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 In a meeting with Credit Suisse's lawyers in March 2013, U.S.
Justice Department officials, frustrated by what they viewed as poor
co-operation from the bank, for the first time said an indictment
was possible if they did not see an improvement, according to a
person briefed on the situation.
Details of what exactly prosecutors were seeking could not be
learned, but Credit Suisse has said it could not hand over names of
clients to U.S. authorities as Swiss law prevented it from doing so.
In October of last year, Kathryn Keneally, the head of the Justice
Department's tax division, called the bank's lawyers and said she
was prepared to recommend prosecution, the source said.
By January, prosecutors had decided they wanted to indict the bank
and expected it to plead guilty, the source said.
The bank and U.S. authorities declined to comment beyond their
public statements.
Late on Monday, Credit Suisse became the largest bank in two decades
to plead guilty to a U.S. crime and agreed to pay $2.6 billion in
fines to prosecutors and regulators, a much more severe penalty than
the one dealt to rival UBS AG in 2009. UBS paid $780 million in
fines and got a deferred prosecution agreement to settle similar
charges, but also turned over names of 4,450 clients.
U.S. prosecutors said Credit Suisse helped clients deceive U.S. tax
authorities by concealing assets in illegal, undeclared bank
accounts, in a conspiracy that spanned decades, and in one case
began more than a century ago.
Credit Suisse, which has a large business managing rich clients'
money, helped them withdraw funds from their undeclared accounts by
either providing hand-delivered cash to the United States or using
Credit Suisse's correspondent bank accounts in the United States,
the Justice Department said. Prosecutors said Credit Suisse had
around 22,000 U.S. client accounts worth around $10 billion, which
included both declared and undeclared accounts.
The bank was forced to plead guilty not only because of its
complicity in tax evasion, but also because of its poor co-operation
in the investigation, prosecutors said. It did not begin an internal
probe until early 2011, and did not preserve some evidence of the
wrongdoing, documents showed.
Still, the bank escaped a much worst fate. Critically, the New York
state bank regulator decided not to revoke its license, sparing it
from what could have been a devastating blow for a foreign bank as
it could effectively have cut off its direct access to the U.S. bank
market.
And top executives, including Chief Executive Brady Dougan, remained
in their seats, despite suggestions by New York state regulators at
one point that they resign and pressures from some critics of the
bank's leadership outside and within the bank as the probe dragged
on and the costs of settling the matter kept rising.
Interviews over the past few days with sources familiar with
negotiations between the bank and various U.S. authorities,
including the Department of Justice prosecutors and the New York
Department of Financial Services, reveal that a turning point in the
long-running probe came in February this year, when U.S. senators
grilled bank executives and scolded prosecutors for dragging their
feet.
A report by the Senate Permanent Subcommittee on Investigations
prompted New York Superintendent of Financial Services Benjamin
Lawsky's office to launch a parallel investigation into the bank's
activities, which complicated a deal in the final days of
negotiations and increased the size of the penalty the bank had to
pay, according to the sources.
Credit Suisse's legal team had initially tried to keep the fine
below $600 million or $800 million, but the numbers quickly
outstripped that target, one of the sources said.
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Credit Suisse will pay financial penalties to the Justice
Department, the Internal Revenue Service, the Federal Reserve and
New York's banking regulator to settle the matter. It has already
paid just under $200 million to the U.S. Securities and Exchange
Commission.
The bank will take an after-tax charge of 1.6 billion Swiss francs
($1.79 billion) in the second quarter.
"We deeply regret the past misconduct that led to this settlement,"
Dougan said in a statement. "We have seen no material impact on our
business resulting from the heightened public attention on this
issue in the past several weeks."
FINAL DAYS
As late as this month, Credit Suisse was trying to avoid having to
plead guilty, insisting that only a small division was responsible
for the alleged crime and the entire bank should not have to pay for
it. It wanted a deferred prosecution agreement, suggesting it would
work with the Swiss government to provide the names of account
holders to prosecutors, one of the sources said.
But prosecutors did not see that as a serious offer.
On Thursday last week sources familiar with the talks said the bank
had reached a deal in principle with prosecutors, agreeing to a
roughly $2 billion fine, including $100 million to the U.S. Federal
Reserve and a $200 million credit for the SEC settlement in February
over related activity.
Talks, however, hit an impasse with New York state banking
regulators.
Lawsky, a former federal prosecutor who has extracted large
penalties from other banks such as Standard Chartered Plc, by
threatening to revoke its license to operate in New York, was
looking into whether Credit Suisse had lied to New York authorities
about creating tax shelters.
Sources said Lawsky's office was playing hardball in negotiations,
knowing it held the ultimate leverage - the power to pull the bank's
state license.
Lawsky's office made an opening bid for Credit Suisse to pay $1
billion to New York regulators, one of the sources said. The office
also sought reforms, including the right to appoint a monitor to
watch over the bank's activities.
Credit Suisse wanted the fine to be smaller. It also wanted the
scope of the monitor to be limited and the period of appointment to
be shorter, one of the sources said.
Credit Suisse and New York negotiated all weekend, one of the
sources said. It was resolved late Saturday and the bank's board
approved the deal Sunday, the source said.
According to the consent order on Monday, the monitor will review
and report on corporate governance and will be selected by the New
York regulator. The monitor can be engaged for up to two years. It
will pay a $715 million penalty as part of the agreement with
Lawsky's office.
(Additional reporting by Mark Hosenball and Douwe Miedema in
Washington; Editing by Paritosh Bansal, Martin Howell and Neil
Fullick)
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