit instead of the whole firm, said Scott Michel, a tax lawyer at Caplin & Drysdale in Washington. CS International Advisors AG was incorporated in December with a Swiss banking license. In February, Credit Suisse moved assets and liabilities related to the U.S. cross-border business into the unit, according to records from the Commercial Register of the Canton of Zurich.
“It has the earmarks of a structural step that somebody has thought of to try to protect the bank as a whole in the event that a guilty plea is required,” Michel said.
Calvin Mitchell, a spokesman for Zurich-based Credit Suisse, and Cesaltine Gregorio, a BNP Paribas spokeswoman, declined to comment on the talks with U.S. authorities. Brian Fallon, a Justice Department spokesman, didn’t return an email seeking comment.
Holder said in a video message posted on Monday that the Justice Department is readying criminal cases against banks, challenging the notion that some financial institutions are “too big to jail.”
Preet Bharara, U.S. attorney for the Southern District of New York, signaled in a March speech that a big bank would be charged soon. “You can expect that before long a significant financial institution will be charged with a felony or be made to plead guilty to a felony,” he tweeted the same day.
A Senate subcommittee, in a report released in February, said 1,800 Credit Suisse employees helped Americans open 22,000 accounts, most of which were hidden from the Internal Revenue Service. Chief executive officer Brady Dougan apologized to lawmakers during a Feb. 26 hearing and deflected blame onto a small group of employees.
The Justice Department failed to use all its legal tools in its criminal probe of whether Credit Suisse, the second-largest Swiss bank, helped U.S. clients evade taxes, according to the subcommittee report. Lax enforcement also allowed Credit Suisse to turn over the names of only 238 U.S. account holders to prosecutors, the report stated.
Credit Suisse said April 3 it set aside $486 million in provisions for the probe, in addition to $337 million for U.S. tax matters in 2011. The bank agreed to pay $196.5 million in February to settle related claims by the Securities and Exchange Commission.
A U.S. resolution with Credit Suisse would allow the bank to move forward and put other financial institutions on notice: “Get to the table and negotiate a prompt resolution now,” said Charles Rettig, a tax lawyer with Hochman Salkin Rettig Toscher & Perez PC, in Beverly Hills.