[Senate Hearing 113-397, Volume 1]
[From the U.S. Government Publishing Office]


                                                        S. Hrg. 113-397
 
                  OFFSHORE TAX EVASION: THE EFFORT TO 
                  COLLECT UNPAID TAXES ON BILLIONS IN 
                        HIDDEN OFFSHORE ACCOUNTS 

=======================================================================

                                HEARING

                               before the

                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                                 of the

                              COMMITTEE ON
               HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS
                          UNITED STATES SENATE

                    ONE HUNDRED THIRTEENTH CONGRESS


                             SECOND SESSION

                               __________

                             VOLUME 1 OF 2

                               __________

                           FEBRUARY 26, 2014

                               __________

         Available via the World Wide Web: http://www.fdsys.gov

                       Printed for the use of the
        Committee on Homeland Security and Governmental Affairs

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        COMMITTEE ON HOMELAND SECURITY AND GOVERNMENTAL AFFAIRS

                  THOMAS R. CARPER, Delaware Chairman
CARL LEVIN, Michigan                 TOM COBURN, Oklahoma
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri           ROB PORTMAN, Ohio
JON TESTER, Montana                  RAND PAUL, Kentucky
MARK BEGICH, Alaska                  MICHAEL B. ENZI, Wyoming
TAMMY BALDWIN, Wisconsin             KELLY AYOTTE, New Hampshire
HEIDI HEITKAMP, North Dakota

                   Richard J. Kessler, Staff Director
               Keith B. Ashdown, Minority Staff Director
                     Laura W. Kilbride, Chief Clerk
                   Lauren M. Corcoran, Hearing Clerk


                PERMANENT SUBCOMMITTEE ON INVESTIGATIONS

                     CARL LEVIN, Michigan Chairman
MARK L. PRYOR, Arkansas              JOHN McCAIN, Arizona
MARY L. LANDRIEU, Louisiana          RON JOHNSON, Wisconsin
CLAIRE McCASKILL, Missouri           ROB PORTMAN, Ohio
JON TESTER, Montana                  RAND PAUL, Kentucky
TAMMY BALDWIN, Wisconsin             KELLY AYOTTE, New Hampshire
HEIDI HEITKAMP, North Dakota

            Elise J. Bean, Staff Director and Chief Counsel
            Robert L. Roach,  Counsel and Chief Investigator
                       Allison F. Murphy, Counsel
       Henry J. Kerner, Minority Staff Director and Chief Counsel
                Michael Lueptow, Counsel to the Minority
             Brad M. Patout, Senior Advisor to the Minority
                     Mary D. Robertson, Chief Clerk



                            C O N T E N T S

                                 ------                                
Opening statements:
                                                                   Page
    Senator Levin................................................     1
    Senator McCain...............................................     7
    Senator Coburn...............................................     9
    Senator Johnson..............................................    26

                               WITNESSES
                      Wednesday, February 26, 2014

Brady W. Dougan, Chief Executive Officer, Credit Suisse Group AG, 
  Credit Suisse AG, New York, NY.................................    10
Romeo Cerutti, General Counsel, Credit Suisse Group AG, Credit 
  Suisse AG, Zurich, Switzerland.................................    10
Hans-Ulrich Meister, Co-Head, Swiss Private Banking and Wealth 
  Management, Chief Executive Officer-Region Switzerland, Credit 
  Suisse Group AG, Credit Suisse AG, Zurich, Switzerland.........    10
Robert S. Shafir, Co-Head, Swiss Private Banking and Wealth 
  Management, Chief Executive Officer Region Americas, Credit 
  Suisse Group AG, Credit Suisse AG, New York, NY................    10
Hon. James M. Cole, Deputy Attorney General, Office of the 
  Attorney General...............................................    61
Hon. Kathryn M. Keneally, Assistant Attorney General, Tax 
  Division, U.S. Department of Justice...........................    61

                     Alphabetical List of Witnesses

Cerutti, Romeo:
    Testimony....................................................    10
    Joint prepared statement.....................................    93
Cole, Hon. James M.:
    Testimony....................................................    61
    Joint prepared statement.....................................   107
Dougan, Brady W.:
    Testimony....................................................    10
    Joint prepared statement.....................................    93
Keneally, Hon. Kathryn M.:
    Testimony....................................................    61
    Joint prepared statement.....................................   107
Meister, Hans-Ulrich:
    Testimony....................................................    10
    Prepared statement...........................................    93
Shafir, Robert S.:
    Testimony....................................................    10
    Prepared statement...........................................    93

                                APPENDIX

Report by the Permanent Subcommittee entitled ``Offshore Tax 
  Evasion: The Effort to Collect Unpaid Taxes on Billions in 
  Hidden Offshore Accounts,'' February 26, 2014..................   115

                              EXHIBIT LIST
                                VOLUME 1

 1. a. GCredit Suisse U.S. Customers with Swiss Accounts: Only 1% 
  Given by Swiss to United States, chart prepared by the 
  Permanent Subcommittee on Investigations.......................   329
    b. GEffect of Credit Suisse Reallocation of Client 5 Assets 
  in 3Q2012, chart prepared by the Permanent Subcommittee on 
  Investigations.................................................   330

U.S. Account Disclosure:

 2. GCredit Suisse email, dated March 2010, re: Account 
  Instructions (It will certainly be a pleasure to welcome you as 
  a client, should you opt to knock on our door again in future 
  times.). [CS-SEN-00025083-084].................................   331
 3. GCredit Suisse email, dated October 2008, re: Numbered 
  Accounts (He needs not to disclose anything to anyone. He has 
  the choice of disclosing it to the US authorities or not. It is 
  his choice! Whatever he does is of no concern to us.). [CS-SEN-
  00345395-396]..................................................   333

Documents Related to Travel:

 4. a. GCredit Suisse Business Trips 2006 (Swiss Ball). [CS-SEN-
  00080267-269]..................................................   335
    b. GCredit Suisse Business Trips SALN and SALN1 2007 (Key 
  Client Visits). [CS-SEN-00080270]..............................   338
    c. GCredit Suisse Business Trips SALN and SALN1 2008 (Key 
  Client Visits). [CS-SEN-00080271-273]..........................   339
 5. a. GCredit Suisse Travel Report Summary, February 2006, 
  Destination: New York (Clients covered - 20 - CHF 80,000,000 . 
  . . Invitation to the Swiss Ball in New York, regular RO [Rep 
  Office] New York visit, Key Clients visited, successful 
  meetings overall, Retention, new Referrals). [CS-SEN-00081860].   340
    b. GCredit Suisse Travel Report Summary, May 2006, 
  Destination: New York, Philadelphia, Chicago (Clients covered - 
  42 - CHF 80'000'000 . . . Will have follow-up business, in 
  pipeline NNA CHF 3'000'000). [CS-SEN-00081868-869].............   343
    c. GCredit Suisse Travel Report Summary, May 2006, 
  Destination: Miami, New York, Houston (Clients covered - 40 - 
  CHF 160'000'000). [CS-SEN-00081872-873]........................   345
    d. GCredit Suisse Travel Report Summary, July 2006, 
  Destination: Miami, New York, Toronto, Montreal (Clients 
  covered - 34 - CHF 54'000'000 ... Client sends me a list of 
  shares that we need to give our recommendations!). [CS-SEN-
  00081874-875]..................................................   347
    e. GCredit Suisse Travel Report Summary, February 2006, 
  Destination: Houston, Los Angeles, Reno (Clients covered - 28 - 
  CHF 65,000,000 ... Knows some very wealthy people for future 
  referrals.). [CS-SEN-00081879-880].............................   349
    f. GCredit Suisse Travel Report Summary, February 2007, 
  Destination: New York (Invitation to the Swiss Ball in New 
  York, regular RO [Rep Office] New York visit . . . new 
  Referrals). [CS-SEN-00081883]..................................   351
    g. GCredit Suisse Travel Report Summary, March 2008, 
  Destination: San Francisco, Los Angeles, New York, Toronto, 
  Montreal (Clients covered - 49 - CHF 230,000,000 ... [Credit 
  Suisse redacted] for dinner in Beverly Hills . . .). [CS-SEN-
  00081901-906]..................................................   352

Documents Related to Credit Suisse New York Representative 
  Office:

 6. GCredit Suisse Important phone numbers (Doerig Josef, Doerig 
  Partner, external Trust expert; Singenberger Beda, Sinco AG, 
  external Trust expert) [CS-SEN-00011615-616]...................   357
 7. GCredit Suisse Weekly Report - Rep. Office New York (Client 
  Activities - Assisting client of Niccole (wire instructions to 
  send additional funds) . . . Contact with prospective client 
  from Chicago (US$3-5 Mio). [CS-SEN-00096325-328]...............   359
 8. GCredit Suisse email, dated July 2008 (We do not have any 
  educational or promotional material we could provide to a US 
  person regarding accounts in Switzerland. We are not allowed to 
  actively solicit or promote offshore accounts from or into the 
  United States. However, if your clients wants to call me to 
  learn more about what services can be offered out of 
  Switzerland - he can do that anytime. Please let me know if I 
  can assist you in this regard.) [CS-SEN-00095655-656]..........   363
 9. GCredit Suisse PB Americas--Representative Office New York, 
  CSG Internal Audit, Executive Summary, dated February 7, 2008 
  (Audit Results . . . The overall control environment was found 
  to be operating effectively.) [CS-SEN-00226719-724]............   365

Documents Related to SALN:

10. a. GSALN: Organizational Chart as of 01.04.2008, with Swiss 
  codes [CS-SEN-00080287]........................................   371
     b. GSALN: Organizational Chart as of 01.04.2008 [CS-SEN-
  00011631-632]..................................................   372
11. a. GCredit Suisse PB Americas--North America Offshore, Latin 
  America and Bahamas, CSG Internal Audit, August 2006 draft 
  (Employees of SWLN making visits or holding meetings in the 
  United States should not provide investment advice or solicit 
  business, given existing regulations . . . the level of travel 
  activities (in 2005 approximately 500 clients were met in the 
  United States and Canada) may entail regulatory risk. [CS-SEN-
  00408714-730]..................................................   374
    b. GCredit Suisse PB Americas--North America Offshore, Latin 
  America and Bahamas CSG Internal Audit, dated August 31, 2006 
  (final) (The overall control environment was generally found to 
  be operating adequately.) [CS-SEN-00418830-839]................   391
12. GCredit Suisse PB Americas--North America International, CSG 
  Internal Audit, dated December 9, 2009 (Significant 
  Reputational Risk Issues: None . . . The overall control 
  environment was generally found to be operating adequately and 
  we noted no deficiencies with regard to Policy P-00025.) [CS-
  SEN-00417862-870]..............................................   401

Documents Related to Project W9:

13. GCredit Suisse, Project W9 Kick-Off Meeting, dated September 
  29, 2006 (Chart at CS-SEN-00426144--Swiss Booked W9 Clients: 
  Affected Units, 998 CIFs.). [CS-SEN-00426138-158]..............   410
14. GCredit Suisse, Project W9 6th Core Team Meeting, dated 
  January 26, 2007. [CS-SEN-00173686-704]........................   431

Documents Related to Credit Suisse Accounts Numbers/Exit 
  Projects:

15. GCredit Suisse email, dated March 2007, re: Risk Country: 
  Yearly Review 2006 (US--Market purity is still insufficient 
  with regard to the business risk involved.). [CS-SEN-00409535-
  555]...........................................................   450
16. GCredit Suisse, US Project - STC #1, dated August 19, 2008 
  (Chart at CS-SEN-00426306--US Intl. business activities spread-
  out across whole organization). [CS-SEN-00426290-307]..........   471
17. GCredit Suisse, Project Tom - STC #5, dated December 19, 2008 
  (Chart at CS-SEN-00455231--Quick Win Non W-9 (transfer SIOA 5 
  to SALN). [CS-SEN-00455224-234]................................   489
18. GCredit Suisse, Update on Development of AuM and Accounts of 
  U.S. Clients to the Senate Permanent Subcommittee on 
  Investigations, dated April 20, 2012. [CS-SEN-00189151-157]....   500
19. GLetter from Credit Suisse legal counsel to the Permanent 
  Subcommittee on Investigations, dated August 13, 2013 re: 
  Credit Suisse's exit projects. [PSI-CreditSuisse-37-000001-051]   507
20. GLetter from Credit Suisse legal counsel to the Permanent 
  Subcommittee on Investigations, dated December 20, 2013 re: 
  questions regarding Credit Suisse's internal investigation 
  covering its U.S. cross-border business (In early 2012, the 
  Bank formed a special task force to follow up on potential 
  breaches of its internal policies . . . [and] imposed 
  disciplinary action against a total of 10 Swiss based employees 
  (6 in 2012 and 4 in 2013) . . . None of the employees were 
  terminated). [PSI-CreditSuisse-54-000001-048]..................   558

Document Related to Net New Assets (NNA):

21. GCredit Suisse email, dated February 2012, re: Important - 
  NNA, PBMC (. . . we will again discuss our NNA results which 
  have been very disappointing up until now. As our capability to 
  attract clients and new assets is of utmost importance - also 
  externally - we need to take all possible measures in order to 
  change this into a positive story within the next weeks.). [CS-
  SEN-00463981-984]..............................................   606
22. GCredit Suisse email, dated March 2012, re: Major flows last 
  week (. . . none of these assets are currently categorized as 
  AUM and I would caution against it before speaking with me as I 
  am very knowledgeable about the plans for the assets.). [CS-
  SEN-00441333-335]..............................................   610
23. GCredit Suisse email, dated March 2012, re: Project 
  [Redacted] (There is no agreement at this time. . . . There 
  have been suggestions that we count as much as 5B CHF . . . 
  this is not a number I want to risk having to reverse, so let's 
  be sure we are VERY confident in what we count.).  [CS-SEN-
  00443178-181]..................................................   613
24. GCredit Suisse email, dated April 2012, re: PB NNA ([C]an you 
  also check the disclosure issue re NNA in Switzerland vs US PB? 
  As we know, investors are keeping a close eye on this and of 
  course it is key that finance be comfortable with how we 
  present this external[l]y.). [CS-SEN-00424575-577].............   617
25. GCredit Suisse email, dated October 2012, re: NNA Q3 2012 (. 
  . . please find below . . . NNA for Q3 2012, as reported 
  internally for PB Americas (CHF 2.4bn) vs. the externally 
  released figure (CHF 0.2bn)). [CS-SEN-00443246]................   620
26. GCredit Suisse email, dated December 2012, re: NNA 4Q12 
  Forecast (Based on reported November NNA and the result of the 
  first December week, our ambition to deliver WMC [Wealth 
  Management Clients] NNA of around CHF 6-7bn in 4Q12 is at risk. 
  With 3 weeks to go until the year comes to a close and QTD 
  [Quarter to Date] actuals of CHF 2.5bn, we still need CHF 3.5bn 
  to reach the lower end of this ambition. This requires 
  continued efforts on all levels and your support is very 
  important.). [CS-SEN-0000560923-924]...........................   621
27. GCredit Suisse email, dated December 2012, re: Confidential: 
  Global Client Segments metrics (Zurich is looking for more 
  potential NNA positions to support the global 2012 year-end 
  disclosure. As a consequence they are looking to transfer more 
  of [Redacted/Client 5] balance into AUM.). [CS-SEN-00425106-
  107]...........................................................   623
28. GCredit Suisse email, dated January 2013, re: Americas 
  [Redacted] (Currently - for Q4 reporting - WMC [Wealth 
  Management Clients] runs for NNA substantially below 
  expectations. . . . [I]n order to support the PB division, a 
  further [Redacted/Client 5] portion of 0.9bn CHF - fully 
  reported internally and externally in the Americas region - 
  would be a great favour for our division. Hans-Ueli [Hans-
  Ulrich Meister] would be extremely happy if you could support 
  this.). [CS-SEN-00425140-142]..................................   625
29. GCredit Suisse email, dated January 2013, re: WG: NNA (I am 
  convinced that with this enhanced story we will get approval 
  soon from Carlos. . . . Given the rather weak granularity, we 
  need to create a more powerful story in the sense of making 
  more around the existing weak figures in the sense of: 
  [redacted] consists of xx accounts, all held in the xx branch, 
  covered by 2 senior RMs xx and yy which do high interaction 
  level.......blabla. Might not be relevant but sounds rather 
  good.).  [CS-SEN-00442608-613].................................   628
30. GCredit Suisse email, dated June 2013, re: Feedback from new 
  RMs (We need some fresh blood and some nna.). [CS-SEN-00424732]   634

Documents Related to the Department of Justice and the Swiss:

31. a. GTax Convention with Swiss Confederation Message from the 
  President of the United States Transmitting Convention Between 
  the United States of America and the Swiss Confederation for 
  the Avoidance of Double Taxation with Respect to Taxes on 
  Income Signed at Washington, October 2, 1996, together with a 
  Protocol to the Convention.....................................   635
    b. GProtocol Amending Tax Convention with Swiss 
  Confederation, January 2011....................................   680
    c. GTranslation of Swiss Parliamentary Resolution, dated 
  March 16, 2012, Federal Resolution Concerning a Supplement to 
  the Double Taxation Treaty between Switzerland and the United 
  States of America..............................................   705
32.a./b. GCommunications from the Department of Justice to Swiss 
  representatives, unsigned and undated, outlining steps to be 
  taken by the Department of Justice and The Swiss Confederation 
  regarding Agreement between the Internal Revenue Service and 
  The Swiss Confederation. [Also see Exhibit 45 for related 
  communications.]............................................... 707-9
33. GDepartment of Justice letter, dated December 9, 2011, (. . . 
  in order to determine whether it will be fruitful for the 
  United States Department of Justice to discuss with your 
  institution the possibility of an agreement with us that could 
  avoid indictment, the Department of Justice must have complete 
  and accurate information and must have the information 
  quickly.)......................................................   711
34. GTranslation of newspaper article, Tax Dispute with the US is 
  Escalating, SonntagsZeitung, September 4, 2011.................   714
35. a. GPress Release of the Swiss Federal Supreme Court, dated 
  July 5, 2013, Exchange of information in Tax Matters with the 
  United States--The Federal Supreme Court rejects a first 
  appeal.........................................................   717
    b. GPress Release of the Swiss Federal Administrative Court, 
  dated January 8, 2014, Julius Baer: IRS request for 
  administrative assistance not sufficient for the disclosure of 
  client data....................................................   719
36. a. GTranslation of the Swiss Federal Parliament Lex USA, 
  Measures to facilitate the resolution of the tax dispute 
  between the Swiss banks and the United States, dated May 29, 
  2013...........................................................   721
    b. GSummarized Translation of the Swiss Federal Parliament 
  Dispatch explaining Lex USA, dated May 29, 2013................   724
37. a. GJoint Statement between the U.S. Department of Justice 
  and the Swiss Federal Department of Finance, dated August 29, 
  2013...........................................................   731
    b. GU.S. Department of Justice Program for Non-Prosecution 
  Agreements or Non-Target Letters for Swiss Banks, dated August 
  29, 2013.......................................................   733
38. GDeferred Prosecution Agreement, U.S. v. UBS AG, undated.....   743
39.  a. GSettlement of the John Doe Summons, agreement between 
  the United States and the Swiss Confederation, August 19, 2009.   786
    b. GSettlement of the John Doe Summons, agreement between the 
  United States, the U.S. Internal Revenue Service and UBS AG, 
  dated August 19, 2009..........................................   796
40. GU.S. v. Walder et al., Case No. 1:11-CR-95 (E.D. Virginia) 
  Superseding Indictment (July 21, 2011).........................   808

