Swiss bank pleads guilty to wrongdoing
Credit Suisse has done what no other huge bank has done in more than two decades: pleaded guilty to criminal wrongdoing.
In a sign that global banking giants are no longer immune from criminal charges — despite public concern that financial institutions have grown so large and interconnected that they are “too big to jail” — federal prosecutors demanded that Credit Suisse’s parent company plead guilty to helping thousands of U.S. account holders hide their wealth and evade taxes.
A representative of Credit Suisse accepted the plea agreement in a 45-minute hearing in U.S. District Court in Alexandria, Va.
As part of a deal with the Justice Department, the Swiss bank agreed to plead to one count of conspiring to aid tax evasion. Credit Suisse, which has a giant investment bank in New York and whose chief executive is an American, will also pay about $2.6 billion in penalties and hire an independent monitor for up to two years.
The severe rebuke from federal prosecutors — as well as from the Federal Reserve and New York state’s banking regulator, Benjamin Lawsky, who agreed to punish the bank without shutting it down — stems in part from Credit Suisse’s failure to fully cooperate with the U.S. government.
The resulting plea deal will strike a blow at overseas tax dodging and the shadowy world of Swiss bank secrecy, which had become a hallmark of the country’s financial system and the scorn of U.S. policymakers. The deal also signals a shift in prosecutors’ policy, representing the first time since Drexel Burnham Lambert pleaded guilty in 1989 that a giant bank has entered a guilty plea in the United States.
It took months of careful planning. Recognizing that criminal charges could prompt regulators to revoke a bank’s license to operate, the corporate equivalent of the death penalty, prosecutors met with the Fed and Lawsky to discuss punishing Credit Suisse without putting it out of business and imperiling the economy, according to interviews with people briefed on the matter who were not authorized to speak publicly.
The Credit Suisse plea will not be the last. The case, which comes some three years after federal prosecutors in Virginia indicted eight Credit Suisse bankers, will provide a template for prosecuting other financial misdeeds — both present and future.
BNP Paribas, France’s largest bank, is next in line to plead guilty in the coming weeks, the people briefed on the matter said. The bank, which is suspected of doing business with countries like Sudan and Iran that the U.S. has blacklisted, also will pay more than $5 billion in fines, the people briefed on the matter said, and Lawsky is planning to penalize a dozen or so bank employees.
The BNP and Credit Suisse cases also may lay the groundwork for criminal actions against U.S. banks. The new strategy applies to banks such as JPMorgan Chase and Citigroup, which are both the subject of criminal investigations, but those inquiries are at an earlier stage and it is unclear whether they would warrant charges.
But the public and congressional lust for Wall Street accountability may linger. For one, the plea deal with Credit Suisse will not require the bank to turn over the names of its U.S. clients, a hot-button issue in Congress. Credit Suisse has argued that Swiss law prevented it from turning over the names of its clients.
And moving forward, extracting a guilty plea from a U.S. bank still could prove challenging for prosecutors.
While many foreign banks with operations in New York are regulated by Lawsky and the New York Fed, the vast majority of large U.S. banks are overseen by a different regulator, the Office of the Comptroller of the Currency. Even though the comptroller, Thomas J. Curry, has been a fierce critic of erring banks, he has warned prosecutors that federal law could force him to revisit a bank’s charter if it is criminally convicted.
What is more, the cases against Credit Suisse and BNP will not quell the lingering outrage over the financial crisis. While the Justice Department levied billions of dollars in penalties on JPMorgan and a number of other banks at the center of the crisis, those cases were civil rather than criminal.
The notion that a criminal conviction could jeopardize the financial system stems from the experience of Arthur Andersen, the accounting firm for failed energy giant Enron. In the aftermath of a 2002 criminal conviction, Arthur Andersen went out of business.
After that collapse, which claimed thousands of jobs, prosecutors adopted a more tentative approach to punishing big companies: In socalled deferred-prosecution agreements, charges against corporations are suspended in exchange for fines and other concessions.