The main thing I took away from the Senate report on Credit Suisse's tax-evadery is just how tedious it would be to evade taxes. Here's how Client 1 did it:
Client 1 established an undisclosed account at Credit Suisse in 2005. Client 1 also had undisclosed accounts at FirstCarribbean International Bank Ltd., UBS, Raiffeisen Zentralbank Austria AG, Bank Austria, and, later, Wegelin & Co. In 2008, Client 1’s total offshore assets exceeded $7 million, of which about $2.6 million was in a Swiss account at Credit Suisse. At Credit Suisse, Client 1’s banker was Michele Bergantino for most of the time the account was held at the bank. When Client 1 initially opened the account at Credit Suisse, the bank set forth instructions for the manner in which it would conduct business once the account was open: Credit Suisse would not send Client 1 any mail; Credit Suisse would allow in-person viewing of account statements; and Client 1 should send any account instructions to Credit Suisse via a courier. After 2008, Credit Suisse became more restrictive in its rules for clients communicating with the bank. Mr. Bergantino explained that Client 1 should not contact Credit Suisse from the United States, and was “very serious” that any fax should be from a non-U.S. area code.
In order to tend to the Credit Suisse account, Client 1 usually travelled to meet Mr. Bergantino in Switzerland on an annual basis. Typically, Client 1 informed Mr. Bergantino, in advance of the trip, of plans to visit Switzerland. At each visit, upon arriving at the bank, Client 1 met a Credit Suisse employee in the lobby. When they took an elevator to another floor, Client 1 observed that the elevator had no buttons and was controlled remotely. A bank representative then escorted Client 1 to a nondescript meeting room, painted white, to meet with Mr. Bergantino, instead of meeting in Mr. Bergantino’s office. As was the usual practice, Client 1 viewed the account statements, and then discussed their contents with Mr. Bergantino. Mr. Bergantino then offered Client 1 additional financial products. At the close of each visit, Client 1 signed an order to destroy the account statements that had been reviewed. Whenever Client 1 was visiting the bank, Credit Suisse offered an opportunity to withdraw funds in cash, though Client 1 did not recall ever doing so.
So, sure, it has a certain James Bond panache. But my Chase account has online bill-pay. And if I want to withdraw funds in cash, I just stand up and walk in any direction until I hit a hard object, and 99 percent of the time that object is a Chase ATM. What I don't do is:
- leave the U.S.,
- call my banker to arrange a meeting,
- return to the U.S.,
- wait a week,
- fly to Switzerland,
- meet a guy in a lobby,
- take a remote controlled elevator,
- go to a nondescript white room,
- review statements with a banker,
- sign an order to destroy those statements,
- watch as my banker, I'm going to guess, slowly tears up and eats the statements, possibly in fondue form,
- get offered an opportunity to withdraw funds in cash,
- withdraw funds in cash,
- fly back to the U.S. with my cash,
- buy a sandwich or whatever.
Obviously Client 1 made more money on his offshore investments, and so avoided more taxes, but ugh, doesn't that sound tiresome? The Senate report makes much of the fact that Credit Suisse moved some of its Zurich office to the airport so that its clients who came to Switzerland to ski could do their banking quickly. At today's hearing, Senator John McCain and Credit Suisse chief executive Brady Dougan had a little chat about this:
Dougan agreed, saying the Zurich office was “really an office of convenience,” to which McCain said, “It certainly was.”
The thing about this report -- and about the tax evasion practiced by some number of bad apples at Credit Suisse -- is that it's super boring. U.S. citizens weren't allowed to have untaxed bank accounts in Switzerland. So Credit Suisse bankers flew to the U.S. from Switzerland, traveled around the country telling U.S. citizens to open Swiss bank accounts, and were minimally sneaky about covering it up:
Credit Suisse identified one instance where a supervisory Relationship Manager told a traveling Relationship Manager to lie on a travel report to mask using a U.S. trip to solicit business, which was against bank policy. Instead of reporting the business aspects of the trip, the supervisor told the Relationship Manager to write that he had attended the wedding of a client’s child, which fell within internal bank travel guidelines.
One former customer described how, on one occasion, a Credit Suisse banker travelled to the United States to meet with the customer at the Mandarin Oriental Hotel and, over breakfast, handed the customer the bank statements hidden in a Sports Illustrated magazine.
What? Because the Mandarin Oriental was swarming with undercover IRS agents at breakfast? This stuff is dumb.
There are basically two ways to avoid paying taxes. One is to construct clever shelters and legal entities to harness loopholes in different countries' laws in a way that avoids tax liability. The other way is to just not pay taxes and hope no one notices. Everything here more or less falls into the second category. This is just sneaking around stuffing cash in sacks and then not paying taxes on it, though the sacks of cash get to ride on fancy elevators.
That's not a reason not to hold hearings on it: Credit Suisse sure seems to have helped a lot of people avoid a lot of taxes through stupid crude methods, and a big chunk of the Senate report is on ways to improve U.S. law enforcement's ability to stop those stupid crude methods. All of which seems worthwhile.
But surely the future of tax evasion is not this? Even the Credit Suisse bankers pitching secret Swiss bank accounts called those accounts "dinosaurs" (in 2008!). Surely rich people want both the benefits of tax avoidance and the convenience of online, or telephone, or at least not-flying-to-Switzerland-to-meet-a-guy-in-a-room banking? Surely complex structuring to take advantage of international tax loopholes is where the real money, and convenience, and fun are?
Also I feel like Credit Suisse sometimes shares my sense of fun in matters like this.
This stuff is well-suited for political grandstanding: It is dumb, and obviously illegal, and stuffed with just-about-funny anecdotes. But it mostly took place before 2008, and I suspect that its decline was driven both by improved regulatory efforts and, you know, the fact that it's dumb. When you had to go to your bank to get cash anyway, having to go to your bank in Switzerland to get your hidden cash made sense. In a vastly more efficient and computerized world, the secret-Swiss-account rigamarole seems mostly silly. The future is in tax avoidance through clever, fuzzy, plausibly legal, methods that are less suited to grandstanding, and probably a lot more fun for banks.
By the way, reading this, I kind of want to run a big store scam where I take people's money in a nondescript white room and am like "no, no, it's a perfectly reputable bank, but for Swiss secrecy reasons we have to meet in this white room."
The Senate's exhibits -- they're linked here -- include an e-mail from a Credit Suisse banker about Swiss numbered accounts, saying "those dinosaurs do exist" but that "Between you and I, these accounts are more trouble than they're worth." Instead you should do ... the secret-elevators-and-airports thing?
Obviously, the Senate thinks the bad apples were rather prevalent, while Credit Suisse is more in a "Some Swiss-based private bankers went to great lengths to disguise their bad conduct from Credit Suisse executive management" place.
Relatedly, Swiss bankers are not allowed to sell U.S. securities to U.S. people in the U.S. So when the Swiss bankers at Credit Suisse -- as opposed to the U.S. broker-dealer employees -- gave their U.S. clients investing advice, that was more or less totally illegal. Thus the $196 million fine that Credit Suisse paid to the SEC last week.
Some is borderline, as when the CS bankers advise their clients on setting up offshore entities to open Swiss accounts. But even if you do that you gotta disguise the ownership of the entities, not call from your home phone, etc. etc. etc.
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