Saturday, August 18, 2012

Swiss Banks Rat Out Their Employees to U.S. (8/18/12; revised 8/21/12)

Reports are that the Swiss banks are ratting out their employees.  See Giles Brown, HSBC, Credit Suisse Sacrifice Employees To U.S., Lawyers Say (Bloomberg 8/16/12), here.

Here are some excerpts:
Swiss banks are turning over thousands of employee names to U.S. authorities as they seek leniency for their alleged role in helping American clients evade taxes, according to lawyers representing banking staff. 
At least five banks supplied e-mails and telephone records containing as many as 10,000 names to the U.S. Department of Justice, according to estimates by Douglas Hornung, a Geneva- based lawyer representing 40 current and former employees of HSBC Holdings Plc’s Swiss unit, Credit Suisse Group AG (CSGN) and Julius Baer Group Ltd. (BAER) The data handover is illegal, said Alec Reymond, a former president of the Geneva Bar Association, who is representing two Credit Suisse staff members. 
“The banks are burning their own people to try and cut deals with the DOJ,” said Hornung. “This violation of personal privacy is unprecedented in the Swiss banking industry.” 
* * *
While Swiss companies are usually prohibited from sending evidence to assist foreign legal proceedings, the country’s governing Federal Council authorized an exemption in April at the request of an undisclosed number of banks. 
“The Federal Council had no right to grant permission for banks to send any information to a foreign authority,” said Marcel Niggli, a professor of law at the University of Fribourg. “The companies know the risk of penalties in Switzerland is insignificant compared with the business risk in the U.S. It’s a cold-blooded action by the banks.” 
First Attack 
The banks have sent copies of employees’ passports as well as packages of correspondence to the Justice Department, according to Hornung, who has lodged complaints on behalf of four HSBC and Credit Suisse employees with the Swiss federal Attorney General’s Office and regional prosecutors in Geneva and Zurich. 
* * * * 
The deterrent value of having the names of bank employees and prosecuting them may be even greater to the Justice Department than getting details of all U.S. client accounts, said Milan Patel, a partner at Zurich-based law firm Anaford AG. 
“If one banker is indicted or detained in a hotel room as a material witness, that resonates in Switzerland,” said Patel. “Even if the DOJ does not prosecute anyone, Swiss bankers are still concerned about their names being sent to the DOJ.”
The Swiss banks' throwing of their employees under the bus may be analogized to KPMG's similar conduct in the early 2000s when the DOJ prosecutors were conducting a grand jury investigation of abusive tax shelters in which KPMG played a major role.  But, it seems to me, the KPMG situation was different.  KPMG was being threatened with a death penalty for the organization if it did not cooperate by delivering up  its partners / employees by setting them afloat without any support.  I don't think the Swiss banks are really staring a potential death sentence.  They are just trying to avoid greater penalties.  As always with the Swiss, it is all about money, and if they have to serve up employees, well that is just a cost of conserving the money.

Addendum 8/21/12:  Tax Notes reports (Shamik Trivedi, Swiss Attorney General Declines to Prosecute Banks That Turn in Their Own 2012 TNT 162-4 (8/21/12)):
Switzerland's Office of the Attorney General on August 20 declined to file criminal charges against government officials and Swiss bank executives involved in authorizing the transfer of information to the Justice Department identifying current and former bank employees, according to the employees' lawyer. 
* * * * 
The DOJ is investigating 11 Swiss banks for allegedly assisting clients to evade U.S. tax obligations. Hornung  [a Swiss lawyer] represents 40 current and former employees of Julius Baer, HSBC, and Credit Suisse. In addition to those banks, Basler Kantonalbank and Zürcher Kantonalbank have made employee disclosures to the DOJ, he said. 
Most employees who have been reported to the DOJ likely had little contact with U.S. clients, Hornung said. As an example, he claimed that of the 1,200 employees reported by HSBC, only 17 had any direct contact with U.S. clients. Most employees caught up in the disclosure were administrative personnel whose emails may have contained specific key words, such as "U.S. person," "U.S. account," "U.S. tax," or some derivation of that, he said. 
Jeffrey A. Neiman, formerly a DOJ prosecutor on the UBS matter who is now in private practice is quoted as questioning this is a sincere response on behalf of the Swiss banks or just another example of smoke and mirrors.  The Swiss banks may be just serving up of these employees to get a better deal (meaning having to pay less).


  1. Well, well, well. Is anyone at all surprised? Here's an irony: many of the ratted out employees will have good information to sell the U.S. government, but if they do they will have committed a crime in Switzerland. And if they leave Switzerland (we may assume they are unemployable there), they may get extradited to the U.S. And the horns of that dilemma are kind of sharp.