Additional Documents:

41. GCredit Suisse email, dated January 2013 (There was some 
  legacy Clariden issues (CB) brewing that we need to brief you 
  on.). [CS-SEN-00426110-111]....................................   855
42. a. GSwiss seek U.S. tax deal by year-end, but not at any 
  price, Reuters, August 3, 2012.................................   857
    b. GSwitzerland to Allow Its Banks to Disclose Hidden Client 
  Accounts, The New York Times, May 29, 2013.....................   858
43. a. GIndictment, U.S. v. Wegelin & Co., et al., February 1, 
  2012...........................................................   863
    b. GPlea, U.S. v. Wegelin & Company, January 3, 2013.........   922
44. GLetters between the Department of Justice and the Permanent 
  Subcommittee on Investigations, March and June 2014, regarding 
  extradition of Swiss nationals from Switzerland................   949
45. GLetters between the Department of Justice, Internal Revenue 
  Service and the Swiss State Secretariat for International 
  Financial Matter, August, 2011, regarding Swiss-U.S. 
  discussions on tax issues......................................   953
46. a. GResponses of Credit Suisse to supplemental questions for 
  the record from Senator Carl Levin.............................   960
    b. GSEALED EXHIBIT: Question 4a and Credit Suisse's response.     *
    c. GMemorandum to File from the Permanent Subcommittee 
  Investigations Staff regarding Credit Suisse Classification of 
  Net New Assets.................................................   967
47. GResponses of Credit Suisse to supplemental questions for the 
  record from Senator Tom Coburn.................................   969
48. GResponses of the Department of Justice to supplemental 
  questions for the record from Senator Carl Levin...............   970

                                VOLUME 2

49. GDocument Locator List and documents cited in the footnotes 
  to Offshore Tax Evasion: The Effort to Collect Unpaid Taxes on 
  Billions in Hidden Offshore Accounts, the Report released in 
  conjunction with the Subcommittee hearing on February 26, 2014. 
  The Document Locator List provides the Bates numbers or a 
  description of the documents cited in the Report and the 
  hearing record page number where the document can be located. 
  Not included are widely available public documents and 
  documents related to Subcommittee interviews, which are not 
  available to the public........................................  1002
  
* Retained in the files of the Subcommittee.
.................................................................


                  OFFSHORE TAX EVASION: THE EFFORT TO

      COLLECT UNPAID TAXES ON BILLIONS IN HIDDEN OFFSHORE ACCOUNTS

                             VOLUME 1 OF 2

                              ----------                              


                      WEDNESDAY, FEBRUARY 26, 2014

                                   U.S. Senate,    
              Permanent Subcommittee on Investigations,    
                    of the Committee on Homeland Security  
                                  and Governmental Affairs,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:34 a.m., in 
room G-50, Dirksen Senate Office Building, Hon. Carl Levin, 
Chairman of the Subcommittee, presiding.
    Present: Senators Levin, McCain, Coburn, and Johnson.
    Staff present: Elise J. Bean, Staff Director and Chief 
Counsel; Mary D. Robertson, Chief Clerk; Robert L. Roach, 
Counsel and Chief Investigator; Allison F. Murphy, Counsel; 
Henry J. Kerner, Staff Director and Chief Counsel to the 
Minority; Michael Lueptow, Counsel to the Minority; Brad M. 
Patout, Senior Advisor to the Minority; Angela Messenger, 
Detailee (GAO); Admad Sarsour, Detailee (FDIC); Christopher 
Reed, Congressional Fellow; Joel Churches, Detailee (IRS); 
Admad Sarsour, Detailee; Jacob Rogers, Law Clerk; Alex Zerden, 
Law Clerk; Samira Ahmed, Law Clerk; Mohammad Aslami, Law Clerk; 
Harry Baumgarten, Law Clerk; Benjamin Driscoll, Law Clerk; 
Elizabeth Freidrich, Law Clerk; Megan Schneider, Law Clerk to 
the Minority; Bob Heckart and Tom Everett (Sen. Levin); Keith 
Ashdown, HSGAC Staff Director to the Minority (Sen. Coburn); 
Andrew Dockham, HSGAC Chief Counsel to the Minority (Sen. 
Coburn); Stephanie Hall (Sen. McCain); and Ritika Rodrigues 
(Sen. Johnson).

               OPENING STATEMENT OF SENATOR LEVIN

    Senator Levin. Good morning, everybody. The Permanent 
Subcommittee on Investigations will come to order.
    The American public is angry about offshore tax abuse--
efforts by well-off Americans to evade their U.S. tax 
obligations by hiding money offshore.
    Today's hearing follows up on a hearing that this 
Subcommittee held 5 years ago--in 2008--when we presented 
evidence that well-known international banks, located in 
secrecy jurisdictions, were deliberately helping U.S. clients 
cheat on their taxes by opening offshore accounts never 
reported to the Internal Revenue Service (IRS), despite U.S. 
laws requiring their disclosure. The hearing focused in part on 
Union Bank of Switzerland (UBS), the largest bank in 
Switzerland, which at one time had 52,000 U.S. customers with 
Swiss accounts holding $18 billion in hidden assets, and which 
back then had a practice of sending Swiss bankers onto U.S. 
soil to service those secret accounts.
    On the first day of those hearings, in a dramatic 
admission, UBS acknowledged what its Swiss bankers had been up 
to and committed the bank to stopping the abuses. Seven months 
later, UBS signed a Deferred Prosecution Agreement (DPA) with 
the U.S. Justice Department (DOJ), paid a $780 million fine, 
and promised to close all undeclared Swiss accounts for U.S. 
clients. As part of that agreement, UBS turned over about 250 
secret Swiss accounts with U.S. client names. And after a John 
Doe summons proceeding that took another year, UBS coughed up 
more accounts for a total of about 4,700 accounts.
    UBS' actions sent a powerful signal that U.S. tax cheats 
using offshore accounts better pay up or face prosecution. 
Thousands of Americans with undeclared Swiss accounts, along 
with U.S. account holders with accounts in other offshore 
secrecy jurisdictions, ended up joining a voluntary disclosure 
program established by the IRS. Altogether, 43,000 taxpayers 
have paid back taxes, interest, and penalties totaling $6 
billion to date, with more expected. Tax evaders acted to avoid 
being prosecuted. It is as simple as that.
    UBS' breaking of Swiss secrecy also signaled a seismic 
shift in the offshore world. Suddenly Switzerland, as well as 
other secrecy jurisdictions, declared they would no longer use 
secrecy laws to facilitate tax evasion. A flurry of new tax 
information exchange agreements were signed around the world 
promising some new transparency. The G-20 world leaders 
declared the ``era of bank secrecy is over.''
    Well, it is 5 years later, and the sad truth is that the 
era of bank secrecy is not over. Bank secrecy has been 
discredited and condemned, but it is not gone. Billions in 
unpaid taxes remain uncollected thanks to tax evaders' use of 
bank secrecy. And we have great concern that the battle to 
collect those unpaid taxes on hidden offshore assets seems 
stalled.
    Our investigation chronicles the uneven and halting 
progress made in identifying U.S. taxpayers who cheated Uncle 
Sam by using offshore accounts. A bipartisan report that we are 
releasing today cites chapter and verse of the failure to 
collect taxes owed and to hold accountable the U.S. persons who 
evaded their tax obligations and the tax havens who helped 
them. To lay bare the problems, our report uses a detailed case 
study involving Credit Suisse.
    After the UBS scandal broke in 2008, this Subcommittee 
asked Credit Suisse, as well as several other Swiss banks, 
whether they had been engaged in the same type of conduct as 
UBS. Credit Suisse privately admitted to Subcommittee 
investigators that it had, but that it was going to clean up. 
After seven Credit Suisse bankers were indicted by the Justice 
Department in 2011, we checked in again and found the bank had 
not yet closed thousands of undeclared Swiss accounts held by 
U.S. taxpayers. So we decided to take a closer look.
    And what we found was that Credit Suisse had been holding 
back about how bad the problem was at the bank.
    At its peak, in Switzerland, Credit Suisse had over 22,000 
U.S. customers with accounts containing more than 12 billion 
Swiss francs, which translates into US $10 to $12 billion. 
Nearly 1,500 accounts were opened in the name of offshore shell 
companies to hide U.S. ownership. Another nearly 2,000 were 
opened at Clariden Leu, Credit Suisse's own little private 
bank. Almost 10,000 were serviced by a special Credit Suisse 
branch at the Zurich airport which enabled clients to fly in to 
do their banking without leaving airport grounds.
    Although Credit Suisse policy was to concentrate its U.S. 
client accounts in Switzerland at a Swiss desk called SALN, 
which had about 15 bankers trained in U.S. regulatory and tax 
requirements, that policy was largely ignored. In 2008, over 
1,800 bankers spread throughout the bank in Switzerland handled 
one or more U.S. accounts. One U.S. client told the 
Subcommittee about visiting the bank's main offices in Zurich. 
The client was ushered into a remotely controlled elevator with 
no floor buttons and escorted to a bare room with white walls, 
all dramatizing the bank's focus on secrecy. The client opened 
an account after being told the bank did not require completion 
of the W-9; without that form, the account was not reported to 
U.S. authorities. In later visits, the client was offered cash 
withdrawals and credit cards to draw from the Swiss account 
while in the U.S., and the client always signed a form ordering 
that the Credit Suisse account statements be immediately 
shredded. It was a classic case of bank secrecy and bank 
facilitation of U.S. tax evasion.
    But the Swiss bankers did not stay in Switzerland. Like 
UBS, Credit Suisse bankers traveled across the U.S. Ten SALN 
bankers alone took more than 170 U.S. trips from 2001 to 2008 
to look for new clients and service existing accounts. Credit 
Suisse arranged for them to host tables at the annual Swiss 
Ball in New York and to host golf tournaments in Florida to 
prospect for wealthy clients. Some also met with as many as 30 
to 40 existing U.S. clients in a single trip to attend to their 
banking needs.
    We learned of one Swiss banker who met with a U.S. client 
over breakfast at a U.S. luxury hotel and slipped the client 
bank account statements in between the pages of a Sports 
Illustrated magazine. Although none of the Swiss bankers were 
registered with the U.S. Securities and Exchange Commission 
(SEC), many provided broker-dealer and investment advisory 
services for U.S. clients, resulting in the $196 million fine 
that Credit Suisse paid last week. Some Swiss bankers also 
advised U.S. clients on how to structure cash transactions to 
avoid filing reports of cash transactions over $10,000, as 
required by U.S. law. Other Swiss bankers helped U.S. clients 
set up offshore shell corporations to hold their accounts and 
to hide the ownership trail. Some bankers lied on visa 
applications when they entered the United States, saying the 
purpose of their visit was tourism when, in fact, it was 
business.
    The bottom line is that Credit Suisse was in it as deep as 
UBS, aiding and abetting U.S. tax evasion both in Switzerland 
and on U.S. soil.
    Once UBS' misconduct was exposed, Credit Suisse initiated a 
series of so-called Exit Projects to close its U.S. client 
accounts in Switzerland. Those projects took 5 years, until 
2013, to complete. In the end, the bank verified accounts for 
about 3,500 out of the 22,000 U.S. clients as compliant with 
U.S. tax law, meaning they were disclosed to the IRS. The bank 
closed accounts for the other 18,900 U.S. customers. It is 
clear that the vast majority--up to 95 percent--were 
undeclared, meaning hidden from Uncle Sam.
    So where are we now? Unlike UBS, U.S. enforcement action 
against Credit Suisse has stalled, even though the bank got a 
target letter 3 years ago in 2011. While seven of its bankers 
were indicted by U.S. prosecutors in 2011, none has stood trial 
and none has been the subject of a U.S. extradition request. 
Less than a handful of U.S. taxpayers with Credit Suisse 
accounts have been indicted.
    Now, that is not much accountability for the bank, its 
bankers, or U.S. clients. Taxes owed on billions of dollars in 
hidden offshore assets remain uncollected. To collect those 
unpaid taxes and to hold U.S. tax evaders accountable, the 
critical first step is to get their names. The prospect of the 
U.S. getting names is what produced the UBS effect--the rush of 
U.S. offshore account holders making so-called voluntary 
account disclosures to the IRS and paying what they owe to 
avoid embarrassment and worse. But getting names is where this 
whole story goes bust.
    Now, there is a chart,\1\ which I would ask that we put up. 
It is a chart of the 22,000 U.S. clients with Swiss accounts at 
Credit Suisse. The total number of accounts with U.S. names 
disclosed by the Swiss to the United States over 5 years hits a 
grand total of 238. That is the slim, green sliver there. That 
is 238 out of 22,000, about 1 percent. Other Swiss banks with 
thousands of U.S. clients in Switzerland have, as far as we 
know, disclosed no names at all.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 1a, which appears in the Appendix on page 329.
---------------------------------------------------------------------------
    Now, the reason for this near total failure to date is 
continued Swiss insistence on bank secrecy and the U.S. letting 
them get away with it. When the U.S. Department of Justice 
issued grand jury subpoenas to Credit Suisse to get U.S. client 
names and account information in Switzweland, the Swiss 
Government inserted itself into the criminal investigation to 
stand between the bank and our Department of Justice. It told 
Credit Suisse that it could not deliver documents directly to 
the United States, but had to funnel them through Swiss 
officials first. Despite grand jury subpoenas outstanding 
against Credit Suisse, the Department of Justice did not 
attempt to enforce those subpoenas in a U.S. court. Nor did the 
Department of Justice turn to the IRS to issue a John Doe 
summons to the bank, even though it was a John Doe summons that 
caused the UBS to turn over 4,500 accounts, the largest single 
production from Switzerland.
    Now, rather than using those proven U.S. tools that could 
be enforced in our courts, the Department of Justice reversed 
course from its UBS approach. For 5 years, the Department of 
Justice has voluntarily limited its requests for Swiss 
documents, including the names of tax evaders, to requests made 
under a U.S.-Swiss tax treaty, despite that treaty's highly 
restrictive, maddeningly slow, and unproductive process. In 
2011, the Department of Justice submitted a treaty request for 
U.S. client names and account information from Credit Suisse 
and told the Swiss Government that the Department of Justice 
saw the request as a ``test case'' of Switzerland's willingness 
to produce critical documents. At the end of a torturous 
process that took two requests, two court decisions, and nearly 
2 years, in the summer of 2013, the Department of Justice was 
rewarded with 238 accounts that included U.S. client names. To 
me, getting 238 in 5 years out of a universe of 22,000, less 
than 1 percent, is more than an embarrassment. It abdicates the 
home-court advantage of using U.S. courts. Now, remember: the 
law which is accepted almost everywhere, including the United 
States, is that if a bank chooses to do business in a foreign 
country, it must accept and operate under the laws of that 
country.
    By restricting itself to the treaty process, the Department 
of Justice essentially handed over control of U.S. information 
requests to Swiss regulators and Swiss courts that rule on how 
they will be handled and have regularly elevated bank secrecy 
over bank disclosures.
    But the Swiss roadblocks did not end there. In 2009, right 
after the UBS battle, Switzerland agreed to amend the U.S.-
Swiss tax treaty to replace its highly restrictive ``tax 
fraud'' standard with the somewhat less restrictive 
``relevance'' standard. But the Swiss also insisted that the 
less restrictive disclosure standard be used only for 
information requests regarding Swiss accounts in existence 
after the amendments were signed on September 23, 2009. U.S. 
negotiators went along and produced a new treaty standard that 
may be useful prospectively, but cannot be used for potentially 
tens of thousands of Swiss accounts employed for U.S. tax 
evasion before 2009. The end result is that the tax evaders and 
the Swiss banks who helped them may get away with wrongdoing.
    And in 2012, the Swiss passed legislation erecting still 
another roadblock to U.S. efforts to acquire U.S. client names. 
The legislation says that to get the names of a Swiss bank's 
U.S. clients, a U.S. treaty request must establish that the 
holder of the client information--in other words, the bank--
``significantly contributed'' to the pattern of misconduct by 
those unnamed account holders. In other words, the Department 
of Justice will have to prove that a bank is guilty of 
facilitating misconduct by a group of unnamed account holders 
before it can even get the account information needed to prove 
the misconduct. And even if the Department of Justice wanted to 
meet that new standard, it would have to do so in a country 
that prizes bank secrecy and whose banks have made a fortune 
from that secrecy. It is still a rigged game.
    During the same time period, Switzerland pressed the 
Department of Justice to create a program to enable most of its 
banks--other than the 14 large banks under active Department of 
Justice investigation--to obtain non-prosecution agreements 
(NPA) or non-target letters in exchange for providing limited 
information and monetary fines, but still without producing any 
U.S. client names. In response, the Department of Justice, in 
2013, announced an unprecedented program to give prosecutorial 
amnesty to hundreds of Swiss banks, without requiring those 
banks to disclose a single U.S. client name. Giving up on 
getting U.S. client names contradicts U.S. policy of demanding 
full cooperation from parties excused from prosecution, and it 
sets a bad precedent for how the Department of Justice will 
handle other tax haven banks.
    The Department of Justice program allows the banks to give 
U.S. prosecutors bits and pieces of information, hints and 
clues that might help the United States in its hunt for tax 
evaders, instead of a straightforward list of U.S. clients with 
Swiss accounts. Accounts that existed before August 1, 2008, 
are not even covered. The United States is then told to piece 
the clues together and go on a treasure hunt, trying to 
identify accounts, again, using very limited information, while 
Swiss banks get immediate immunity from prosecution.
    To make the situation even more difficult, in January a 
Swiss court turned down a U.S. treaty request for client names, 
ruling that the fact that a Swiss account was undisclosed--
hidden from U.S. authorities--was not enough on its own to 
justify piercing Swiss secrecy laws. Again, the Swiss found 
preserving bank secrecy more important than supporting U.S. 
efforts to prosecute tax evasion.
    After the Department of Justice overcame Swiss secrecy 
obstacles to obtain 4,700 accounts with U.S. client names from 
UBS, many predicted that Swiss secrecy would no longer impede 
U.S. prosecutions. In 2008 testimony before this Subcommittee, 
Justice officials pledged to act energetically. Associate 
Attorney General Kevin O'Connor testified, despite the 
challenges posed by bank secrecy, ``we will not be deterred. We 
will pursue other formal and informal methods of obtaining the 
foreign evidence we seek.'' And he said, ``This includes the 
use of John Doe summonses as well as Grand Jury subpoenas.''
    Well, that did not happen as promised, but it is not too 
late, though, to fulfill the pledge. The Department of Justice 
can still use U.S. tools, including grand jury subpoenas, John 
Doe summons, and U.S. indictments, to get U.S. client names 
from the 14 targeted banks, which includes some of the largest 
banks. The Department of Justice can still make extradition 
requests for indicted Swiss bankers and test Switzerland's 
professed willingness to cooperate with U.S. tax enforcement. 
The Department of Justice can still hold accountable the U.S. 
tax evaders and the tax haven banks that helped them, if the 
Department has the will. Among the questions we will be asking 
today is why the Department of Justice has slowed its 
investigations of the 14 banks through its failure to use U.S. 
legal tools; why it accepted Swiss bank secrecy principles in 
the Department of Justice non-prosecution program; why it 
obtained only 238 accounts with U.S. client names in 5 years 
out of the tens of thousands of Credit Suisse accounts; and how 
it plans to collect the unpaid taxes still owed on billions of 
dollars of Credit Suisse accounts.
    Allowing Americans to evade their tax obligations through 
hidden offshore accounts deprives our government of needed 
revenue. And more than that, it deprives honest American 
taxpayers of something vital to the legitimacy of our tax 
system: fairness. Laws need to be enforced to ensure that 
taxpayers are not able to go offshore to cheat Uncle Sam and 
instead pay what they owe, and the tax haven banks that aided 
them are held accountable for their actions.
    I would like to thank my Ranking Republican, John McCain, 
and his great staff for their strong support and involvement in 
this investigation and for carrying on the bipartisan work that 
began, in this case, as in so many other cases, with Senator 
Tom Coburn and his great staff.
    Senator Coburn is now, of course, the Ranking Member of the 
full Committee, and we welcome him here today. But we will 
first call on my Ranking Member, Senator McCain.

