(Bloomberg) -- New York's top banking regulator is joining the U.S. Justice Department in investigating whether Credit Suisse Group helped U.S. clients evade taxes, a person with knowledge of the matter said.
Benjamin Lawsky, superintendent of New Yorks Department of Financial Services, sent a demand for documents last month to Credit Suisse, the second-biggest Swiss bank, said the person, who asked not to be identified because the probe is confidential. Credit Suisse fell as much as 2.9 % in Swiss trading.
Lawskys civil probe is examining whether Credit Suisse helped clients evade New York taxes, the person said. Lawsky also petitioned a U.S. Senate panel for evidence underlying a Feb. 25 report saying the bank helped 22,000 Americans hide as much as $10 billion in assets from U.S. tax authorities, the person said.
The Senate approved a resolution March 25 to authorize the production of records by the Permanent Subcommittee on Investigations of the Committee on Homeland Security and Governmental Affairs. That resolution came in response to Lawskys petition, the person said.
LAWSKY'S POWERS
Lawsky, a state regulator, has the power to revoke Credit Suisses license to operate in New York. He employed that threat two years ago against Standard Chartered Plc as part of his investigation into whether the London-based bank had violated U.S. laws regarding wire transfers on behalf of Iranian clients.
Marc Dosch, a spokesman for Zurich-based Credit Suisse, declined to comment on the probe. Credit Suisse shares fell 83 centimes to 28.62 Swiss francs in trading today in Zurich.
Caitlin Ferrell, a spokeswoman for Lawskys office, declined to comment today on the probe, which was first reported by the New York Times.
The Lawsky probe comes amid a three-year Justice Department investigation into how the bank helped Americans cheat the Internal Revenue Service. Credit Suisse is the largest of 14 Swiss banks facing Justice Department criminal probes after Switzerlands biggest lender, UBS AG, paid $780 million in 2009 to resolve its tax case.
Chief Executive Officer Brady Dougan apologized to the Senate panel on Feb. 26, saying a small group of Swiss-based bankers appear to have broken U.S. law and fooled top managers.
Credit Suisse said April 3 that it increased reserves to 720 million francs ($811 million) to resolve the U.S. case. The bank also agreed Feb. 21 to pay $197 million to the U.S. Securities and Exchange Commission for providing cross-border securities services to thousands of Americans without registering to conduct the business.
'VERY ANNOYING'
For Credit Suisse, this will be very annoying, said Christopher Wheeler, a London-based analyst with Mediobanca SpA who rates the bank outperform. Having looked like they were close to dealing with this issue following the additional provisions it took last week, now it is back in the spotlight.
The subcommittees conclusion that Credit Suisse hid about $10 billion from the IRS is more than twice as much as claimed by the Justice Department in a 2011 indictment of seven of its bankers. Dougan disputed the reports finding, saying the number was closer to $7 billion.
This was a very small business from our point of view, less than 1 % of the global profitability of the global bank, Dougan said at the hearing.
He said bankers worked with outside intermediaries to help U.S. clients set up offshore shell entities with money deposited at Credit Suisse in the names of the entities rather than the clients. Such conduct, Dougan said, was egregious.
The subcommittee criticized Credit Suisse for failing to discipline any senior executives. Of 1,800Credit Suisse employees who helped Americans open 22,000 accounts, only 10 were disciplined and none was fired, according to the report.
SHELL CORPORATIONS
The bank helped clients cheat the IRS by opening accounts under false names and shell corporations, avoiding the mail when delivering account statements and servicing clients in the two countries. One client was given an account statement hidden in a Sports Illustrated magazine, according to the report.
Credit Suisse bankers wooed wealthy American clients at bank-sponsored events such as an annual Swiss Ball in New York or golf tournaments in Florida and Nassau, Bahamas, according to the report. Almost 10,000 U.S. clients visited a branch office at Zurich airport given the code name SIOA5.
BUTTONLESS ELEVATOR
One client with a $2.6 million account recalled his annual meeting with a Credit Suisse banker. When he arrived, the client took an elevator with no buttons that was controlled remotely. He met the banker in a nondescript, white meeting room. After each meeting, the client directed the bank to destroy account statements, according to the report.
On March 12, a former banker at a Credit Suisse unit pleaded guilty to helping American clients evade taxes, implicating his superiors. Andreas Bachmann, a Swiss citizen, pleaded guilty in federal court in Alexandria, Virginia, where he and six other Credit Suisse bankers were indicted in 2011 on a charge that they helped U.S. clients hide $4 billion in assets.
Bachmann, who is cooperating with prosecutors, said superiors at his unit condoned violations of U.S. law, as well as a 2001 agreement that Credit Suisse reached with the IRS to withhold and pay taxes on U.S. client accounts. Bachmann said he once complained to the chief executive officer of his subsidiary about the accords restrictions on activities in the U.S.
The executive, who wasnt identified, instructed him with words to the following effect: Mr. Bachmann: You know what we expect of you -- dont get caught, according to a 13-page statement of facts that he admitted with his plea.
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