United States: Subcommittee Urges Action Against Tax Evaders

On March 18, 2014, John McCain and Carl Levin, leaders of the Permanent Subcommittee on Investigations, urged the Department of Justice ("DOJ") to seek extradition of Swiss residents charged with tax evasion offenses by the DOJ.¹ The letter was written in response to Deputy Attorney General James Cole's testimony before the Subcommittee in a hearing relating to Swiss bank involvement in tax evasion in the United States. The letter stated that while 35 bankers and 25 financial advisers have been charged with misconduct relating to the Swiss bank scandal, only 6 have been convicted or pled guilty and the majority of the others currently live openly in Switzerland. McCain and Levin noted that Deputy Attorney General Cole testified that DOJ has not asked Switzerland to extradite any of the defendants, because DOJ believes that Switzerland will not extradite its own citizens.²

McCain and Levin encourage DOJ to seek Switzerland's cooperation in extradition of the individuals charged in the Swiss bank scandal. They note that the extradition treaty between the United States and Switzerland does not bar the extradition of Swiss nationals that have assisted US nationals in criminal tax evasion, although it does provide some discretion to Switzerland in extradition requests.³ The treaty does not, however, permit Switzerland to "shield from extradition underlying criminal conduct, such as fraud...or falsification of public documents." ⁴ McCain and Levin argue that at least some of the charges against the Swiss bankers and advisers relate to such activities.⁵ Moreover, while the extradition treaty provides an exception to extradition requests for a treaty partner's nationals, such exception is limited to circumstances where the treaty partner has "jurisdiction to prosecute that person for the acts for which extradition is sought."⁶ Because Switzerland does not consider tax evasion a crime, McCain and Levin argue that Switzerland cannot prosecute the Swiss bankers and advisers for tax evasion, and thus the extradition exception should not apply.⁷ Previously, on February 26, 2014, the Subcommittee released a lengthy bipartisan report describing how Swiss banks assisted their US customers in tax evasion.⁸ The report looked to Credit Suisse, Switzerland's second largest bank after UBS, as a case study. According to the report, as of 2006, Credit Suisse had over 22,000 US customers with Swiss accounts. At their peak, the assets in these accounts totaled more than 12 billion Swiss francs. Credit Suisse had not determined how many of these accounts were concealed from US authorities, but the Subcommittee's report suggests that the vast majority were. The Subcommittee found that from at least 2001 through 2008, Credit Suisse encouraged US clients to open accounts in Switzerland and then employed practices to help its US customers to conceal such accounts from the United States. The Subcommittee further found that Credit Suisse exercised only limited oversight of its US-based accounts, which led to wrongdoing in violation of both US laws and Credit Suisse policies.⁹

According to the report, following the UBS scandal, Credit Suisse took steps to identify accounts that were opened for US customers and then requested that holders either close the accounts or disclose the accounts to the United States. At the close of 2013, Credit Suisse had closed approximately 18,500 accounts held by US customers, which represents an 85 percent decrease in Credit Suisse's US customer base in Switzerland. Credit Suisse estimated that only one-quarter of the US customer funds that were removed from Credit Suisse were returned to the United States and further estimated that one-half of the US customer funds that were removed from Credit Suisse remain in Switzerland.¹⁰

The report criticizes DOJ's failure to more aggressively pursue Swiss banks that facilitated tax evasion. At the time of the report, DOJ had initiated criminal investigations into 14 Swiss banks and had sought the names of their US customers. However, only one of the Swiss banks investigated has thus far been indicted, and when that bank pled guilty, DOJ accepted the guilty plea without obtaining US client names that could potentially have been used to seek unpaid taxes from customers that used the bank to avoid US tax liability. The report concludes by encouraging DOJ to more aggressively pursue Swiss banks and their US customers through the use of, among other tools, grand jury subpoenas, John Doe summonses, and the United States – Switzerland extradition treaty.¹¹

Footnotes

1 Letter from John McCain and Carl Levin, Permanent Subcommittee on Investigations, to James M. Cole, Deputy Attorney General (Mar. 18, 2014), available at http://www.levin.senate.gov/newsroom/press/release/levin-mccain-urge-justice-department-to-seek-extradition-in-tax-evasion-cases .

2 Id.

3 Id.

4 Extradition Treaty With Switzerland, US-Swiss. (June 12, 1995).

5 Letter from John McCain and Carl Levin, Permanent Subcommittee on Investigations, to James M. Cole, Deputy Attorney General (Mar. 18, 2014).

6 Id. at Art. 8.

7 Letter from John McCain and Carl Levin, Permanent Subcommittee on Investigations, to James M. Cole, Deputy Attorney General (Mar. 18, 2014).

8 US Senate Permanent Subcommittee on Investigations, Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on Billions in Hidden Offshore Accounts (February 26, 2014).

9 Id.

10 Id.

11 Id.

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