              OPENING STATEMENT OF SENATOR MCCAIN

    Senator McCain. Well, thank you, Mr. Chairman, and I thank 
you for that comprehensive overview of this really disturbing 
situation, and I thank you and all the staff for their hard 
work on this issue for a long time.
    The bipartisan investigation into tax haven banks focuses 
today on Credit Suisse, Switzerland's second largest bank. The 
investigation has revealed another unfortunate example of a 
foreign bank succumbing to the charms of compensation over 
compliance and uncovered how, for years, Credit Suisse greatly 
profited by helping U.S. clients hide billions of dollars of 
taxable assets from the U.S. Treasury. By willfully undermining 
U.S. tax and securities laws and taking advantage of 
Switzerland's opaque banking practices, the bank became a safe 
haven for tax evasion, pure and simple. Today's hearing will 
examine instances of past misconduct, highlight how the bank 
delayed meaningful compliance for as long as possible, and 
consider how the Department of Justice's ineffective response 
allowed this conduct to persist.
    How Credit Suisse bankers helped their U.S. clients hide 
their assets--and keep them hidden--from the view of U.S. tax 
authorities was egregious. As Chairman Levin mentioned, the 
bank orchestrated a wide range of surreptitious meetings with 
U.S. clients, on both sides of the Atlantic. Remotely 
controlled elevators leading to hidden rooms in the bank's 
Zurich headquarters, magazines in American hotel lobbies, and 
even family events were all used by bankers to unsuspectingly 
conduct illicit business with their U.S. clients. Credit Suisse 
bankers reportedly stated on customs forms that they were 
traveling to the United States for ``tourism'' purposes. But 
instead of sightseeing, they would secretly meet with clients--
a violation of U.S. securities laws. In one instance, a Credit 
Suisse banker traveled to the United States, purportedly, to 
attend the wedding of a client's child. However, in addition to 
enjoying the wedding festivities, the banker also took 
advantage of this social occasion to secretly brief his client 
on the status of the client's undeclared Credit Suisse account. 
These alarming instances of illicit banking practices belong in 
a spy novel--not at one of the world's top banks.
    The Swiss banking secrecy provisions that enabled such 
practices went largely unchallenged until 2008, when this 
Subcommittee conducted a seminal investigation and held public 
hearings into offshore tax evasion practices. Indeed, Credit 
Suisse prospered for years by not requiring its U.S. clients to 
be tax compliant. While it made some changes to its internal 
policies, it was slow to ensure sufficient compliance by its 
U.S. account holders. Even today, the bank still must answer 
for decades of ill-gotten profits.
    Coincidentally--or not--just 5 days ago, with this hearing 
on the horizon and announced, Credit Suisse agreed to a 
regulatory settlement with the SEC whereby it would admit 
wrongdoing and agree to pay $196 million for providing banking 
services in the United States without registering with the 
regulator. This fine, however, pales in comparison to the 
severity of the full extent of Credit Suisse's misconduct. The 
Justice Department and other Federal regulators should not sit 
by and give these foreign banks a free pass for their role in 
enabling U.S. tax evasion, concealing billions of dollars in 
tax revenue, and deceiving the U.S. Government and the American 
people.
    At a time of fiscal hardship, the Justice Department 
appears to have willingly given up on using the tools it has to 
collect taxes owed to the U.S. Government. In 2008 alone, the 
Justice Department obtained information on U.S. tax evaders 
from a Swiss bank, leading to 72 prosecutions. But from 2009 to 
2013, the Justice Department seems to have abandoned its 
efforts, issuing no summonses and enforcing no subpoenas 
against Swiss banks.
    In fact, I am sure the Justice Department will probably 
dispute that, but facts are stubborn things. From 2009 to 2013, 
the Justice Department issued no summonses and enforced no 
subpoenas against Swiss banks.
    In fact, even though in 2011 the Justice Department 
indicted a handful of individual Credit Suisse bankers for 
engaging in illicit banking practices, to date, it has failed 
to prosecute these indictments. That is since 2011. Instead, 
the Justice Department has opted to play the role of diplomat--
helping to negotiate with the Swiss Government the creation of 
a program that allows Swiss banks to voluntarily disclose their 
tax evasion practices without risk of prosecution in the United 
States. As a result of this program, some banks may not even 
have to admit any wrongdoing for their misconduct. Instead, 
these financial institutions will simply pay fines on the 
illicit accounts they hold--a mere slap on the wrist for their 
role in concealing billions of dollars from the U.S. Treasury 
and a payment that may be deemed by banks wishing to engage in 
similar wrongdoing as an acceptable ``cost of doing business.''
    As a result of offshore tax haven practices by Credit 
Suisse and other financial institutions, as recently as 2011, 
it has been estimated that the United States has been deprived 
of $337.3 billion in potential revenue--the largest amount of 
revenue lost due to tax evasion in the world. With this in 
mind, the Justice Department should be relentless in continuing 
its investigations into foreign banks, such as Credit Suisse, 
and seek penalties that reflect the severity of the wrongdoing, 
disgorge them of their wrongful gains, make aggrieved taxpayers 
whole, and effectively deter similar misconduct in the future. 
It is past time to fully and clearly expose how offshore tax 
haven banks help American account holders evade paying their 
taxes.
    I want to thank the witnesses for appearing before the 
Subcommittee today, and I look forward to their testimony. And 
I want to thank Senator Coburn for his incredibly important 
efforts in this investigation and his work on the Subcommittee.
    Thank you, Mr. Chairman.
    Senator Levin. Thank you so much, Senator McCain.
    As I mentioned, this has been a lengthy investigation 
lasting well over 2 years, and until January of last year, the 
Ranking Member of our Subcommittee was Dr. Coburn, so he and 
his staff played a major role in the early part of this 
investigation, a very important part of the investigation, and 
so I now call on him as the Ranking Member of our full 
Committee but the former Ranking Member of this Subcommittee. 
Welcome back to our Subcommittee, Dr. Coburn.

              OPENING STATEMENT OF SENATOR COBURN

    Senator Coburn. Thank you, Mr. Chairman and Senator McCain. 
I have a statement for the record that I would ask unanimous 
consent to be put in, but I would make an observation for the 
American public.
    When you have a Justice Department that selectively 
enforces the law rather than carries out its oath to fully 
enforce the law, you have problems like this that occur. And we 
do not just see it in this case. We see it across a broad array 
of laws that are selectively enforced to the detriment of 
undermining the glue that holds this country together, which is 
the rule of law. And my disappointment in the actions of the 
Justice Department in this case are great, but not greater than 
what I see in the leadership in this Justice Department of a 
leader who does not take his oath seriously, does not do what 
is necessary to enhance the glue that binds us together.
    I want to thank Senator Levin and Senator McCain. These are 
thorough investigations. This one has been extremely difficult 
in terms of getting information, and the report is 
comprehensive.
    I also would thank the present leadership at Credit Suisse 
for, one, admitting culpability and, two, coming to testify and 
being open and honest with us.
    And the final point I would make is that the tax treaty 
that has been negotiated needs to be completed, and then we 
need to put the pressure on to enhance further improvements to 
that so that we will not have the same things occurring in the 
future.
    With that, I yield back.
    Senator Levin. Thank you so much. Senator Johnson.
    [No response.]
    Thank you.
    OK. We will now call our first panel for this morning's 
hearing, and I want to discuss the timing of the hearings here. 
Our second panel has to go to the White House, so when this 
panel finishes, we are going to probably have to adjourn. It 
depends on how long this panel lasts. But the second panel 
cannot start after 12:30. I assume this panel will last at 
least until then. So the likelihood is that we will be in 
recess approximately from 1 to 3 o'clock when we would begin 
the second panel.
    Now, the reason I say that is the likelihood is because we 
do not know precisely when this panel will be over, and if it 
goes beyond 12:30 or 1 p.m., we will continue with this panel 
until it is concluded. I do not know if that came out clearly, 
but it is the best I can do at the moment.
    And we will now call our first panel for this morning's 
hearing: Brady Dougan, the Chief Executive Officer (CEO) of 
Credit Suisse Group AG in Zurich, Switzerland; Romeo Cerutti, 
General Counsel of Credit Suisse Group AG in Zurich, 
Switzerland; Hans-Ulrich Meister, the co-head of Private 
Banking and Wealth Management of Credit Suisse Group AG in 
Zurich, Switzerland; and Robert Shafir, the co-head of Private 
Banking and Wealth Management of Credit Suisse Group AG in New 
York. We appreciate all of you being with us here this morning, 
and we look forward to your testimony.
    Pursuant to Rule 6, all witnesses who testify before this 
Subcommittee are required to be sworn, and at this time then I 
would ask you to please stand and raise your right hand. Do you 
swear that the testimony you will give before this Subcommittee 
will be the truth, the whole truth, and nothing but the truth, 
so help you, God?
    Mr. Dougan. I do.
    Mr. Cerutti. I do.
    Mr. Meister. I do.
    Mr. Shafir. I do.
    Senator Levin. We will be using a timing system for our 
witnesses today. Be aware that approximately 1 minute before 
the red light comes on, you will see the light change from 
green to yellow, giving you an opportunity to conclude your 
remarks. While your written testimony will be printed in the 
record in its entirety, we ask that you limit your oral 
testimony to 15 minutes. And if you need additional time beyond 
that, I am sure that we can find a way to provide it to you.
    Mr. Dougan, please proceed.

 TESTIMONY OF BRADY W. DOUGAN, CHIEF EXECUTIVE OFFICER, CREDIT 
 SUISSE GROUP AG, CREDIT SUISSE AG, NEW YORK, NEW YORK; ROMEO 
CERUTTI, GENERAL COUNSEL, CREDIT SUISSE GROUP AG, CREDIT SUISSE 
AG, ZURICH, SWITZERLAND; HANS-ULRICH MEISTER, CO-HEAD, PRIVATE 
 BANKING AND WEALTH MANAGEMENT, CHIEF EXECUTIVE OFFICER-REGION 
SWITZERLAND, CREDIT SUISSE GROUP AG, CREDIT SUISSE AG, ZURICH, 
SWITZERLAND; AND ROBERT S. SHAFIR, CO-HEAD, PRIVATE BANKING AND 
  WEALTH MANAGEMENT, CHIEF EXECUTIVE OFFICER-REGION AMERICAS, 
CREDIT SUISSE GROUP AG, CREDIT SUISSE AG, NEW YORK, NEW YORK\1\

