United States Senate PERMANENT SUBCOMMITTEE ON INVESTIGATIONS Committee on Homeland Security and Governmental Affairs Carl Levin, Chairman John McCain, Ranking Minority Member OFFSHORE TAX EVASION: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts MAJORITY AND MINORITY STAFF REPORT PERMANENT SUBCOMMITTEE ON INVESTIGATIONS UNITED STATES SENATE RELEASED IN CONJUNCTION WITH THE PERMANENT SUBCOMMITTEE ON INVESTIGATIONS FEBRUARY 26, 2014 SENATOR CARL LEVIN Chairman SENATOR JOHN McCAIN Ranking Minority Member PERMANENT SUBCOMMITTEE ON INVESTIGATIONS ELISE J. BEAN Staff Director and Chief Counsel ROBERT L. ROACH Counsel and Chief Investigator ALLISON F. MURPHY Counsel ANGELA MESSENGER Detailee JOEL CHURCHES Detailee MARY D. ROBERTSON Chief Clerk ADAM HENDERSON Professional Staff Member HENRY J. KERNER Staff Director and Chief Counsel to the Minority MICHAEL LUEPTOW Counsel to the Minority ELISE MULLEN Research Assistant to the Minority BENJAMIN DRISCOLL MEGAN SCHNEIDER Law Clerk Law Clerk ELIZABETH FRIEDRICH ALEX ZERDEN Law Clerk Law Clerk JACOB ROGERS Law Clerk Former Subcommittee Staff Who Contributed ANDREW DOCKHAM Counsel to the Minority for Senator Tom Coburn DENNIS BOGUSZ Congressional Fellow ELENA BEGUNOVA LANE POWELL Law Clerk Law Clerk GIGI GOOD DYLAN TEGGART Law Clerk Intern THARUNI JAYARAMAN DORIS WEIL Law Clerk Law Clerk JULIE KOVIN Law Clerk 2/25/14 (1335) Permanent Subcommittee on Investigations 199 Russell Senate Office Building – Washington, D.C. 20510 Majority: 202/224-9505 – Minority: 202/224-3721 Web Address: http://www.hsgac.senate.gov/subcommittees/investigations OFFSHORE TAX EVASION: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts TABLE OF CONTENTS I. EXECUTIVE SUMMARY. 1 A. Subcommittee Investigation. ... 2 B. Investigation Overview. ... 2 C. Findings of Fact and Recommendations. ... 6 Findings of Fact: (1) Bank Practices that Facilitated U.S. Tax Evasion. .. 6 (2) Inadequate Bank Response. .. 6 (3) Lax U.S. Enforcement. .. 7 (4) Swiss Secrecy. ... 7 Recommendations: (1) Improve Prosecution of Tax Haven Banks and Hidden Offshore Account Holders. .. 7 (2) Increase Transparency of Tax Haven Banks That Impede U.S. Tax Enforcement. 7 (3) Streamline John Doe Summons. ... 7 (4) Close FATCA Loopholes. .. 8 (5) Ratify Revised Swiss Tax Treaty. 8 II. BACKGROUND. 9 A. U.S. Tax Initiatives To Combat Hidden Foreign Accounts. 10 B. Multinational Tax Efforts To Combat Hidden Foreign Accounts . 22 C. Switzerland. 30 III. CREDIT SUISSE: CASE STUDY IN SWISS SECRECY. 41 A. Background on Credit Suisse. 42 (1) Credit Suisse Private Banking. 45 (2) Clariden Leu. 46 (3) Credit Suisse’s U.S. Cross Border Business.. 47 (4) Credit Suisse Internal Investigation. 49 B. U.S.-Linked Accounts in Switzerland. 52 (1) Over 1,800 Swiss Bankers Serviced Accounts for U.S. Clients.. 54 (a) Swiss Bank Secrecy. 55 (b) Credit Suisse Organizational Barriers. 56 (c) U.S.-Linked Swiss Accounts Outside of SALN. 58 (2) Most U.S. Account Assets Were Undisclosed. 61 C. Credit Suisse Banking Practices that Facilitated U.S. Tax Evasion. 65 (1) Legal and Policy Restrictions on U.S. Activities. 66 i (2) Traveling to the United States.. 67 (3) Soliciting Clients on U.S. Soil. 71 (4) Recruiting U.S. Clients at Bank-Sponsored Events. 72 (5) Masking Account Ownership Through Offshore Entities. 73 (6) Facilitating Client Formation of Offshore Entities. 74 (7) Violating U.S. Securities Laws.. 77 (8) Counseling U.S. Clients on Avoiding Cash Reports. 78 (9) Supplying Credit and Cash Cards. 79 (10) Misusing New York Office to Service Swiss Accounts. 80 (11) Servicing U.S. Clients in Switzerland.. 86 D. Corporate Actions Contributing to Improper U.S. Cross Border Business.. 90 (1) Defining U.S. Persons in Ways that Excluded Key U.S. Taxpayers. 90 (2) Ignoring Concentration Policy. 92 (3) Restricting Oversight of U.S.-Linked Accounts in Switzerland.. 95 (4) Reviewing Accounts Through W-9 and Exit Projects. 99 E. Analysis. 113 IV. PRESSURE ON NET NEW ASSETS REPORTING BY PRIVATE BANK.. 115 A. Defining Net New Assets (NNA). 115 B. NNA Under U.S. Securities Law.. 116 C. Importance of NNA. 116 (1) Investors Watching NNA. 117 (2) Touting NNA as Key Performance Indicator to Investors. 120 (3) NNA Used As Internal Performance Measure. 122 D. Financial Standards Governing NNA Reporting. 123 (1) Standards for Disclosing Total NNA. 123 (2) Internal Bank Process for Recognizing NNA. 126 E. NNA at Credit Suisse Private Bank in 2012. 127 (1) First Quarter 2012.. 127 (2) Second Quarter 2012.. 130 (3) Third Quarter 2012. 133 (4) Fourth Quarter 2012. 136 V. LAX U.S. ENFORCEMENT. 140 A. Legal Tools Available to DOJ and IRS. 141 (1) Nova Scotia Subpoenas.. 141 (2) John Doe Summons. 144 (3) Prosecution Authority. 145 (3) Treaty-based Solutions. 147 (a) Mutual Legal Assistance Treaties. 147 (b) Tax Treaties. 147 (c) Extradition Treaties. 149 B. DOJ and IRS Enforcement Efforts, 2009 - 2013.. 151 (1) Initial U.S. Enforcement Actions. 152 ii (2) Initial Swiss Reaction to U.S. Enforcement Efforts. 156 (3) Slowdown of U.S. Enforcement Efforts . 157 (a) Negotiations Timeline. 158 (b) Results of the Negotiations. 167 i. Proposed 2009 Treaty Revisions. 167 ii. Non-Prosecution Agreements and Non-Target Letters. 169 iii. FATCA Agreement. 171 C. DOJ Enforcement Efforts Related to Named Persons. 174 D. Analysis . .. ..