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“Too big to jail” OR “too big to fail”?

June 4, 2014 - by Nida U.
Too big to jail or too big to fail

In 1856 Alfred Escher founded "Schweizerische Kreditanstalt". The original purpose of which was to finance the expansion of the Nordostbahn/North-East Railway railroad network. And it was a big success and Credit Suisse evolved into a leading financial services provider globally.

Centuries of good reputation has recently been struck down by the charges for tax evasion, followed by the guilty plea by Credit Suisse’s main bank subsidiary.

What was their WRONGDOING?

According to the recent annual report Credit Suisse AG, the ultimate parent, has several subsidiaries and most of the business of the firm is conducted through the subsidiaries.

One of the Credit Suisse subsidiaries began this practice more than a century ago…

  • Fake accounts: Assisted U.S. clients in creating secret offshore accounts using sham entities and foundations to create “fake”, undeclared accounts.
  • Evading currency reporting requirements: Structured transactions to evade reporting requirement, by helping clients to withdraw money from “the” accounts by providing hand delivered cash, as well as using correspondent bank accounts in the U.S.
  • Covering up the crime: In order to cover up the crime did not maintain U.S. account information and destroyed records sent to U.S. clients.

BIG Bank BIG Step. Credit Suisse AG pleads: “Guilty!”

This is the first case in more than a decade when such a large financial institution has pleaded guilty. Credit Suisse AG pleaded guilty to aiding and abetting tax evasion in the U.S., on May 19, 2014, and was fined $2.815 billion by the U.S. government and New York State.

Even though the fine is somewhat large, some may argue. Perhaps the fine is too small for this size of bank, is there a reason for such a light punishment? This size of bank, commencing this size of breaches should perhaps have relatively higher punishment?

Logically, if U.S. actually is sticking to their target of fixing the tax evasion problem and taking it seriously, Credit Suisse license should be revoked, top executives punished and fraudulent customers brought to justice, by actually demanding the for the names to be revealed.

So what stands behind this?

POSSIBLE REASONS GETTING OFF SO LIGHTLY:

Many junior Credit Suisse employees are being investigated, however no punishment was given to the senior executives. No names of the U.S. citizens will be revealed. Strange facts indeed…

Maybe U.S. government does not want these names to be released? Perhaps these individuals are somewhat important, since U.S. has treated this case so gently. If U.S. would have taken away Credit Suisse banking license, would the bank respond by revealing the names of the individuals?

Perhaps the strategy used here is same as in Barclays (UK) case (Libor Scandal). Where the bank pleaded guilty and cooperated, and subsequently UK regulators moved on to other banks and treated them in a different and firmer manner.

And yes, we already know that thirteen Swiss banks could follow and face criminal probes of their own. Their fate will be decided based on the degree of wrongdoing and cooperation with investigators, which are the two most important factors in determining appropriate penalty. And according to Swiss Finance Minister Credit Suisse case set a new standard for punishment in the U.S. for offshore tax evasion, and may quicken the remaining cases.

Since Credit Suisse pleaded guilty, approximately hundred Swiss banks and around 50 thousand U.S. taxpayers disclosed in detail how the evasion worked to the U.S. Justice Department, in order to avoid prosecution for disclosing information. The information derived has helped the U.S. in strengthening their cards against these thirteen banks.

As for Credit Suisse – the guilty plea, the stain of being a felon, the regret (Brady Dougan, chief executive, said: “We deeply regret the past misconduct that led to this settlement.”), and financial fines, actually is IT. Other than that the implications most likely will be limited to loosing few clients…

Thank you for reading my post! And you are welcome to leave comments, feedback, suggestions for other posts or contact me for more information.

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