    Mr. Dougan. Good morning, Chairman Levin, Ranking Member 
McCain, and Members of the Subcommittee. My name is Brady 
Dougan. I became the Chief Executive Officer of Credit Suisse 
in 2007. I am joined by Romeo Cerutti, who has been the General 
Counsel of Credit Suisse since 2009, and by Hans-Ulrich Meister 
and Rob Shafir, who have served since 2012 as co-heads of our 
Private Banking and Wealth Management Division. I would like to 
thank you for the opportunity to appear before the Subcommittee 
today.
---------------------------------------------------------------------------
    \1\ The joint prepared statement of Credit Suisse appears in the 
Appendix on page 93.
---------------------------------------------------------------------------
    Mr. Chairman, I would like to make a brief opening 
statement and ask, as you mentioned, that our longer prepared 
statement and our written comments to the report be included in 
their entirety in the hearing record. My fellow panelists will 
make brief oral statements following mine, but they have 
allowed me to encroach somewhat on their time.
    I would like to begin by providing a little background 
about Credit Suisse. Our Bank operates in more than 50 
countries and has over 45,000 employees, including 
approximately 9,000 U.S. employees in 19 locations in the 
United States. In the United States, Credit Suisse is regulated 
by the Federal Reserve. We have a New York branch, which is 
supervised by the New York State Department of Financial 
Services. We also have three regulated U.S. broker-dealer 
subsidiaries.
    Our primary U.S. broker-dealer has been designated a 
Systemically Important Financial Institution under the Dodd-
Frank law. Our Bank has a deep and substantial business in the 
United States.
    The Credit Suisse management team also has strong personal 
ties and commitments to the United States. Rob Shafir and I are 
American citizens. I am the first American CEO of a major Swiss 
bank. Romeo Cerutti, our General Counsel, is an attorney who 
was admitted to both the Swiss and California bars. And Hans-
Ulrich Meister has also worked in the United States. Our Bank 
also has deep roots in the United States. Parts of today's 
Credit Suisse date back to the First Boston Corporation, a U.S. 
firm that has its roots going back to the 18th Century.
    Mr. Chairman, there are a few key points that I would like 
to clearly express to the Subcommittee at the outset today.
    In 2008, your Subcommittee first held hearings highlighting 
abuses of Swiss banking secrecy to hide untaxed U.S. assets. 
That event, one year into my tenure as CEO, challenged the 
entire Swiss banking sector, and it encouraged us at Credit 
Suisse to push forward, work hard, and help bring about a 
transformation in the Swiss banking system.
    Over the past 5 years, Credit Suisse has become one of the 
leaders in Switzerland, encouraging legal, cultural, and 
business changes to enable the United States to have 
transparent access to information about U.S. clients and to 
enable the United States to recover taxes that are still unpaid 
by Americans holding assets abroad.
    I can assure you that not all banks in Switzerland agree 
with us, and many have privately and publicly opposed the 
positions we take. But for me it is very clear. Swiss banks can 
only hold assets that U.S. clients have established are 
compliant with U.S. tax law. Seeking out U.S. customers who 
want to hide untaxed assets and profiting from these untaxed 
assets is simply not acceptable.
    Mr. Chairman, we are working daily to build a different and 
better legal and cultural reality for Credit Suisse and the 
Swiss private banking model. We have tried to demonstrate 
leadership in this area in a number of different ways. We have 
supported legal steps, both here and in Switzerland, that would 
enable the U.S. authorities to obtain information and recover 
unpaid taxes from U.S. clients. Credit Suisse has strongly 
supported the Foreign Account Tax Compliance Act (FATCA) at 
every opportunity, supporting it in both the United States and 
Switzerland, and working closely with the U.S. Senate to make 
the law as effective as possible.
    While we supported FATCA, other banks opposed it. Because 
we embraced FATCA, Credit Suisse now has in place, sooner than 
FATCA requires, procedures to make sure U.S. clients 
demonstrate compliance with U.S. tax laws.
    In addition, Credit Suisse supports full information 
exchange beyond FATCA, including the Organisation for Economic 
Co-operation and Development (OECDs) efforts toward global 
standards for automatic information exchange.
    We have also supported the ratification of the Protocol to 
the Double Taxation Treaty agreed to by the U.S. and Swiss 
Governments in 2009 and approved by the Swiss Parliament almost 
4 years ago. Credit Suisse is ready at this moment to provide 
the additional information about U.S. accounts that has been 
requested by the U.S. authorities, but we have been unable to 
do so because the U.S. Senate has not yet ratified the 
protocol. We urge the Senate to ratify the protocol so that 
Swiss banks can assist the U.S. authorities in recovering 
unpaid U.S. taxes.
    We have proactively taken steps to require that only those 
U.S. clients who established compliance with U.S. tax laws can 
be clients of our Bank. In 2008, when UBS became the first 
Swiss bank to become the focus of investigations by the Justice 
Department and this Subcommittee, and many U.S. resident 
clients left UBS, some other Swiss banks welcomed those 
clients. But Credit Suisse immediately prohibited the transfer 
of assets from those former UBS clients to our bank.
    Long before investigations by U.S. authorities, Credit 
Suisse--again, on our own initiative--moved to address the 
issues highlighted by the UBS situation. We wanted to ensure 
that all U.S. clients of our Bank establish compliance with 
U.S. law, and we prioritized that exercise based on what we 
understood were the key priorities of the U.S. Government.
    Over the past 5 years, we pushed forward with a significant 
and complex remediation exercise. In addition to dedicated 
Credit Suisse staff, we hired numerous outside experts--law 
firms, accountants, and others--to help check whether clients 
who might have a possible U.S. connection were identified. If 
they had any U.S. connection, they were required to demonstrate 
their compliance with U.S. tax law if they wanted to remain 
clients of our Bank.
    To check the thoroughness of our efforts, we hired one of 
the Big Four accounting firms which carefully analyzed what we 
had done. In 2013, this accounting firm confirmed that we had 
identified the complete population of potential U.S. account 
relationships to an extremely high level of confidence. Our 
remediation has been extensive and demonstrable, and the 
results of this substantial effort have been presented to the 
Subcommittee staff.
    We fully recognize, Mr. Chairman, that despite our efforts, 
Credit Suisse has not been free of its own problems. We have 
invested enormous efforts to achieve as much clarity as 
possible about whether and to what extent Credit Suisse 
employees violated U.S. laws or helped clients to do so. We 
commissioned an independent internal investigation by the 
United States and Swiss law firms that reviewed all aspects of 
the Bank's Swiss-based private banking business with U.S. 
clients. The investigation identified evidence of violations of 
Bank policy and U.S. laws that were centered on a small group 
of Swiss-based private bankers.
    The investigation's evidence showed that these people went 
to great lengths to disguise their bad conduct from the Bank. 
We have presented the Subcommittee with the unvarnished results 
of our internal investigation.
    Credit Suisse's management team regrets very deeply that, 
despite the industry-leading compliance measures we put in 
place, we had some Swiss-based private bankers who appear to 
have violated U.S. law. While I am extremely dismayed by their 
conduct, Mr. Chairman, I also believe that leadership requires 
facing up to the past and taking responsibility for what our 
employees did.
    Mr. Chairman, let me conclude by stating once again that we 
made a decision some years ago to work hard and help bring 
about a transformation of the Swiss banking industry toward the 
highest standards of compliance. We have tried sincerely to 
demonstrate our leadership in the various ways I discussed this 
morning, and for me personally it has been one of my highest 
priorities to get this fixed, to get it right, and I believe we 
have made significant progress toward that goal.
    And with that, with your permission, I would like to turn 
it over to Romeo Cerutti, our General Counsel.
    Senator Levin. Thank you very much. Mr. Cerutti.
    Mr. Cerutti. Good morning, Chairman Levin, Ranking Member 
McCain, and Members of the Subcommittee. My name is Romeo 
Cerutti, and I have served as the General Counsel of Credit 
Suisse since 2009. I am happy to appear today to answer your 
questions. We have taken a hard look at this issue, and I will 
explain everything I can to the extent possible.
    Before 2008, our Bank, like many banks in Switzerland at 
the time, had the view that tax compliance was a matter that 
was between the individual taxpayer and that taxpayer's 
government. Looking back, that approach left the Bank 
vulnerable to abuse by those U.S. clients and Swiss private 
bankers who wanted to hide untaxed assets. And back then, 
preventing U.S. accounts from holding untaxed assets was not a 
priority. That was a mistake.
    But since that time there has been a real and meaningful 
change, and I should say that one of the most important drivers 
of that change has been this very Subcommittee and, most 
particularly, the Subcommittee's report of July 2008 concerning 
UBS.
    Once the report came out, within a week we immediately 
decided that we would not take in the account holders that were 
leaving UBS as a result of the revelations in that report. We 
also decided that we would identify and close U.S. taxpayer 
accounts that would not or could not prove tax compliance.
    We believed that our Swiss-based private bankers serving 
U.S. clients were complying with our policies. We were wrong. 
In fact, as we later learned, we had a problem. Certain private 
bankers in our Bank had apparently violated U.S. laws.
    As a bank, we have since taken a number of important steps 
to face up to the past and guard against a recurrence of these 
problems.
    First, we commissioned a full and independent internal 
investigation as to what happened and have provided detailed 
information to the U.S. authorities. We have searched for the 
truth of what happened with a view that we need to take 
responsibility and resolve these matters.
    Second, we have worked very hard to get the U.S. 
authorities the necessary information they wanted. This has not 
been easy, given that we need to comply with the laws of both 
the United States and Switzerland and these laws are sometimes 
directly conflicting.
    Third, our effort has also included urging both the Swiss 
Parliament and the U.S. Senate to adopt the 2009 Protocol to 
the Double Taxation Treaty. While the Swiss Parliament adopted 
the Protocol a long time ago, it still awaits ratification by 
the U.S. Senate.
    Fourth, we have worked very hard to close all U.S. accounts 
where clients have not demonstrated compliance in fulfilling 
their reporting obligations.
    Fifth, we contacted current and former U.S. account holders 
and encouraged them to participate in the IRS' Voluntary 
Disclosure Program, which enables the IRS to recoup unpaid 
taxes.
    Sixth, and last, we have made real progress in proactively 
improving our compliance standards. For example, we have 
prepared for the implementation of the Foreign Account Tax 
Compliance Act, ahead of time and have been a vocal leader in 
Switzerland and globally in support of FATCA, which will bring 
about important changes in providing the IRS information about 
U.S. accounts held abroad.
    Senators, when we make mistakes, we take responsibility and 
we hold ourselves to high standards. The last 5 years have been 
an important wake-up call for the Swiss private banking 
industry. At Credit Suisse we have learned real lessons, and we 
have genuinely tried to use this experience as an opportunity 
to meaningfully improve our Bank's compliance framework.
    Thank you.
    Senator Levin. Thank you very much, Mr. Cerutti.
    Did you want Mr. Shafir or Mr. Meister?
    Mr. Meister. Good morning, Mr. Chairman. Good morning, 
Ranking Member McCain. Good morning, Members of the 
Subcommittee. My name is Hans-Ulrich Meister. Along with my 
partner, Rob Shafir, I am the co-head of the Private Banking 
and Wealth Management Division at Credit Suisse.
    I have had the privilege of working in this country and 
also had the opportunity to complete advanced management 
programs at Wharton and at Harvard.
    I joined Credit Suisse in August 2008 as the regional CEO 
of Switzerland. In that role, one of the main tasks was to 
enhance and to drive the integration of the various local 
businesses in Switzerland, including the investment banking 
business, asset management, private banking, and the retail and 
the commercial businesses in Switzerland.
    In August 2011, I became the Chief Executive Officer of the 
Private Banking Division, and in November 2012, Rob Shafir, to 
my right, and I were appointed to the newly formed division 
called Private Banking and Wealth Management.
    As a Swiss person who has spent close to 30 years in the 
financial service industry, there are two points I want to 
emphasize.
    The first point is that we agree that Swiss bank secrecy 
was abused by some clients in order to hide untaxed money from 
their local tax authorities.
    We also recognize that there were some Swiss bankers, 
business people in Swiss banks, who helped those clients to 
hide their untaxed money.
    I want to state clearly and directly to this Subcommittee 
that this approach, by some clients and some Swiss bankers, is 
totally unacceptable.
    Not everyone in Switzerland wants to deal with this fact, 
but in my view, the Swiss banks have to recognize this issue 
and have to accept their share of responsibility.
    The second point I want to make is that it is clear to me 
personally and it is clear to the entire management team of the 
Bank that the only way forward for the private banking business 
at Credit Suisse and for all the Swiss banks is to serve only 
U.S. clients who can establish compliance with U.S. laws, and 
this has been our goal for some years.
    In 2008, while other banks in Switzerland accepted U.S. 
clients who left UBS, we prohibited acceptance of those 
clients. We have conducted a series of intensive projects over 
the last 5 years to check that only U.S. clients who can 
demonstrate that they have established compliance with U.S. tax 
laws can be clients of Credit Suisse. We are doing this because 
we do not want U.S. clients who are not fully compliant with 
the laws of this country.
    The private banking industry worldwide, not just in 
Switzerland, has been going through a process of change for 
years in the direction of clear transparency, international 
exchange of information, and working closely together with 
regulators all over the world to enhance and improve the 
business.
    Rob Shafir and I, as the responsible co-heads for the 
Private Banking and Wealth Management Division, welcome these 
changes because we strongly believe that is the only way 
forward for the Swiss financial center and the international 
private banking community. Thank you.
    Senator Levin. Thank you very much, Mr. Meister. Mr. 
Shafir.
    Mr. Shafir. Good morning, Chairman Levin, Ranking Member 
McCain, and Members of the Subcommittee. My name is Rob Shafir. 
I am the co-head, along with my colleague Hans-Ulrich Meister, 
of the Private Banking and Wealth Management Division.
    I joined Credit Suisse in 2007 and have had a 30-year 
career in the U.S. financial services business. I appreciate 
your giving me a chance to speak with the Subcommittee today.
    From 2007 to 2012, I have served at different times as the 
Chief Executive Officer of the Americas Region and the Chief 
Executive Officer of our asset management business. I have been 
on the Executive Board since I joined the Bank.
    From the time I joined Credit Suisse, I have experienced 
firsthand a sincere and unambiguous culture of compliance. Our 
leadership has an intense focus on controls. We have strong and 
committed employees in various different functions who are 
ready and empowered to enforce the highest standards in the way 
we do business. That commitment starts with Mr. Dougan and the 
Board of Directors, and it is crystal clear to the members of 
the Executive Board and the employees on down the line in the 
United States, Switzerland, and the rest of the world.
    From outside the Bank, you can see our culture of 
compliance in action in the concrete steps we take. I have 
witnessed during my time at Credit Suisse that the Executive 
Board has a constant focus on creating a compliance culture, 
and the Bank has made significant progress in that direction.
    You can also see the other steps that we have taken to 
support greater transparency in international banking. We have 
strongly advocated in favor of the Protocol to the Double 
Taxation Treaty, allowing for mutual assistance in tax matters. 
We have publicly supported the enactment of the implementation 
of FATCA, which represents a major advance in international 
information sharing. Even though the official implementation of 
FATCA has been delayed, we proactively adopted requirements 
that exceed what FATCA will require, and have done so on a 
faster timetable than required by the IRS. Then and now, we are 
totally committed to ensuring that our clients and our 
businesses are compliant with U.S. legal requirements.
    I am not suggesting, Mr. Chairman, that we get it right 
every time or that we are always able to detect every problem 
in the Bank as soon as we would like. I can tell you that the 
attitude of this management team is to prioritize a culture of 
compliance at every level of this Bank and to resource and 
empower the people in the control functions.
    In 2012, I was asked by Mr. Dougan to join my partner, 
Hans-Ulrich Meister, as co-head of the Private Banking and 
Wealth Management Division. I am the first American to serve as 
co-head of this business at our Bank. Mr. Meister and I are 
completely on the same page when it comes to the strategy we 
are implementing for our business. The value proposition of 
Credit Suisse for U.S. clients is that we can manage client 
assets with outstanding client service and performance. There 
is no value proposition in having U.S. clients that have not 
demonstrated compliance with U.S. law.
    Mr. Chairman, these are the standards we have set for 
ourselves. This is where Credit Suisse is now. We believe this 
is the responsible and necessary future for the international 
banking industry.
    Thank you for your time this morning.
    Senator Levin. Thank you very much.
    We will have many rounds of questions, but let us have 10 
minutes for each round for each of us.
    Mr. Dougan, in your opening statement, you said that Credit 
Suisse is willing to provide names of U.S. customers who held 
Swiss accounts, pending ratification of the 2009 Swiss 
Protocol. Now, that treaty is not going to facilitate the 
production of U.S. account names and information on accounts 
that are closed before September 2009, right? Is that correct?
    Mr. Cerutti. May I?
    Senator Levin. Either one.
    Mr. Cerutti. Yes, that is correct. But any account that was 
still open at that time, you are going to get information. And 
if I may add, a lot of the accounts that were closed at that 
time went on to other Swiss banks. So you will get it if the 
IRS makes the same request under the treaty to other Swiss 
banks.
    Senator Levin. Right. And, of course, the Swiss Parliament 
has amended the law so that we have to make certain proofs 
before we can get the information from those other banks. Bits 
and pieces are provided to us instead of the names. Instead of 
your going back and giving us the names, which is what will 
allow us to collect the taxes, instead you hide behind Swiss 
secrecy laws.
    So we are interested in collecting taxes that are owed, 
which have been evaded, and we need the cooperation of the 
banks in order to do that. But if the banks will not cooperate, 
citing Swiss secrecy laws, then we simply have to use our own 
domestic laws to force cooperation from the banks.
    Now, you cite Swiss secrecy laws, you said, Mr. Dougan, 
that you do not agree with those laws. Is that correct?
    Mr. Dougan. Well, I think our position is very clear, which 
is we are ready to provide any information that we can legally 
provide. But I think that, as you point out, the issue that we 
have is we have two different legal jurisdictions and, 
therefore, for us to break the law in one jurisdiction in order 
to provide that information is difficult for us to do. But I 
think the most important thing, from our point of view, is that 
we cannot necessarily influence these discussions between 
governments and how they proceed. We are ready to provide any 
information that we can provide legally, and we do believe that 
approval of the new treaty would actually provide a lot of 
facility for the IRS and for the DOJ to actually get a lot of 
the information that they need. That is our belief.
    Senator Levin. Well, I have indicated that we hope that 
treaty will get ratified, but it has its limits, and it does 
not apply to thousands of accounts of people who owe us money. 
And you folks have not been willing to give us more than 238 of 
those accounts, and that means that we lose billions of dollars 
in tax collections. And that is unacceptable to us. And if we 
are not going to get cooperation from the Swiss--and we will 
make this point very strongly to our own Department of Justice 
this afternoon--we are going to use our own means. And our own 
