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U.S. senators scold prosecutors, Swiss bank in tax spat

The logo of Swiss bank Credit Suisse is seen in front of a branch office in Zurich November 21, 2013. REUTERS/Arnd Wiegmann
The logo of Swiss bank Credit Suisse is seen in front of a branch office in Zurich November 21, 2013. REUTERS/Arnd Wiegmann

By Douwe Miedema and Patrick Temple-West

WASHINGTON (Reuters) - U.S. senators lashed out at federal prosecutors on Wednesday for a lack of zeal in going after Swiss banks that helped Americans dodge taxes, blaming both sides for billions of dollars in missed revenues.

The Senate Permanent Subcommittee on Investigations this week alleged new misdeeds by Switzerland's Credit Suisse, citing secret meetings in luxury hotels and hidden elevators one senator said belonged in a spy novel.

But the senators saved some their harshest criticism for two Justice Department officials who testified at the hearing after a morning session with bankers.

"You have been incredibly slow over a five-year period," said Arizona Senator John McCain, referring to the moment that Swiss bank UBS admitted to helping U.S. clients hide money from the tax man and handed over their names.

"You're doing a job that, frankly, has not shown any progress. ... The taxpayers' dollars are not well spent by the way you and your organization," said McCain, the highest ranking Republican on the committee.

The Justice Department is probing 14 Swiss banks over taxes after UBS became the first major bank to settle over the charges. Two smaller Swiss banks have had to close shop as a result of the U.S. investigation.

In a lengthy report this week, the senators said Credit Suisse bankers secretly traveled to the United States, sometimes on tourist visas, describing one customer who got bank statements tucked into the pages of an issue of Sports Illustrated magazine at a hotel meeting.

The report said Credit Suisse opened accounts for more than 22,000 U.S. customers, with combined assets of $12 billion. The bank has accepted responsibility for wrongdoing by its staff.

Switzerland has amassed assets worth trillions of dollars from foreigners over the past decades, aided by its tight bank secrecy laws, but the business has come under threat from politicians and regulators abroad.

TREATY SITUATION CITED

During the hearing, Credit Suisse bank laid out a detailed defense, saying that the perpetrators were a small group of Swiss-based bankers, and that while it wanted to hand over more client names, it was caught between U.S. and Swiss law.

"Credit Suisse is ready to provide the additional information requested by the U.S. authorities on U.S. account holders, but we have been unable to do so," the bank said in a statement provided at the hearing.

Credit Suisse had provided as much information as allowed under Swiss law, it said, and while it wanted to provide more client names, the U.S. Senate had not ratified a bilateral treaty with Switzerland that would allow it to do so.

Subcommittee Chair Carl Levin, a Michigan Democrat, poured cold water on that argument, saying the treaty will only expose U.S. accounts at Swiss banks after 2009, when it was signed.

If U.S. customers closed their accounts before 2009, they could evade detection and years of U.S. tax bills, Levin said, which Credit Suisse bankers acknowledged.

"We can't collect taxes owed by those folks, which is what the heart of the problem is. ... Don't tell us the treaty is going to get us what we want," he said. "It won't."

Levin also scolded the Justice Department for only having retrieved 238 client names from Credit Suisse - and none from the other banks under investigation. But the Justice Department officials said their work did show good progress.

Credit Suisse said it was a "demonstrably inappropriate assumption" that all 20,000 U.S. clients were tax cheats, saying many U.S. clients, such as expatriates living in Switzerland, had a valid reason to hold a Swiss bank account.

NEW SEC PROBE

Credit Suisse last week settled charges levied by the U.S. Securities and Exchange Commission, admitting to wrongdoing and paying $196 million in fines. But a settlement with the Justice Department is not imminent, a person familiar with the matter has told Reuters.

"This fine ... pales in comparison with the severity of the full extent of Credit Suisse's misconduct," said McCain.

Levin also grilled Credit Suisse over the way it accounted for new client money it had earned, a matter the bank admitted some of its staff had mishandled, even if the issue was not directly related to helping clients avoid taxes.

The report cited emails from staff asking whether money could be booked in a different region to make end-quarter numbers look better. The bank did not condemn the practice per se but said the emails looked out of line.

The U.S. securities regulator, the Securities and Exchange Commission, has been investigating the bank over the issue since last fall, a source familiar with the matter said. The SEC and Credit Suisse declined to comment on that matter.

Credit Suisse's larger rival, UBS, admitted to helping U.S. taxpayers hide money and paid a $780 million fine in 2009.

Evidence culled from the UBS probe, as well as thousands of Americans coming forward under a tax amnesty program, has fed a second wave of investigation, which has ensnared Credit Suisse and 13 other Swiss banks.

(Additional reporting by Aruna Viswanatha in Washington; Editing by Kevin Drawbaugh, Stephen Powell and Jonathan Oatis)

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