Last week, the US Senate Permanent Subcommittee on Investigations released a scathing report charging the banking group Credit Suisse of actively helping US clients to hide billions of dollars in offshore accounts and evade taxes through such dodgy tactics as registering accounts with shell corporations and structuring transactions to avoid mandatory reporting. At its peak, the report claims the bank held assets of more than 22,000 US customers totaling $12 billion. At his hearing before the Senate Subcommittee, Credit Suisse’s CEO Brady Dougan defended the integrity of his institution and placed the blame on the conduct of a small group private bankers within the firm who went to great lengths to hide their activity from management. However, even if management were indeed not complicit with the events that transpired, these activities show a startling lack of compliance controls at the heart of one of the world’s largest financial institutions.
The Credit Suisse case is merely the latest in a string of investigations launched by US authorities to crack down on tax evasion through the use of offshore accounts as well as the financial institutions who service them. In 2008–09, UBS faced similar allegations and settled with the SEC for USD$780 million. In 2012, Wegelin, the oldest Swiss bank, which admitted to helping US clients conceal assets and evade taxes, paid $58 million in fines and ceased operations entirely. The legal consequences for Credit Suisse are not yet known, but the firm expects costs to be significant, already setting aside over 500 million CHF to cover legal costs.
To effectively combat systemic tax evasion, the US Congress passed the Foreign Account Tax Compliance Act (FATCA) in 2010. The law mandates that foreign financial institutions to report the assets and transactions of their US clients directly to the IRS. Some foreign banks, for whom the costs outweigh the benefits, will respond to this law by stop doing business with US clients altogether. But for those institutions that cannot or do want to stop working with US clients, FATCA places a large extra burden on them to ensure that proper data collection procedures are followed. Fortunately for those banks, FATCA solutions are coming on to the market to lighten the burden of regulatory collection and reporting. Often these FATCA solutions are being bundled with KYC and AML systems with which they share many affinities, such as standardizing the collection of customer information as well as monitoring transactions. To find out which AML system offers integrated FATCA support, access our complete Anti-Money Laundering technology analysis.