means are subpoenas, and our own means are to use the ways in 
which we can enforce our own laws in order to get those names.
    And so you can say that you are caught between two 
countries' laws, but when you come to this country, you sent 
bankers into the United States, set up an office in the United 
States, helped U.S. customers hide what they were doing from 
U.S. authorities--that is what you did. And now the jig is up. 
You say you want to cooperate, but you cannot do it because of 
Swiss secrecy laws. Those laws do not apply in the United 
States. You are operating in the United States.
    And so we believe and we think the law, which is fairly 
well accepted around the world, is that if you are going to 
operate in a country, you must abide by the laws of those 
countries, and you cannot hide behind the laws of your own 
country. That is not the way it works.
    And so we are going to put a lot of pressure on our Justice 
Department to enforce the laws here and to enforce them against 
you if you are unwilling to do what our laws, we believe, 
require you to do, which is to turn over the names of the 
people whom you aided and abetted in tax evasion.
    Mr. Dougan. Well, Mr. Chairman----
    Senator Levin. Let me just ask you about Swiss laws, too, 
by the way. Have you urged the Swiss Government to change the 
laws to allow disclosure of U.S. customers' names? Have you 
urged the Swiss Government to change the laws?
    Mr. Dougan. We have actually worked at all levels within 
Switzerland, certainly with the government, with regulators, 
and also have been very public about our support for increasing 
the ability for transparency. As we have said, we are----
    Senator Levin. That is not my question.
    Mr. Cerutti. If I may----
    Senator Levin. My question is: Has Credit Suisse urged the 
Swiss Government publicly to change the law so that you can 
turn over the names of your customers that you had prior to 
2009?
    Mr. Cerutti. Mr. Chairman, we have absolutely the same 
goal. Every----
    Senator Levin. No. Not the same goal. It is a very specific 
question. Have you urged the government to change the law so 
that you can cooperate with us so that we can collect taxes 
that are owing to us?
    Mr. Dougan. Yes, we have.
    Senator Levin. To change the law so that you can provide us 
those names?
    Mr. Dougan. Yes, we have done that.
    Senator Levin. You have.
    Mr. Dougan. We have encouraged them. We have done it 
publicly. We have supported that goal, yes.
    Senator Levin. That is good. Now, and you are saying other 
banks have not--no, no. Not the goal, because the goal can be 
achieved in the eyes of some through a treaty which gives us 
bits and pieces, not names. What the new treaty does is say, we 
are not going to give you the names. We are going to tell you 
generally what accounts were transferred to what other banks, 
and then you can go to those other banks, and then the 
Parliament in Switzerland changed the law to say under that new 
treaty, you are going to have to show that the bank that has 
received that account somehow or other worked with and is 
guilty also of aiding and abetting. That is a very difficult 
burden. So you can talk about the new treaty, and we hope it 
gets ratified. But its value is very limited. It has loopholes 
in it which will be used, I am sure, by banks to avoid ponying 
up the names.
    Now, I want to ask you this question, not goal: Have you 
urged the Government of Switzerland, the Parliament of 
Switzerland, to allow you to give us the names of your 
customers that you aided and abetted in evading taxes prior to 
2008?
    Mr. Dougan. Yes, we have.
    Senator Levin. OK. Now, Mr. Cerutti, as the bank's General 
Counsel, let me ask you questions about some grand jury 
subpoenas. Is it correct that in September 2011, the Department 
of Justice issued two grand jury subpoenas to Credit Suisse 
seeking information from the bank in Switzerland?
    Mr. Cerutti. That is correct.
    Senator Levin. And those subpoenas in part ask for U.S. 
client names and account information for certain accounts going 
back to January 2000?
    Mr. Cerutti. That is also correct.
    Senator Levin. Is it correct that while Credit Suisse 
produced some business records and information from 
Switzerland, it did not produce any account information 
disclosing U.S. client names?
    Mr. Cerutti. That is correct, yes.
    Senator Levin. And the reason was Swiss secrecy laws. Is 
that correct?
    Mr. Cerutti. That is correct.
    Senator Levin. Now, the bank must have known that the 
United States has case law bundled under the Bank of Nova 
Scotia line of cases that says if a bank is based in a secrecy 
jurisdiction but does business in the United States and if it 
gets served with a grand jury subpoena, the U.S. interest in 
criminal prosecutions outweighs the foreign jurisdiction's 
interest in secrecy and that the bank must produce the 
requested information. Are you aware of that line of cases?
    Mr. Cerutti. Yes, I am.
    Senator Levin. And so you knew that the day would come when 
the bank might be subpoenaed for information in Switzerland and 
that a U.S. court would order the bank to honor the subpoena. 
But what actually happened here is that instead of enforcing 
the grand jury subpoenas in a U.S. court to obtain the U.S. 
client names in Switzerland, the Department of Justice put the 
subpoena on hold and in September 2011 filed a treaty request 
instead to obtain the names. Is that true?
    Mr. Cerutti. Yes, I think so.
    Senator Levin. And that treaty request took two different 
requests, two court decisions, 2 years, and we ended up with 
238 accounts with U.S. client names. Is that correct?
    Mr. Cerutti. That is correct, because that treaty request 
was made under the current 1996 treaty with the very tough 
standard, and as soon as the new treaty would be ratified, you 
would get, I am convinced, many more, probably thousands of 
account names.
    Senator Levin. Well, I understand, but there also were 
1,500 accounts, were there not, which were organized in the 
same way that the 238 came from? Those were the ones that were 
set up in the third country's jurisdictions using shell 
corporations. Is that correct?
    Mr. Cerutti. You are talking about entity accounts. That is 
correct. Now, the Swiss Federal Administrative Court has set up 
conditions under which they consider these entities to fall 
under this tax fraud or the like standard, and only 238 in 
their view----
    Senator Levin. And so the Swiss courts again made the 
decision which denied us the names of accounts in Switzerland 
opened up by shell corporations--by the way, many of which your 
people helped to set up, and we will get into that later in my 
second or third round. But it was, again, a Swiss court which 
then denied us the names of your account holders which used 
shell corporations to cover up who the beneficial owners really 
were. That is totally unacceptable, and I just hope that our 
Department of Justice understands that when subpoenas are 
issued in 2011 and they sit there unenforced year after year 
after year, and the excuse is that secrecy laws in another 
country do not allow the subject of that subpoena to provide 
information critical to our tax collection, that the Department 
of Justice, as far as I am concerned, is taking a totally 
unacceptable position, and we are going to do our best to 
change it.
    Senator McCain.
    Senator McCain. Thank you, Mr. Chairman. I thank the 
witnesses for being here.
    Mr. Dougan, I would like to get something straight here. Is 
it true that, at its peak in 2006, Credit Suisse had over 
22,000 accounts in Switzerland for U.S. customers with assets 
exceeding $10 to $12 billion? Is that roughly accurate?
    Mr. Dougan. At the end of 2008, we had about 22,000 
accounts, and the total--I think the total amount of assets 
that has been referred to by the Subcommittee is about $12 
billion.
    Senator McCain. So that is an accurate statement now?
    Mr. Dougan. That is generally accurate, yes.
    Senator McCain. Now, to date, due to Swiss law 
restrictions, is it true that Credit Suisse has turned over to 
the United States the names of only about 230 former U.S. 
customers with hidden accounts? Is that true?
    Mr. Dougan. Yes, that is correct.
    Senator McCain. So we are really talking about a minuscule 
number of individuals who have intentionally evaded U.S. taxes 
has been revealed to the Justice Department or the Department 
of Treasury or other interested agencies. Is that true?
    Mr. Dougan. That is correct, in terms of what has been 
delivered.
    Senator McCain. Now, would you explain again what Swiss law 
prevents you from providing that information?
    Mr. Dougan. Yes, perhaps I could ask Mr. Cerutti to give 
the----
    Senator McCain. OK. Maybe Mr. Cerutti----
    Mr. Dougan [continuing]. Legal point of view.
    Mr. Cerutti. Yes, Senator, Article 47 of the Swiss banking 
law, the banking secrecy provision, prohibits us from 
furnishing any client names to anyone within Switzerland or 
outside of Switzerland. And this is subject to imprisonment and 
fines. So that is----
    Senator McCain. So any real idea that the Government of 
Switzerland is cooperating with us is a joke, right? If we can 
only get 230 names out of 22,000 accounts, anyone in the Swiss 
Government who alleges that they are cooperating with the 
United States in trying to track these people down is just 
contradicted by the facts.
    Mr. Dougan, 5 days ago, Credit Suisse settled with the SEC 
and paid over $82 million for disgorgement of its profits. The 
SEC settlement did not relate to the bank's facilitation of tax 
evasion of U.S. client accounts in Switzerland.
    Do you know what the profits from those accounts were? Have 
you got a general idea?
    Mr. Dougan. In terms of, sorry, as opposed to the SEC?
    Senator McCain. Right, the profits that you made from those 
accounts.
    Mr. Dougan. No, Senator, I do not think we have a good idea 
of that. I can perhaps lead you through some of the numbers 
that might give you an understanding of how those numbers 
developed. But I do not think we have a precise idea, no.
    Senator McCain. But those profits were pretty substantial 
given the number of clients that--and the $10, $12 billion in 
the accounts.
    Mr. Dougan. No, in terms of the importance of this 
business--and, frankly, it is one of the issues that makes this 
an issue that is for us as well as something that we regret a 
lot, this was a very small business, actually. From our point 
of view, it was about less than 1 percent of the profitability 
of our global Bank. And so this was actually a relatively small 
part of the business. Obviously we are not in any way trying to 
avoid responsibility for the acts which happened and the 
behavior, but clearly it was, from an economic point of view, a 
very small part of the business.
    Senator McCain. But I guess it is all dependent on how you 
look at it, but if it was $12 billion and, say, 10 percent, 
which is very modest, would be well over $1 billion.
    Mr. Dougan. Well, can I address the $12 billion? Because I 
think that is actually an important issue that we thought was 
worth spending a little time on with the Subcommittee.
    Senator McCain. I thought you just responded $10 to $12 
billion in the 22,000----
    Mr. Dougan. Well, $12 billion was the amount of assets that 
we had outstanding as of the end of 2008. Of that $12 billion, 
$5 billion of that, as we went through and did a full 
investigation, was determined to be fully tax compliant. So not 
all of the $12 billion was not tax compliant. So $5 billion was 
tax compliant. Another $2.2 billion was actually determined to 
not have a U.S. taxpayer connected with it.
    Senator McCain. We are down to $10 billion now.
    Mr. Dougan. We are basically down to about $7 billion.
    Senator McCain. Only $7 billion, OK. I think the point is 
that you made quite a bit of profits, even if it was a small 
percentage, and I guess it all depends on where you view a 
billion or two dollars. Maybe from Credit Suisse's standpoint 
it is not much, but, frankly, from most average citizens, that 
is a fair amount of money.
    In your statement where you accept responsibility and 
deeply regret the actions, you said, how many culpable 
officers, directors, and key executives have been held 
accountable--I mean fired?
    Mr. Dougan. Well, Senator, with this business, what we 
determined to do starting in 2008, 2009, particularly after the 
actions of the Subcommittee in highlighting these issues, was 
to shut this business down. So over the course of the last 
years, over the course of the first 2 years after that, we 
basically reduced the size of the business by about 80, 85 
percent.
    Senator McCain. How many employees were fired?
    Mr. Dougan. Which means that most of those people involved 
with the business actually were fired as part of shutting down 
the business, so the vast bulk of them actually left the 
business as we shut it down.
    Senator McCain. Mr. Meister, you are a high-ranking 
official, and you were directly responsible for overseeing a 
division that serviced many U.S. bank accounts in Switzerland. 
Is that true?
    Mr. Meister. That is true, starting in August 2011, for 
the----
    Senator McCain. There was an office right in the Zurich 
airport, meaning the clients would not have to even enter the 
city to conduct these transactions. Yet in interviews with the 
staff, you said you were unaware that the branch was servicing 
these undeclared U.S. accounts? You were unaware of that?
    Mr. Meister. Perhaps in the interviews I said that, because 
it was not clear to me at the time, because I took over the 
private banking as the CEO in August 2011, there was years 
before this sort of a team. In the meantime, of course, in 
preparation for this hearing, I now know that there was a team. 
There was a team of around seven to eight relationship managers 
and around 10,000 clients. The bulk of the clients were smaller 
clients with a balance between $30,000 and $75,000 and most of 
them did not hold securities. Generally, in Credit Suisse, a 
relationship manager normally in the private bank covers around 
100; here it is around 1,000. So there was specific service for 
U.S. residents who came in, have perhaps a house somewhere in a 
tourist spot, used cash, most of them were cash accounts, no 
securities accounts and no advice.
    Senator McCain. So it really did not mean much that you had 
an office right there in the Zurich airport?
    Mr. Meister. I did not say it did not mean much. That is 
what I learned in the meantime because I was not, as I said, 
accountable for this part. Perhaps Mr. Cerutti can give more 
light, or Mr. Dougan.
    Mr. Dougan. Well, Senator, if I could just add, this 
airport office, as you mentioned--I think Hans-Ulrich Meister 
has outlined some of the parameters of it--it was really an 
office where, as you say, it was an office of convenience for 
clients----
    Senator McCain. It certainly was.
    Mr. Dougan [continuing]. Who would come in, but basically 
they held relatively small amounts of money, and there was no 
active management. And actually in our investigation, which was 
a very detailed investigation, we did not find any systematic 
issues in that area.
    Senator McCain. Mr. Cerutti, you conducted an internal 
review in 2008 that included looking at the SALN desk, which 
primarily dealt with U.S. accounts. Your review found no 
wrongdoing. Yet in 2011, the DOJ found enough evidence to 
indict several employees from that desk. How do you explain 
your inability to--and gave a clean slate to your review of the 
SALN desk, and yet the DOJ found enough evidence to indict 
several employees from that same desk?
    Mr. Cerutti. Senator, we did the review at the end of 2008, 
beginning of 2009. We looked at the SALN desk, at our policies 
and our trainings, at the travel. We looked also at the audit 
reports, all that stuff, and we did not determine that we had a 
problem. In retrospect, that was a mistake.
    Senator McCain. I thank the witnesses. I thank you, Mr. 
Chairman.
    Senator Levin. Thank you very much. Dr. Coburn.
    Senator Coburn. Mr. Dougan, in your prepared testimony, you 
stated that Credit Suisse undertook an extensive internal 
investigation to try and uncover potential wrongdoing. Was 
there a formal report inside the bank on that investigation?
    Mr. Dougan. Well, it was a very extensive and long-running 
investigation. We were updated very frequently on that. We also 
had various discussions, obviously, with our regulators, with 
various authorities here as well, updating them on the progress 
on that.
    I think our view has been that, we are going to continue to 
make sure that we are looking throughout the Bank and doing 
everything we can to ensure compliance, so we did not really 
view it as a process that had ended. But we have constantly 
been, obviously, updated and involved in lessons learned and 
improving the environment as a result of that.
    Senator Coburn. But there was no report brought to your 
board or to your chief executive level that here is the summary 
of what happened, here is----
    Mr. Dougan. There was no formal report. Not one formal 
report.
    Senator Coburn. Do you think that is unusual? Or was that 
done for legal purposes?
    Mr. Dougan. No, I think it was--I have to tell you, I think 
in our firm and certainly in my 32 years in the industry, I 
have never seen a project with as much focus, as much 
resources, and as much time spent on it as this issue. I would 
say over the past 5 years this has probably been the single 
thing which has been the highest focus for us as a management 
team. And so this is discussed very regularly. It is discussed 
very regularly at our Executive Board virtually every week. It 
is discussed at our outside board meetings as well.
    So it has been a very integral part of how we manage the 
business and what we have done all along. So I guess, in fact, 
I view that as a positive. We did not view it as a project 
which ended, and then we had a report which sort of summarized 
it. It is actually something that we continue to work with on a 
daily basis.
    Senator Coburn. On this kind of plan that people would take 
tourist visas here to raise business, which is no longer 
happening, was there one individual that kind of promoted that 
scheme? And were they held accountable? And what has been the 
basis of that?
    Mr. Dougan. The team that was involved in that--and, again, 
this is historic behavior, as you say, so it was pre-2008 
behavior--was a group which compromised different numbers over 
time, but about 10 to 15 different account officers, and it was 
really concentrated in that group. That is the group where we 
admit there was behavior that we certainly do not countenance, 
we certainly think is egregious. We agree with, I think, all 
the adjectives that were used by the Subcommittee here. And 
that was really the group that was involved in that activity. 
The managers of that group were clearly the managers who I 
believe orchestrated that. We did not see any knowledge of that 
by others above them in the organization. And many of those 
individuals were part of the Department of Justice indictment. 
Many of those individuals are gone from the firm, and have been 
for a long time.
    So that was the small focus group where we saw the behavior 
that was clearly not behavior that we would in any way 
countenance or defend.
    Senator Coburn. All right. Mr. Cerutti, if John Doe 
subpoenas and the Justice Department fully carried out what 
they could carry out in this country, would you all have 
complied with those subpoenas?
    Mr. Cerutti. Senator, that is very difficult--impossible 
under Swiss law. We would all face criminal indictments in 
Switzerland and most probably prison terms if we would hand 
over these client names without the permission of the Swiss 
Government.
    If I may just say in the UBS matter that Chairman Levin 
mentioned at the very beginning, the 4,500 names that 
ultimately were turned over were turned over as a consequence 
of a treaty that was entered into between the U.S. Government 
and the Swiss Government that allowed that any accounts with 
assets under management of $1 million and more be turned over. 
I would say that under the new Double Taxation Treaty, the one 
that still needs to be ratified here in the Senate--and I urge 
you to ratify it as quickly as possible, you will get many more 
accounts, and you can get them quickly, and the $1 million 
asset limitation, is not in that treaty.
    Senator Coburn. Do you foresee a consequence if the Justice 
Department used all the tools and carried it through the courts 
that you might face prosecution in this country for not 
complying with those subpoenas?
    Mr. Cerutti. Yes.
    Senator Coburn. So you have double jeopardy. Where would 
you like to spend time? [Laughter.]
    Mr. Cerutti. That is a tough decision.
    Senator Coburn. The Subcommittee Report found that 1,800 
different Credit Suisse employees serviced the 22,000 U.S.-
linked accounts. According to the Subcommittee's Report, only 
10 of the 1,800 employees were disciplined, and no one was 
fired. Is that an accurate statement?
    Mr. Dougan. I think it is largely accurate, but maybe I 
could explain it. We did have a concentration of coverage of 
U.S. clients in a few areas, and the SALN desk, which is the 
area where we have seen the systematic, problematic behavior 
was the area that had a specific focus on U.S. accounts.
    The larger group, the 1,800 number that is quoted, those 
were RMs throughout the bank. Typically they had one or two 
U.S. clients, and so they were not specifically focusing on the 
United States, but they might have an account that might have 
been, say, an expat in Switzerland, so it could have been a 
U.S. citizen who was living in Switzerland.
    Senator Coburn. Got you.
    Mr. Dougan. So most of those, the vast bulk of those 1,800 
simply had a few U.S. accounts, and, again, in the course of 
our very thorough investigation, we did not find any systematic 