    Seems Monsieur Birkenfeld may have his revenge after all, in a schadenfreude sort of way.

    Is there anything the Swiss will not do for money?

  2. "As always with the Swiss, it is all about money..." Really? The entire nation, including each and every citizen? Maybe you just mean "many Swiss banks", Jack.

  3. Maybe "Swiss" is a bit of hyperbole, but not much. Without referring to any specific Swiss person, the Swiss have allowed a culture of criminal complicity via their banks (perhaps not all of them, but on a weighted basis, by far the bulk of them). We saw this with the Holocaust victims and should not be surprised at their behavior as they assisted potentates stealing from their people, money launderers and tax cheats. It is all about the money. And the Swiss through their Government condoned and supported the activity through a web of friendly laws and behavior. So, I do think it is systemic where the whole society was recruited to support a system that should not be tolerated in civilized society. Throughout the society, there were many who knew and many who looked the other way (sound familiar?), but apparently not enough asking about the golden rule -- treat others as you would have them treat you. The Swiss are now professing indignation that some of its citizens / nationals may be breaking Swiss laws (whistleblowers) when the Swiss banks have for years been breaking the laws of other nations with impunity until now.

    The only contrition I perceive in the Swiss is that they were caught, not that they were misbehaving.

    Jack Townsend

  4. Where I have a problem and continue to have a problem is the US in some sense is condoning these tactics which are really about letting the Swiss Banks preserve access to the US Securities and Financial Markets for the their "non US" clients few of which I suspect are actually Swiss residents and many are in serious violation of their home country's tax laws. I feel the DOJ and IRS by letting these banks off the hook through settlements is in some sense allowing the continued violation of other countries tax laws by Swiss Banks and their non US customers. These banks should have to file 1042-S forms for all of their non US clients describing the extent of their account holders US securities holdings and the then the IRS can decide whether its is appropriate to share them with the account holder's country of residence(based on legitimate legal and privacy issues which I suspect in many cases would be quite minimal).

  5. There are other people in Switzerland besides bankers and government officials who make laws for them. Quite a few others whose lives are not centered around banking at all.
    Very few have the focus of an American tax lawyer.

    And a normal Swiss "man in the street" likely views "banking privacy" as the same kind of "basic human right" as Americans see the "right to bear arms". Mainly its what they've been taught and told. (Both "rights" are nonsense, in my not alway humble opinion, but the proponents think they are somehow holy.)

  6. If the Swiss people are to be judged by the policies of their government, then the American people should be very harshly judged based on their own government's policies. There is a long list of evils perpetrated on the world by the US government in the name national interest. The attempted confiscation of immigrants/expats assets on the flimsiest of pretences is one I'm intimately familiar with, but it wouldn't rate a mention in the context of other awful US government policies. A morale judgement of what civilised behaviour looks like is relative to one's world view.

    I doubt American individuals would be very happy to be personally subjected to retribution by aggrieved non-Americans impacted by US government policies.

    If there is one irony from the movement of Swiss banking to supposed greater transparency it is that secret banking services are now needed more than ever. Until recently there has been little legitimate need for the fabled "secret bank accounts"; maybe the client list for this service largely consisted of criminal elements. There were probably some people who genuinely faced dire consequences from having their financial affairs known to their government (e.g. anti-government activists in certain countries). But now, thanks to the US government, there are millions of people who do face disproportionately punitive sanctions for the offence of not having a filed a piece of paper (FBAR); a piece of paper that few have been aware of and that the US government has not cared to publicise until recently. Between the IRS extortion racket targeting immigrants and expats via the OVDI (and FBAR penalties in general), and the FATCA witch-hunt for those same people, there is now "legitimate" need for millions of people to actively hide their accounts from the US government. Of course my view of "legitimate" is that of a non-American; one of the millions who do (or would) see the recent US policies towards immigrants/expats as obscene, unfair, and discriminatory.

  7. sounds like a great idea! all the cheated nations should cooperate, maybe this would be a good chance for Americans to make new friends around the world

  8. Then the US complains about WikiLeaks. Cry babies!

  9. Not to condone anything that may have been done by certain Swiss banks or bankers, but major US banks take in plenty of undeclared funds from Latin America and the rest of the world. See for example "Miami’s international banking clients move money to protect financial privacy""
    Of course these people aren't hiding their money in the US or evading taxes, but are simply "international banking clients" whose goal is to "protect financial privacy."