abuses in that group.
    Senator Coburn. All right. Thank you very much.
    One other question, Mr. Dougan. Credit Suisse started--in 
2008, you undertook efforts to identify and close out 
noncompliant U.S. accounts. In other words, they were not 
compliant with our tax laws.
    Mr. Dougan. Yes.
    Senator Coburn. How many noncompliant accounts were 
identified as part of your efforts?
    Mr. Dougan. Do you want to answer that?
    Mr. Cerutti. Senator, if I may try to answer that, we did 
it the other way around. We tried to identify the ones that 
were compliant, and over the time we have identified some 6,678 
that were compliant and another 1,900 that lost their U.S. 
nexus, so if you add that up, you have about 8,500 that were 
not part of the 22,000.
    In addition, of the 22,000, you have about 9,000 that had 
less than $10,000 U.S. dollars, really small accounts. And this 
is a mix you have some 6,300, 6,500 expats, Americans who live 
abroad, mostly in Switzerland. They need an account. They beg 
us to open an account quite often because most Swiss banks are 
shut for business for U.S. persons. Everyone is so afraid at 
this point to----
    Senator Coburn. Are they compliant?
    Mr. Cerutti. We looked at----
    Senator Coburn. Are those 6,000 expat accounts compliant 
with U.S. tax law?
    Mr. Cerutti. We looked at this population, and starting in 
2012, we had been hoping to do that as part of the FATCA 
implementation. FATCA got delayed, twice, as you know, it will 
now go into effect on July 1, 2014. We looked at that, and from 
a perspective of assets under management, to a large extent 
they were compliant. Account number-wise, I do not have the 
exact number here, but I could deliver that. Many, many are 
compliant.
    Senator Coburn. That is a cultural issue, and we ought to 
address that. The fact is if your policy today is that U.S. 
accounts will be compliant with U.S. tax law, it does not 
matter what the percentage of assets under management that are. 
It is whether or not the accounts are. So, what I would do is 
just admonish that if that is your policy, then it ought to be 
installed vigorously and throughout.
    Mr. Dougan. Perhaps, Senator, maybe I could just add 
another way to state it that might help in terms of 
understanding the process. Our top priority was to get to a 
point where all of the accounts that were here at the Bank were 
compliant. That was our top priority.
    Now, as part of that as well, we made the decisions around 
restructuring this business, and so there were many parts of 
this where we just exited the business. So we did not spend a 
lot of time determining whether they were or they were not 
compliant. We just said----
    Senator Coburn. You just closed the accounts?
    Mr. Dougan. Yes, we just closed the accounts. And that is 
how--obviously, you go down by 80 percent in terms of the 
footprint in this business.
    So that was our priority. I think as Mr. Cerutti said, on 
an ongoing basis, every account has to be compliant, and that 
was our most important goal, and so that is what we focused on.
    Senator Coburn. All right. Thank you. I yield.
    Senator Levin. Thank you, Dr. Coburn. Senator Johnson.
    Senator Johnson. Thank you, Mr. Chairman.
    Mr. Cerutti, you might be the best person to answer this 
question. How do you determine whether an account is compliant?
    Mr. Cerutti. Senator, today we have put all the FATCA 
requirements in place, so we are really looking at whether 
someone is a U.S. person from a tax perspective, U.S. 
nationality, green card, substantial presence test. We have 
them to sign these documents. We are also looking at dual 
citizens because often you have in Europe people who might have 
been born in the United States, and they are dual citizens now. 
So we are really looking at all of these people, and now they 
are signing waivers. They are all signing also a W-9 at this 
point. And once FATCA is in place, we can then transmit the 
account information to the IRS under the intergovernmental 
agreement that Switzerland has entered into with the United 
States.
    Senator Johnson. OK. So you determine compliance because 
they basically sign waivers and a W-9, which gets reported back 
to the IRS, and so somebody knows that they have an account 
there and then that income is reported to the IRS, just like it 
is at any other normal bank.
    Mr. Cerutti. Exactly. It will now be starting July 1, 2014, 
with FATCA, and someone would be a fool to sign all of that and 
not pay the taxes.
    Senator Johnson. I want to understand a little bit about 
what is so different about the 230 accounts where we actually 
received the names versus the other 22,000. What is unique that 
those 230 names were actually supplied?
    Mr. Cerutti. Historically, Switzerland distinguished 
between what the Swiss defined as tax fraud and tax evasion. 
And under the Double Tax Treaties in the past, you would only 
be able to get administrative assistance in a tax matter if the 
tax fraud standard was really fulfilled. And the Swiss courts 
have determined that these 238 accounts have the tax fraud 
standard fulfilled.
    The other accounts, and by far not all of the 22,000 are 
not tax compliant, as I tried to explain before, but let us 
assume there are a number of those who are not tax compliant 
that would qualify as tax evasion. They would be covered by the 
new treaty, because Switzerland agreed to the new OECD 
standards, dropped the tax fraud requirement, accepted the tax 
evasion requirement, accepted also in 2012, as was mentioned by 
Chairman Levin, the group requests, and so once this treaty is 
signed, the IRS could just send out these requests, and these 
accounts should come in.
    Senator Johnson. So the 238 accounts were determined 
fraudulent----
    Mr. Cerutti. Yes.
    Senator Johnson [continuing]. That they were committing 
fraud?
    Mr. Cerutti. Yes.
    Senator Johnson. How was that determined? How did the Swiss 
authorities determine that those 238 out of the 22,000 were 
actually engaged in some kind of tax fraudulent activity?
    Mr. Cerutti. Senator, it is a very good question. We have 
several court decisions by the Swiss Federal Administrative 
Court that have set the standards for fraud. Typically these 
were entity accounts, like someone had an offshore entity, a 
U.S. person was sort of hiding behind an offshore entity. The 
corporate governance of the entity was violated. They held U.S. 
securities. I think these are the three main criterias to 
qualify for the fraud standard.
    Senator Johnson. How were those entities targeted? How were 
they ever investigated? We did not know their names, so 
obviously, Swiss authorities opened up some kind of 
investigation for those 238 accounts?
    Mr. Cerutti. Yes, Senator, there was a group request by the 
IRS. It went to the Swiss Financial Tax Administration. They 
forwarded it to us at Credit Suisse. We had to identify all 
these accounts that qualified pursuant to these different 
criterias. We sent them in to the Swiss Federal Tax 
Administration. It was a somewhat larger group than 238. They 
then decided which one in their views would qualify. They were 
then forwarded on to the IRS by the Swiss Federal Tax 
Administration. Some appealed this decision, and those cases 
were then decided by the Swiss Federal Administrative Court.
    Senator Johnson. OK. Mr. Meister, I think you mentioned 
that some clients and some Swiss bankers were involved in some 
of these fraudulent transactions. I think that was basically 
your testimony. I would like to review in general how important 
the Swiss banking sector is to Switzerland's economy. The 
numbers I have is that the Swiss economy is somewhere between 
$600 and $700 billion. Is that correct? Anybody know? Those are 
the figures I have.
    Mr. Meister. Maybe I----
    Mr. Dougan. That sounds right. I do not think we could 
contradict it.
    Senator Johnson. I am seeing the banking sector somewhere 
between 6 and 12 percent of that, so somewhere in the $40 to 
$75 billion range.
    Mr. Dougan. That sounds about right.
    Senator Johnson. Now, when they reported that GDP, is that 
the profitability of the Swiss banking sector? Obviously total 
assets under management are much higher than that.
    Mr. Dougan. So, yes. I would think that would be 
profitability, yes.
    Senator Johnson. Why would a U.S. investor invest into a 
Swiss bank? What are the motivations?
    Mr. Meister. To invest as an investor. You ask me as an 
investor. I think one of the points is no doubt that we can, 
because of the talent, provide attractive returns.
    Senator Johnson. Have you historically had far higher 
returns than U.S. banks, British banks, or other banks?
    Mr. Dougan. I would say largely in line, probably--I mean, 
different in different years, obviously, but I would say not 
systematically different.
    Senator Johnson. So if U.S. investors have invested about 
$12 billion into Swiss banks, I mean, obviously that is a 
pretty small portion of the Swiss banking assets held, right? 
Isn't Credit Suisse about $1 trillion in assets held?
    Mr. Dougan. Yes, that is right. It is a very small portion, 
that is correct.
    Senator Johnson. So you have a lot of investors from all 
over the world then?
    Mr. Dougan. Absolutely, yes.
    Senator Johnson. And they invest in Switzerland, again, 
because? If there is no exceptional returns in Swiss banking, 
why do they do it in Switzerland?
    Mr. Dougan. Well, I am sorry, I misunderstood your comments 
before to be talking about sort of our equity or our equity as 
an investment. If you are talking about our asset base, which, 
as you say, is over a trillion Swiss francs in terms of assets 
under management for our clients, I think, as Mr. Meister said, 
it is a combination of our ability to provide good service, our 
ability to provide very competitive returns on those assets as 
a banking client, our ability to provide lending to those 
clients, and I think particularly, obviously a comprehensive 
business that we can offer across asset management, private 
banking, but also some of the wholesale investment banking type 
services.
    Mr. Meister. Perhaps if I can add also stability of the 
country and, of course, also currency risk diversification, 
because the Swiss Franc is a very stable currency.
    Senator Johnson. I am just trying to get to the obvious 
point to why people put money into Switzerland. What is the 
obvious reason people take their money, transfer it from the 
United States or from Brazil or from England or from Russia and 
put their money in Switzerland?
    Mr. Dougan. Well, I think----
    Senator Johnson. I just want to state the obvious.
    Mr. Dougan. Well, I think, first of all, we actually--we 
have a global business, so obviously that $1 trillion of assets 
is not all in Switzerland.
    Senator Johnson. OK.
    Mr. Dougan. So we have a lot of those assets here in the 
United States in----
    Senator Johnson. I am not even targeting Credit Suisse. I 
am talking about the Switzerland banking sector. Why do people 
take money out of their countries of origin and invest in 
Switzerland?
    Mr. Dougan. In Switzerland, you mean, actually in 
Switzerland as a country?
    Senator Johnson. Right.
    Mr. Dougan. Well, I think historically, as we discussed, 
there has been--one of the things that is obviously highlighted 
is that there is an ability to shelter assets and income from 
paying taxes. Obviously, that is decreasingly the case, and 
clearly, going forward, our view is that that is not the future 
of the industry. That is certainly not our business model. We 
do not think that should be any Swiss bank's business model. 
And, clearly, with FATCA, with a number of the OECD 
arrangements that are taking place, and also with a number of 
other developments, that is not an advantage that the Swiss 
banking system is going to have going forward.
    So it really has to be around the ability to offer services 
and returns that are competitive and, in fact, superior to what 
they can see in other markets and other places where they can 
put their money.
    Senator Johnson. OK. Well, again, I appreciate that I think 
it is important to get that basic, obvious reality on the table 
as we are talking about this, because that is what all the 
secrecy is about, that is what this whole thing is about.
    So I think from the U.S. perspective, we are just trying to 
make sure that Switzerland opens it up, makes it transparent so 
that U.S. taxpayers cannot shelter income over there. If we 
want to invest in Switzerland because of great returns, we 
should have the right to do that. But we should not have the 
right to shelter income.
    Mr. Dougan. Understood, and we completely agree with that.
    Senator Johnson. OK.
    Mr. Dougan. We are completely, exactly in the same place on 
that.
    Senator Johnson. Well, thank you. I appreciate that.
    Thank you, Mr. Chairman.
    Senator Levin. Thank you, Senator Johnson.
    Well, you may be in the same place, but the Swiss 
Government surely is not. It still has under the law that you 
cannot release the names of an account. You cite that for not 
complying with a subpoena. So maybe your bank is in that 
position, maybe for future deposits, but it sure does not 
reflect where the Swiss Government is. And your bank is using 
the Swiss Government's position in arguing against the 
enforcement of subpoenas. It says it puts you in a difficult 
position. But you come to this country, and you are governed by 
this country's laws, by almost universally accepted law. And 
yet you hide behind the Swiss law even though you are operating 
here. And that is just simply not going to cut it.
    The trouble is that the Justice Department has been 
deterred by the Swiss Government's law, which you folks cite, 
and year after year after year goes by with subpoenas not being 
enforced to get the names that we have to have if we are going 
to enforce our tax laws and collect taxes which are owed to the 
United States. So that is a huge issue.
    Is it not true that the Swiss law continues to have on its 
books you cannot release the name of your account holders? Is 
that true?
    Mr. Dougan. Yes, that is true, and that----
    Senator Levin. They have not changed their laws, have they?
    Mr. Dougan. Well, as we said, the protocol----
    Senator Levin. I know those new treaties, I understand the 
whole business of treaties, and I know all the holes that are 
in the treaties, including the one that is being apparently 
heard today in our Foreign Relations Committee. You buy a 
lawsuit if you operate under that treaty, because under Swiss 
law, now passed by the Parliament, the defense against that 
request is you have to prove that the bank to which the funds 
have been transferred somehow or other is violating the law, is 
contributing to the aiding and abetting. That is the burden of 
proof which someone has under that treaty. It is not the same 
threshold when we seek the names of the Americans who have 
accounts there, as when we seek to get the names of accounts in 
the United States. So there is a big loophole in this treaty 
which you continue to say we ought to ratify. I am all for it 
because it will provide some good, but the key point is Swiss 
law still requires going through hoops to get the names of 
people who are hiding their assets from our tax folks. That is 
the bottom line.
    Just have a direct response: We are bound by your laws; we 
come to your country, and we are going to comply with them; and 
we will take on the Swiss Government if they try to prosecute 
us for complying with the laws of a country where we do 
business, because that is not sustainable.
    Do you think you are going to be convicted in a Swiss 
court? Is the Swiss Government going to prosecute you if you 
comply with our laws and turn over those names? Are you going 
to be prosecuted? Is that your fear?
    Mr. Cerutti. Yes.
    Senator Levin. That is your fear?
    Mr. Cerutti. That is my fear, absolutely.
    Senator Levin. Of the Swiss Government. In that case, let 
us be real clear here what we are talking about. You are not 
cooperating with us, hiding behind a law which applies in 
Switzerland but does not apply here, and yet you want to do 
business here. And that is not the way the international law is 
applied. You want to do business here? You must comply with our 
laws.
    Now, let me go back to this so-called investigation which 
you have carried on. In answer to Dr. Coburn's question--and I 
believe this was you, Mr. Dougan, who responded to this 
question. You have an internal investigation going on on the 
issue of aiding and abetting tax evasion, and you are 
conducting interviews and you are looking at documents and so 
forth. You indicated there is not going to be a written report. 
I do not understand how you can have something as serious as 
you say you are undertaking and not have a written report. But 
is that your testimony under oath that there are no written 
reports about that?
    Mr. Dougan. I said we have not yet had a summary written 
report. We have had a number of reports, but we have not had a 
summary report because we view this as an ongoing process.
    Senator Levin. All right. We have asked you for those 
ongoing written reports, have we not?
    Mr. Dougan. I believe you have, and I think we have had 
many sessions with the Subcommittee updating them on the 
progress of the projects, and I think, in fact, the 
Subcommittee's report today chronicles in great detail through 
many pages, all of the different efforts that we have made over 
the past 5 years to get at this problem and to get it right.
    Senator Levin. Let me go back to my question. You say that 
you have some written reports but not a summary report, and I 
believe we have asked you for the written reports that you do 
have. Is that correct?
    Mr. Dougan. Well, I believe we have provided on an ongoing 
basis----
    Senator Levin. No, I am just talking about the written 
reports that you do have. I am not talking about the summary 
report. I am talking about these ongoing written reports. Have 
we asked you for those reports?
    Mr. Dougan. Mr. Chairman, we have been asked for a lot of 
information by----
    Senator Levin. Do you know whether we have asked for those 
written reports----
    Mr. Dougan. I do not know----
    Senator Levin [continuing]. As part of this very detailed 
investigation that you have undertaken? You have described this 
as a major investigation.
    Mr. Dougan. Absolutely.
    Senator Levin. OK. And there are some ongoing written 
reports, not yet a summary report. I think that is what you 
just said.
    Mr. Dougan. Yes.
    Senator Levin. Now, these ongoing written reports, have you 
made those available to this Subcommittee?
    Mr. Dougan. I believe we have shared those with the 
Subcommittee, but maybe Mr. Cerutti can----
    Senator Levin. Have you, Mr. Cerutti?
    Mr. Cerutti. Mr. Chairman, we have shared the conclusions 
of our investigation, but not any of these reports that we had 
to prepare for other regulators. Some are confidential and 
cannot be shared at this point with this Subcommittee.
    Senator Levin. Well, would you give us a list of the 
reports that we have asked for that you have not shared them 
with this Subcommittee and the reason that you have not shared? 
Will you give us that for the record?
    Mr. Dougan. Sure.
    Mr. Cerutti. OK, sure.
    Senator Levin. All right.
    Now, even though you have not shared those reports, I want 
to ask you whether you can tell us about some of the things 
that you found. For instance, have you found that Credit Suisse 
bankers repeatedly traveled to the United States to get 
prospective U.S. customers and to serve existing U.S. customers 
in violation of your own policies? Have you found that?
    Mr. Dougan. Yes, we did find that with the limited group of 
people that we mentioned. Yes, we did find that.
    Senator Levin. Did you find that some Swiss bankers advised 
U.S. customers to secure transactions under $10,000 which would 
then avoid triggering cash transaction reports?
    Mr. Dougan. We did find some conversations around that, so 
we think that there may have been some of that activity, yes.
    Senator Levin. All right. Was that limited, too, to the 
SALN?
    Mr. Dougan. It was, yes. Materially it was, yes.
    Senator Levin. Did you find that some Credit Suisse bankers 
helped refer U.S. customers to intermediaries who advised them 
to transfer their U.S. assets to foreign shell companies and 
then treat them as foreign account holders in the bank's own 
books?
    Mr. Dougan. We did see activity with these private bankers 
referring to, as you say, outside potential arrangers. I am not 
sure that any of that came--if you are saying some of that came 
back on to our books----
    Senator Levin. Oh, yes.
    Mr. Dougan. Is that right? Yes, we did----
    Mr. Cerutti. We saw some of that, correct.
    Senator Levin. Just think about that.
    Mr. Dougan. Yes.
    Senator Levin. Your bankers referred customers to create 
shell corporations in tax havens knowing that then those shell 
corporations would deposit those funds in their accounts with 
your bank under the name of the shell corporation.
    Mr. Dougan. I view that just as egregiously as you do, Mr. 
Chairman. I agree.
    Senator Levin. And who was fired for that?
    Mr. Dougan. Well, as we said, a number----
    Senator Levin. No. Was anyone fired who did that? I know a 
number of people have been fired, a number of people have been 
let go. I just want to know: People who engaged in that 
egregious act, illegal under our laws, by the way, were any of 
those people fired, for referring people to intermediaries for 
the purpose of then having that same money go in the name of a 
shell corporation back into your bank? Were any of those people 
fired, do you know?
    Mr. Dougan. I believe all those people do not work for the 
bank anymore, but perhaps Mr. Cerutti can give you a more 
specific answer.
    Senator Levin. Do you know, Mr. Cerutti?
    Mr. Cerutti. I do not know of anyone who was fired 
specifically because of that.
    Senator Levin. All right.
    Mr. Dougan. But the issue, Mr. Chairman, if I could just 
add to that, the issue is, as you know, again, we began the 
exit of this business starting in 2008. And so we basically 
exited virtually 85 percent of the business over the course of 
the next 2 years. By the time we actually found this behavior--
which we agree with you, we find it just as unacceptable as you 
do. By the time we found that behavior, most of those people 
were gone.
    Senator Levin. Mr. Cerutti, were all of those people in 
SALN?
    Mr. Cerutti. I would say it was centered around----
    Senator Levin. Not centered. Do you know whether all of the 
people who engaged in that egregious conduct were in SALN?
    Mr. Cerutti. I would not know, Mr. Chairman.
    Senator Levin. I am over time. Senator Johnson.
    Senator Johnson. Thank you again, Mr. Chairman.
    Mr. Dougan, let us go back to my line of questioning 
because, again, I want to get the obvious on the table here.
    Mr. Dougan. Sure.
    Senator Johnson. Historically, let us go back. People 
around the world have deposited money into Swiss banks as a 
real safe haven. Correct?
    Mr. Dougan. Yes.
    Senator Johnson. Is there validity to that? Do you think 
globally people ought to have some place, whether they are in 
an incredibly oppressive regime somewhere around the world, it 
would be kind of nice to move some money out of that terrible 
country and put it in some safe haven?
    Mr. Dougan. Well, I think what we see in terms of our 
customers around the world is that they do have interest in--
even being completely tax compliant and no issues around that, 
they do have an interest in diversifying the jurisdictions 
where they hold their money. We do see that as an interest from 
those clients.
    Senator Johnson. And there is a conundrum right now for the 
Swiss Government. Obviously the U.S. Government is highly 
concerned about not being able to collect taxes because people 
are committing tax fraud and sheltering income there. And now 
they are having to open up information which puts at risk the 
ability of the Swiss Government to attract those types of 
deposits. Correct?
    Mr. Dougan. Well, I actually think, our view is actually 
that we as an institution and the country have to go to a 
compliant framework. There is no other choice. So there is no--
there is not any other choice. And, frankly, I think that the 
Swiss financial system can be very competitive on that basis. 
So I do not think that it is necessary, as you say, to have the 
ability to not pay taxes on money in Swiss banks for the Swiss 
financial system to be successful. I actually think--I actually 
think we would be a lot better off as a financial system with a 
completely compliant and transparent framework, which is what 
we have been promoting, actually.
    Senator Johnson. I agree, and that makes an awful lot of 
sense. It gets back to the question of whether Credit Suisse 
has tried to work with and encourage----
    Mr. Dougan. Absolutely.
    Senator Johnson [continuing]. The Swiss Government to open 
up and be transparent because it is in your best interest as a 
global banking company, because there is still going to be 
value to have Switzerland as a pretty stable neutral country, 
as a safe haven, as a diversification destination for global 
assets.
    Mr. Dougan. We think that is exactly right. We think it is 
in the best interest of the Swiss financial system. We think it 
is in our best interest, and we have absolutely promoted that 
at every level, publicly, with the regulators, with the 
government as well, because we think that is the right 
direction for the business and the right direction for 
Switzerland.
    Senator Johnson. OK. I may be going to the Foreign 
Relations hearing on treaties later on, so, Mr. Cerutti, how 
could we strengthen that treaty so we do not have the loopholes 
that Senator Levin is talking about? Again, in the interest of 
transparency the Swiss banking sector can still operate and 
provide that safe haven where it is required.
    Mr. Cerutti. Senator, thank you for your question. I think 
this is a pretty good treaty. It goes very far because it is 
going to be really based on the OECD standard of tax evasion. 
It allows for group requests. It is untested yet. I think what 
Chairman Levin is afraid of is that the IRS will have to prove 
the misbehavior of the bank, the participation of the bank. 
Given that the DOJ has issued that program, as you know, the 
program for the Swiss banks, and that over 100, I think 106 
banks have now filed to be in Category 2, I would assume at 
this point that for all the Category 2 banks, that the 
misbehavior that is requested under the treaty would be 
established just by being a Category 2 bank.
    So I would hope that this treaty would really generate 
thousands and thousands of account names. That is my hope.
    Mr. Dougan. Yes, and, Senator, I guess what we would say is 
we understand the Chairman's concerns about it, and I am sure 
there would be ways to even make that treaty stronger and 
better. This has been signed 4 years ago, and our view is that 
a good first step would be to simply get it approved in the 
Senate so that we could provide--in our view, we could provide 
the vast bulk of the information that has been requested, which 
we want to do. We want to provide that information.
    Just with that treaty approval, we think that would allow 
us to satisfy the bulk of that request from the U.S. 
authorities.
    So I am sure there are ways to improve it down the line. I 
mean, we have been working very hard just to get the treaty 
approved, which, in our view, would be the first step and would 
be a very important step in getting these issues to a great 
degree resolved and allowing us to provide the information that 
we would like to provide.
    Senator Johnson. When I asked a question earlier about how 
were you able to determine compliance, you talked about clients 
were signing waivers, they were filling out W-9s. What prevents 
you from having every client sign those waivers?
    Mr. Cerutti. Today, Senator, every U.S. client has to sign 
these waivers. Everyone who wants to keep an account or open an 
account at Credit Suisse has to sign these waivers.
    Mr. Dougan. And perhaps you could explain the concept of 
the waiver. Waiver as to?
    Mr. Cerutti. On the one hand, there is the W-9 that reports 
the dividend and interest on U.S. securities. On the other 
hand, there is the waiver so that we can file the information 
under the FATCA law starting as of July 1, 2014.
    Senator Johnson. So then what complicates that? Now we 
start talking about shell corporations.
    Mr. Cerutti. FATCA, I think FATCA is a brand-new law that 
has been now implemented and will start taking effect. I was 
surprised when I read the report last night to see that the 
Subcommittee is afraid that FATCA contains loopholes. But I 
would say let us see how FATCA starts. It is a huge, huge, huge 
administrative project. We have already spent about $100 
million to implement FATCA globally, because it is not just for 
Switzerland, it is not just for the private bank. We have to do 
it in the investment bank, asset management private banking 
globally, and we continue to spend quite an amount of money. I 
think this year's budget is another $40 to $45 million. So you 
see we are really trying to get this right.
    Senator Johnson. OK.
    Mr. Dougan. And I think one of the things, I mean, we feel 
the combination of the steps we have taken, with the waiver, 
with the full implementation of the projects that we have laid 
out, with FATCA, will allow us to be 100 percent compliant with 
those requirements around the U.S. taxpayer. So we feel very 
good about that. In fact, we also believe we see some progress 
in this, because as the exit project has gone on, we have not 
seen from any of our regulators or other investigative bodies 
any issues that have come up post 2009. So, actually, that exit 
project we think has actually worked pretty well, and we 
believe we are in a position now, which is where we wanted to 
be, which is so that we can be compliant going forward. And, as 
the Chairman said, to make sure that any business we do with 
any U.S. client is done on a completely compliant basis, that 
is our objective.
    Senator Johnson. Now, again, you have reported--or 
certainly in our reports we see the size of U.S. banking assets 
in Credit Suisse. Do you have any estimate of U.S. assets in 
total housed in Switzerland?
    Mr. Dougan. I do not know if we do.
    I do not think we do have that estimate, no. You are saying 
U.S. citizen assets in Swiss banks.
    Senator Johnson. Assets in Swiss banks.
    Mr. Dougan. I do not have that in hand, no.
    Senator Johnson. OK. Well, I have no further questions. 
Thank you, Mr. Chairman.
    Senator Levin. Thank you very much, Senator Johnson.
    Let us go to just a few facts to get down very firmly. Of 
the 22,000 customers that you had in 2006, after you required a 
showing of compliance with our U.S. tax laws--we are talking 
about U.S. customers--18,900 of those accounts were closed, and 
today there are about 3,500 that you then have determined are 
in compliance. Are those numbers correct?
    Mr. Cerutti. Those numbers are correct as of today, but I 
would like to add that in total we have reviewed and verified 
for tax compliance some 6,678, of which about half, like 3,000, 
have been closed, and 3,500, the number you have just 
mentioned, are still with us.
    Senator Levin. So what is the total number of accounts that 
you no longer have of the 22,000?
    Mr. Cerutti. Well, the 18,000 number you mentioned.
    Senator Levin. All right.
    Mr. Cerutti. And if I may add, Mr. Chairman?
    Senator Levin. Sure.
    Mr. Cerutti. We had a large population of U.S. resident 
clients, I think some, I would say, 11,000, I believe. They had 
account balances below $1 million in assets under management, 
and they were not even given the option to stay because to move 
to one of our fully U.S.-licensed broker-dealers, you needed $1 
million as a minimum balance. So 11,000 of these 19,000 or 
18,000 did not have the opportunity to prove tax compliance.
    Senator Levin. All right. Mr. Cerutti, your U.S. persons 
policy required that Swiss accounts opened for U.S. residents 
be concentrated in that single Swiss office we have talked 
about, the SALN. Is that correct?
    Mr. Cerutti. It required that they be concentrated I think 
in SALN and in the other office that was near the airport. 
Those were the two offices that were then later merged into 
SALN in 2009.
    Senator Levin. All right. And the point was that that 
office was supposed to have relationship managers that got 
special training in U.S. regulatory and tax compliance?
    Mr. Cerutti. That is also correct, Mr. Chairman, although I 
would like to add that every single relationship manager with 
one or more U.S. resident client got the training.
    Senator Levin. So how many relationship managers had one or 
more accounts?
    Mr. Cerutti. Well, I think you mentioned the 1,800 number 
at the beginning. I would deduct about a thousand of those 
because they were dealing with expats. They were in the retail 
bank mostly. And then I think there are some--whether it is 
500, 600, to 800, I do not have the exact number, but they were 
then all trained.
    Senator Levin. So you had about a thousand that you say 
were trained.
    Mr. Cerutti. I think the number is somewhat lower. We can 
provide you with the exact number. I think the staff should 
have it.
    Senator Levin. Well, there were about 1,800 that had one or 
more client accounts. As a matter of fact, take a look, if you 
would, at Exhibit 16.\1\
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    \1\ See Exhibit No. 16, which appears in the Appendix on page 471.
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    Mr. Cerutti. Which page, if I may ask?
    Senator Levin. Well, it should be numbered, the exhibits 
there. Now, Exhibit 16 is a Credit Suisse presentation chart 
called ``US Project--Steering Committee #1,'' dated August 19, 
2008, and at the chart on page, the last three digits, 306, the 
title of the chart is, ``U.S. international business activities 
spread out across whole organization.'' And it shows that, 
besides SALN, there were another half-dozen offices in 
Switzerland that served U.S. clients.
    In 2008, there were over 1,800 different Swiss bankers that 
had one or more client accounts. You said you wanted to deduct 
600 or 800 that were dealing with expats or other reasons, so 
that would leave about a thousand, would it not?
    Mr. Cerutti. Mr. Chairman, I would like to deduct the third 
line, PB CH, the 993, because that is our retail business in 
Switzerland. Those were taken--they were mostly dealing with 
the expats, and so that would leave around 800.
    Senator Levin. A total of 800. All right. Now, you are 
saying that these were the people who had special training?
    Mr. Cerutti. Yes, if you take the 800, you deduct the 240 
of Clariden Leu, you have some 560 at Credit Suisse. I need to 
check whether that is the right number, but most of them, if 
not all of them, have been trained, and Clariden Leu I 
understand also had trainings, but I do not have the details 
there. So I would suggest we provide the staff with the exact 
number.
    Senator Levin. Well, assuming it is around 500 or 600.
    Mr. Cerutti. Yes.
    Senator Levin. And was the training about the same whether 
or not they were in SALN or whether they were in one of the 
other offices?
    Mr. Cerutti. I think they used the same training materials. 
Whether they spend the same amount of time on it as with the 
SALN people, I could not answer that question.
    Senator Levin. Now, there were 1,800 relationship managers, 
approximately. Is that correct?
    Mr. Cerutti. On this chart, yes.
    Senator Levin. Well, is that an accurate chart?
    Mr. Cerutti. That was a chart that was provided for the 
first Steering Committee. You see that it was August 2008, a 
few weeks after your report on UBS had been published. We were 
really trying to look at it and do the right thing. I would 
assume that these numbers are correct, but these were early 
numbers.
    Senator Levin. So SALN had about perhaps 10 percent of the 
Swiss accounts opened by U.S. customers, and about 90 percent 
were spread out across the rest of the bank. Is that about 
right?
    Mr. Cerutti. If you look at it from an account perspective, 
that is correct. If you look at it from an assets under 
management perspective, it is a little bit different.
    Senator Levin. Right. But, still, only about 10 percent of 
the Swiss accounts opened by the U.S. customers were in SALN. 
This was supposed to be a place where they were going to be 
concentrated.
    Mr. Cerutti. Plus the ones that are listed under PB EMEA 
because that would encompass the airport desk that you have 
mentioned before. That is also an area of concentration.
    Senator Levin. All right. So to all 60----
    Mr. Cerutti. That is then almost, what, 60, 70 percent, 
because I always----
    Senator Levin [continuing]. Seventy percent were spread out 
across the Bank?
    Mr. Cerutti. No.
    Mr. Dougan. Sorry, Mr. Chairman. About 70 percent were 
concentrated in those two groups, so the airport office and 
SALN, and obviously 30 percent, I mean, I think we--
particularly in hindsight, we would rather have seen it more 
concentrated, so we would rather have seen the 30 percent 
smaller, but that is where we were at that point in time, 70 
percent in those two areas and 30 percent in the rest of the 
Bank.
    Mr. Cerutti. And that is about----
    Senator Levin. The purpose, though, of this chart was to 
show, according to its title, how spread out this was across 
the whole organization.
    Mr. Cerutti. I understand.
    Senator Levin. That is the purpose, whether it was 30 
percent outside of those two units or 70 percent, this was 
spread out across the whole organization. So you had 1,800 or 
so, according to this, relation managers that were in contact 
with U.S. persons. And what that means, of course, is that when 
you have all those customers, most of whom--I think it is 
pretty clear perhaps 80-90 percent of whom were not paying 
their U.S. taxes--that is a very major problem for us, and it 
cannot easily be answered by saying that the rogue bankers were 
all located in SALN and that is where the problem was. You had 
bankers that were doing things that you acknowledge were 
improper, in some cases egregious, from other areas than SALN.
    Mr. Dougan. Well, I think it is important to point out 
that, as we mentioned, Mr. Chairman, we have done a very 
extensive investigation across the whole Bank, including all of 
those, as you mentioned, 1,800, all of these other RMs, and we 
did not find any of the misbehavior, again, which we agree with 
you is egregious and should not have happened, that we found in 
SALN. We did not find it there.
    So as you say, I think certainly from a business point of 
view, we would have rather seen it more concentrated, and that 
would have been better from a compliance point of view as well. 
But we have not seen any of the abuses in that broad 
population.
    Senator Levin. Well, are you saying that all of the abuses 
that we have identified and you have acknowledged were found in 
your investigation were concentrated in SALN? Is that what you 
are saying?
    Mr. Dougan. Yes, I mean, virtually all----
    Senator Levin. Mr. Cerutti says that he does not even known 
where what you call egregious conduct--and I would agree with 
you on that issue--was concentrated in SALN. He does not know 
that.
    Mr. Cerutti. It was--it was centered around SALN, but there 
was----
    Senator Levin. Go on.
    Mr. Cerutti. Most probably also outside of SALN, there was 
also some----
    Senator Levin. What you would call ``rogue bankers''?
    Mr. Dougan. It is hard to exclude that there were not 
issues outside of that, but, again, in the investigation, the 
vast bulk of that behavior was in that one area. So, there were 
smatterings of issues elsewhere, as you would expect, I think, 
and obviously we are disappointed with those as well. But the 
vast bulk of the behavior was in that area, and----
    Senator Levin. The vast bulk. And were accounts outside of 
SALN undeclared?
    Mr. Dougan. I think the answer to that is probably yes.
    Senator Levin. That is the problem we are focusing on, of 
course.
    Mr. Dougan. Yes.
    Senator Levin. It is not the problem you are focusing on. 
It is what we are focusing on. The billions of dollars that are 
uncollected in taxes, and there are a lot of reasons for that, 
but you folks have to look in the mirror if you want to help us 
identify one reason and go after the folks who have evaded 
paying taxes.
    I just want to be real clear that you have a law there on 
your books, and you cannot simply say that if we ratify a 
treaty that that is going to solve that problem. Does your law 
get repealed if the treaty gets ratified, the law saying it is 
illegal to identify the name of people on accounts? Does that 
law go away when the treaty is ratified?
    Mr. Cerutti. Mr. Chairman, the law is not going to be 
repealed, but the law will permit to give you all the names 
under the treaty process.
    Senator Levin. It will give us the names which comply with 
the treaty process, right?
    Mr. Cerutti. That is correct.
    Senator Levin. Which is a long way from all the names. If 
we ask you for the names, you say, ``We will give you the 
names. Just ratify that treaty.'' That is a commitment which I 
hope you will keep, because, remember, under that treaty, 
whoever wants those names is going to have to prove that the 
bank contributed significantly to the aiding and abetting. And 
this is after 2008, because we are not going to get any names 
before 2009 under the treaty, right? So we lose all those 
names, which is most of your accounts, which were closed by 
then. And the accounts that you kept open are compliant, you 
say, because you have proof of tax compliance. So when we ask 
you for the names pre-2009, when the treaty goes into effect, 
are you saying that under this new treaty you are going to give 
us those names? Is that what you are saying?
    Mr. Cerutti. Mr. Chairman, we can give you any names of the 
accounts that were still open on September 23, 2009----
    Senator Levin. And most were closed.
    Mr. Cerutti. If you look at the account numbers, that is, I 
think, not correct. I think number-wise----
    Senator Levin. 50/50, let us say.
    Mr. Cerutti. Probably that might be right.
    Senator Levin. OK.
    Mr. Cerutti. But then let me maybe just state that 50 
percent of these accounts remained in Switzerland. They went to 
other Swiss banks, approximately 50 percent, and so they would 
have been opened at another bank in Switzerland, and you would 
then get them through a treaty request from another bank.
    Senator Levin. And with that treaty request, again, whoever 
is making the request, has to prove that the bank was involved 
significantly in the aiding and abetting.
    Mr. Cerutti. That is again correct, Mr. Chairman.
    Senator Levin. Now, let us just focus on that.
    Mr. Cerutti. Yes.
    Senator Levin. Now, we are going to ask you for these 
names, I hope. We should use our subpoena power to get the 
names so we can collect the taxes owed. But you can expect that 
when this treaty is ratified that you are going to get a 
request for all the names prior to the effective date of that 
treaty. Will we get those names from you?
    Mr. Cerutti. The treaty works the way that the IRS may----
    Senator Levin. Will we get those names from you, those half 
of the 22,000 names, are we going to get them from you?
    Mr. Cerutti. The Swiss legal system will most likely not 
let us provide those names.
    Senator Levin. So do not tell us the treaty is going to get 
us what we want. It will not. You have just acknowledged it 
will not. The treaty is going to do some good in the future--
some good--if we can prove that the banks that have the 
accounts have contributed to aiding and abetting in tax 
evasion, which is not an easy proof, and it is left up to the 
Swiss courts, and we know what the Swiss courts have done. OK?
    So, most of us, I hope, want this treaty ratified. It has a 
slightly better test. But do not, please, represent to this 
Subcommittee and to the public that when the treaty is 
ratified, we can then expect those names from you. We are not 
going to get any pre-2009 names because of Swiss law. And the 
additional names, there is a burden of proof on the applicant 
for the names. You have to show that the bank significantly 
contributed to the problem. If you do not have the names, how 
do you show that the bank contributed to aiding and abetting 
the tax evasion if you do not have the names of the people? It 
is a chicken-egg problem.
    So you have been helpful in acknowledging that that treaty 
is not going to get us the names that we are after.
    Mr. Cerutti. One last comment.
    Senator Levin. Sure.
    Mr. Cerutti. May I?
    Senator Levin. Go ahead.
    Mr. Cerutti. I would say with the DOJ's program, with the 
106 banks in Category 2, that should be a very good indication, 
very helpful to fulfill the standard that these 106 banks have 
aided and abetted. So I hope that you should get tons of 
accounts.
    Senator Levin. You would hope it would, but in terms of 
your bank, you are not one of the 106, are you?
    Mr. Cerutti. We are one of the 14 in----
    Senator Levin. You are one of the 14.
    Mr. Cerutti. Yes.
    Senator Levin. Not covered by that----
    Mr. Cerutti. Not covered by that program.
    Senator Levin [continuing]. Program. So you cite the 
program relative to 200 or 300 other banks.
    Mr. Cerutti. Yes.
    Senator Levin. A hundred of which have signed up.
    Mr. Cerutti. Yes.
    Senator Levin. And those banks do not have to provide any 
information either before----
    Mr. Cerutti. The 14 will, to the 14 it will apply, anyway. 
That was my assumption.
    Senator Levin. Well, the----
    Mr. Cerutti. The 14 in Category 1 that they are in the DOJ 
process, I think they will fulfill the standard for the treaty, 
anyway.
    Senator Levin. OK.
    Mr. Cerutti. So we should have the 14, we should have the 
106. That is 120.
    Senator Levin. But they are not covered. We do not know for 
sure, do we, that those 14----
    Mr. Cerutti. I am pretty convinced.
    Senator Levin. You hope they are covered.
    Mr. Cerutti. Yes.
    Senator Levin. OK. We do, too.
    Let me keep going here. I think it is clear, but whether we 
are talking about the program, which does not apply to the 14 
banks, or to the new treaty itself, they do not give us names 
of account holders prior to 2009. Is that correct?
    Mr. Cerutti. That is correct, Mr. Chairman.
    Senator Levin. So we cannot collect taxes owed from those 
folks, which is the heart of the problem of this hearing. It is 
tax collection.
    One of your bank's former clients who admitted to tax 
evasion told us about opening an account at Credit Suisse, and 
we refer to the account holder as ``Client 1'' in our report. 
And Client 1 is an American citizen who, when he opened an 
account at Credit Suisse's main office in Zurich, provided a 
U.S. passport and a driver's license as identification so that 
he made it obvious he was an American. He told the Subcommittee 
that the Swiss banker expressly told him that a W-9 form, which 
identifies U.S. accounts and leads most importantly to the 
account being reported to the IRS, that banker told Client 1 
that this form was required by the United States, but not 
required by Credit Suisse to open an account.
    So he opened an account without the W-9, used it for 5 
years, so there was no disclosure to the IRS. Later on the 
client entered into a voluntary disclosure program.
    Would you agree that this is a pretty stark example of what 
facilitating tax evasion is? Mr. Dougan.
    Mr. Dougan. Yes, I believe that you are referring, I think, 
to Client 1, if it is consistent with the DOJ indictment 
document, which, as you say, that first opened the account in 
1990. So obviously we would look at the timing on that. But 
basically, yes, I think we would view that as a process that we 
think is obviously not something we would undertake today and 
is not something that we in any way approve of.
    Senator Levin. Now, the bank told--I am sorry?
    Mr. Cerutti. I would just add, I think under the Qualified 
Intermediary Agreement of 2001, the requirement I think in 
retrospect that was a mistake in this agreement. It only 
applied to U.S. persons who held U.S. securities, and we were 
very strict for any U.S. person, U.S. client with Credit Suisse 
who wanted to purchase U.S. securities, we requested and 
required the W-9.
    But as you just explained, there were situations where 
clients did not buy U.S. securities, so they did not have to 
sign the W-9, and that led then to what you just described. But 
with FATCA, this has--I think this will be closed.
    Senator Levin. Client 1 opened the account in 2005, not in 
1990.
    Mr. Cerutti. In 2005, yes.
    Senator Levin. Now, the bank told us about 150 trips by 10 
Swiss bankers to the United States from 2002 to 2008, and the 
Subcommittee has documented another 22. Did the bank have 
training or standards when relationship managers traveled to 
the United States?
    Mr. Cerutti. I think our U.S. policy was very strict as to 
traveling to the United States. It was only permitted for 
social purposes. Unfortunately, as we got to learn during our 
internal investigation, people used social purposes to get the 
trip approved and then met other clients during the same trips.
    Senator Levin. Now, did the bank allow visits to clients in 
the United States to help them set up Swiss accounts and to 
conduct banking business while on U.S. soil?
    Mr. Cerutti. That would have been a violation of our 
policy.
    Senator Levin. And the bank, though, paid for bankers to 
travel to the United States, 24 trips in 2007 and 2008, and not 
just, by the way, by SALN office bankers alone.
    Now, take a look at Exhibit 5g,\1\ if you would, in your 
book, Exhibit 5g. Credit Suisse required its bankers to 
complete travel reports after a U.S. trip, and this is a travel 
report for 2008. It is dated March 18, 2008. And it was 
completed by R29, whom we have determined to be Markus Walder, 
the head of the SALN office, which is otherwise known as the 
North American offshore private banking operation.
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    \1\ See Exhibit No. 5g, which appears in the Appendix on page 352.
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    On the form, the banker reported that during his U.S. trip, 
he visited 49 clients with assets totaling $230 million. Now, I 
think you would agree, would you not--and either one of you 
could answer this--that it is obvious that this person was 
doing business in the United States, soliciting new clients and 
servicing existing clients? Would you agree it is obvious from 
the form?
    Mr. Dougan. I would say it is, yes.
    Senator Levin. OK. Now, why did Credit Suisse ignore its 
own policies and pay for Swiss bankers to do this, to transact 
business? Why did you approve that?
    Mr. Dougan. I think it was a mistake. I mean, we should--
this was not approved--this was not authorized travel. They 
should not have been traveling for those purposes. And as you 
say, we should not have allowed the travel, let alone pay for 
it. So it was obviously a mistake. I mean, the fact that this 
was overlooked and that we, A, allowed the travel and, B, paid 
for it is a historical mistake. I mean, I think there is no 
other explanation for it.
    If we had understood this kind of activity was going on, it 
should have been stopped absolutely at the time. So as you say, 
it is----
    Senator Levin. Now, see, you have tried to say this 
misconduct was mainly in one area of the bank. From our 
perspective, it is pretty obvious, it was all over the bank 
wherever aiding and abetting tax evasion was going on. But in 
any event, you acknowledge that misconduct was not all in this 
one area of the bank. But you said that some rogue bankers 
mainly located in this one area of the bank. But the bank 
approved this expenditure. In other words, the person's travel 
should not have been allowed. Does that make that person a 
rogue banker?
    Mr. Dougan. Our policy was very clear.
    Senator Levin. No, but in your testimony, you said that the 
wrongdoing was just a small group of rogue bankers. I am asking 
you, was that banker who did that travel--and I do not know how 
many of these cases we have--were all those bankers rogue 
bankers?
    Mr. Dougan. Yes, I would argue they were violating our 
policies. Now, as you say, we should have caught it. We should 
have had managers, we should have had control people who caught 
the fact that this was happening. But, absolutely, they were 
wantonly violating our policies.
    Senator Levin. And the people who approved their travel, 
were they wantonly violating your policies?
    Mr. Dougan. I think in our investigation what we found is 
that they were not intentionally doing so, but they obviously 
made mistakes in allowing that.
    Senator Levin. So the people who approved the travel were 
not rogue, but the people who did travel were rogue. Is that 
what you are telling this Subcommittee?
    Mr. Dougan. Well, we did feel that this group of people 
were misleading--at a certain level of management, misleading 
them as to this activity. So, yes, these people were violating 
the policy intentionally and obviously hiding that from their 
management.
    Senator Levin. Now, this is not hidden to me. It is pretty 
obvious. If you look at Exhibit 5g,\1\ it is just over and over 
again: Hotel for dinner to prepare for an introduction to 
somebody, obviously a prospective customer; we went to this 
person, to their offices, followed by lunch; we went to this 
person, followed by a dinner, followed by a meeting; we went to 
a certain restaurant to prepare for an introduction to somebody 
else, an introduction over the phone. This is not hidden. It is 
all hanging out here.
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    \1\ See Exhibit No. 5g, which appears in the Appendix on page 352.
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    Mr. Dougan. I could not agree more.
    Senator Levin. You say this was hidden from the managers. 
It was open to the managers. My question is about the managers 
who got these reports and to the auditors who approved the 
travel. Are they rogue bankers?
    Mr. Dougan. Well, I am not sure the managers did get these 
reports, and we know that----
    Senator Levin. We believe they did get these reports. At 
any rate, if they got these reports and the auditors who got 
them approved them, are they part of that group, that small 
group of rogue managers?
    Mr. Dougan. I think if they were aware and intentionally 
involved in allowing this behavior, they would be. That is not 
what we found. We found that they either unintentionally or 
through errors, allowed this to happen, or perhaps they were 
not vigilant enough in terms of their responsibility. But we do 
not feel that they were aware of the conduct and allowing it to 
happen.
    Senator Levin. Even though this document is on its face 
very clear, you say----
    Mr. Dougan. It is very clear. You are right.
    Senator Levin. Then they are not doing their job as 
auditors if they are not reading the document.
    Mr. Dougan. That is a fair comment.
    Senator Levin. OK. Take a look, if you would, at Exhibit 
6.\1\ It is page 2 on Exhibit 6.
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    \1\ See Exhibit No. 6, which appears in the Appendix on page 357.
---------------------------------------------------------------------------
    Now, this is a list of ``Important phone numbers''--that is 
the title--that was kept in Credit Suisse's New York 
representative office, and it includes this entry. You will 
find this entry on page 2, about the third one from the top. 
There are two entries I want to talk to you about, again, on 
this list of important phone numbers.
    Entry 1 says Josef Doerig. He is with Doerig Partnership, 
and he is an external trust expert.
    And then the second one is near the bottom of that first 
group, Beda Singenberger, who is with Sinco AG, and that person 
is also an external trust expert.
    Now, both of those gentlemen have been indicted for aiding 
and abetting U.S. tax evasion.
    Is it correct that your Swiss bankers worked with both of 
these outside intermediaries to help U.S. citizens set up 
offshore shell entities and to open accounts in your bank in 
Switzerland in the name of those entities instead of in their 
own names?
    Mr. Dougan. Yes, in some instances they did.
    Senator Levin. And they were called intermediaries, right? 
Is that one of the names they were called?
    Mr. Dougan. I am not sure. Fiduciaries? I think maybe 
fiduciaries, Mr. Chairman.
    Mr. Cerutti. I think these----
    Senator Levin. Synonymous with intermediaries, would you 
agree?
    Mr. Dougan. To me they sound very similar, yes.
    Senator Levin. OK. Now, the bank has acknowledged that it 
has also worked with other intermediaries. Can you tell us who 
they were? Besides these two, who have been indicted, can you 
tell us what other intermediaries--or what was the name that 
you used?
    Mr. Dougan. Fiduciaries.
    Senator Levin. Fiduciaries--that the bank worked with to do 
what I just described, to help U.S. clients set up--this is the 
egregious conduct you were talking about, Mr. Dougan--to set up 
offshore shell entities and then open accounts in your bank in 
Switzerland in the name of those entities instead of in their 
own names? What other names do you know of your people worked 
with?
    Mr. Cerutti. Personally, right now I know of no other name.
    Senator Levin. Were there others?
    Mr. Cerutti. I would have to ask and go back and check.
    Senator Levin. Is there someone who is behind you who might 
be able to tell you whether there were others?
    Mr. Cerutti. I can ask, yes.
    [Pause.]
    Mr. Chairman, apparently there were others, but under the 
Swiss laws, we are unfortunately not permitted to give you 
these names.
    Senator Levin. OK. Do you know how many others there were, 
approximately?
    Mr. Cerutti. May I ask?
    Senator Levin. Sure.
    [Pause.]
    Mr. Cerutti. They are telling me that including the two you 
have mentioned, a total of maybe five, so three more.
    Senator Levin. So here, again, Swiss secrecy protections is 
preventing us from going after behavior which is criminal 
behavior, allegedly, and is this going to be cured by the 
treaty?
    Mr. Cerutti. I would expect that, to a large extent, you 
should already probably be in possession of these names given 
the 38,000 or 43,000 people in the VDP plus the names you 
should get through the treaty.
    Senator Levin. Do you think the treaty will provide that to 
us?
    Mr. Cerutti. Well, if you get these client names, you get 
the documentation----
    Senator Levin. Oh, if we get the client names.
    Mr. Cerutti. When you get the--when you get it.
    Senator Levin. If and when.
    Mr. Cerutti. If and when.
    Mr. Dougan. But also, to be clear, Mr. Chairman, in our 
case, obviously, there will be no issues around this because we 
are going to be completely compliant going forward, so there is 
no----
    Senator Levin. To the extent that Swiss law allows you.
    Mr. Dougan. We will be completely compliant going forward 
with FATCA, etc. We will be compliant with the law, so any of 
these structures or anything else would have to be completely 
compliant with all the U.S. tax laws and----
    Senator Levin. Going forward.
    Mr. Dougan. Going forward, certainly. Well, since----
    Mr. Cerutti. Mr. Chairman----
    Senator Levin. We are asking you about names going 
backward.
    Mr. Cerutti [continuing]. I have just been informed that 
the DOJ has these three names.
    Senator Levin. Good. Well, that helps. Thank you.
    Now, the United States has indicted over two dozen Swiss 
bankers for aiding and abetting U.S. tax evasion, including 
seven from Credit Suisse back to 2011. I can ask either one of 
you: Do you know of any U.S. extradition requests to bring 
those to trial? I am talking about the two dozen Swiss bankers 
for aiding and abetting U.S. tax evasion, including seven from 
Credit Suisse? Do you know of any U.S. extradition requests?
    Mr. Cerutti. Mr. Chairman, I do not know of any such 
extradition requests, but typically they are not made public, 
so maybe there were some, but I would not know.
    Senator Levin. All right. But you do not know of any.
    Mr. Cerutti. No.
    Senator Levin. Now, under our treaty, at Swiss insistence, 
obviously, the existing treaty, there is an exception to 
extradition which allows the Swiss to deny an extradition 
request for a person who is involved in a tax offense. Is that 
correct? Do you know, either one of you?
    Mr. Cerutti. Yes, Mr. Chairman, that is typically in all 
the extradition treaties that continental European countries 
have. It might also be--I do not know if the United States 
might have similar provisions in their treaties.
    Senator Levin. It might, but it does with Switzerland.
    Mr. Cerutti. Yes.
    Senator Levin. OK. And the question is whether or not 
Switzerland would deny extradition if a request was made, and 
my question to you both is the following: If the United States 
were to make an extradition request--and, by the way, we 
believe there have not been any. That is what we believe is the 
case. If the United States were to make an extradition request, 
would your bank object? I better ask you, Mr. Dougan. Maybe on 
advice of Mr. Cerutti, but let me ask you.
    Mr. Dougan. No, Mr. Chairman, we would not object.
    Senator Levin. OK. The last area I want to talk to you 
about is an area of what is called ``net new assets.'' Mr. 
Cerutti, one of the things that we have reviewed in this 
investigation is the bank's decisions regarding its net new 
asset figures in 2012. Net new assets is the measure of the 
amount of new assets obtained by the bank on which it provides 
investment advice or asset management services. It is, in my 
lingo, not the custodial service. It is the investment service. 
Is that a way to describe it which you can connect with?
    Mr. Dougan. Yes, I think that is broadly a reasonable----
    Senator Levin. OK. Net new assets also is a key performance 
measure of the growth of the private bank, and I think both the 
bank and investors view it that way.
    Now, we are going to talk about a client of your bank. We 
are going to call him Client 5. And in 2012, he chose Credit 
Suisse over other financial institutions, and Credit Suisse 
recognized billions of dollars of that client's assets as net 
new assets throughout the year. The bank also made decisions on 
where, in its books, to credit those net new assets in the 
various regional areas of the private bank, particularly 
between two regional areas: Switzerland and the Americas 
region.
    Now, recently you have told the Subcommittee that Credit 
Suisse has initiated an internal investigation into its net new 
asset process, and this is a process which I hope you would 
agree should be objective, and should produce accurate 
financial figures to the public and to investors.
    Is it correct, first of all, that the bank is looking into 
the possible influence of business people on the net new asset 
process?
    Mr. Cerutti. That is correct, Mr. Chairman. As we have 
informed your staff, we are looking into 2011 and 2012. It will 
probably take a few weeks or months, and we are going to report 
back to the staff.
    Senator Levin. And is the investigation reviewing the net 
new assets--is that investigation something which stemmed from 
Client 5's assets, or is it broader than that?
    Mr. Cerutti. It will be broader. I think we want to look at 
the whole area for the 2 years I mentioned before.
    Senator Levin. You told the Subcommittee staff that the 
investigation has identified indications from the private 
bank's chief operating office that may raise issues of 
influence being inappropriately placed on the net new asset 
process. Is that correct?
    Mr. Cerutti. That is also correct, Mr. Chairman. That is 
why we want to look into it. It is too early to draw any 
conclusions.
    Senator Levin. OK. Were there emails that you have looked 
at?
    Mr. Cerutti. Yes, there are some emails we have looked at, 
the wording we did not like, and I think that is what we need 
to go into.
    Senator Levin. Can you tell us who sent the emails?
    Mr. Cerutti. I think there are a number of emails, and we 
are going to report back to the staff.
    Senator Levin. Do you know the names of any offhand?
    Mr. Cerutti. Oh, that is a little bit difficult. I think 
some are probably in this stack of materials in here.
    Senator Levin. OK. But there is no problem with Swiss 
secrecy on that one? You can give us that information?
    Mr. Cerutti. We gave you all the information that is in the 
United States. We are now reviewing also the emails that are in 
Switzerland. We can give you a summary and the conclusions, but 
we can at this point, unfortunately, not give you the emails 
that are only in Switzerland.
    Senator Levin. Because of the Swiss secrecy law?
    Mr. Cerutti. Because of Swiss data protection laws and the 
Swiss so-called blocking statutes. It is really unfortunate.
    Senator Levin. OK. Now, the private bank chief operating 
officer was, I believe, Mr. Rolf Boegli. Am I pronouncing his 
name correctly?
    Mr. Dougan. Yes, that is correct.
    Senator Levin. Is he one of the people you are going to be 
speaking to as part of that investigation?
    Mr. Cerutti. The investigation is going to be handled by 
two outside law firms. They will most probably speak with 
everyone that is relevant.
    Senator Levin. And are you going to be looking into whether 
or not the bank's net new asset numbers on the books were 
accurately stated to the public?
    Mr. Cerutti. Yes, that is definitely part of the 
investigation, but so far we have really no indication that 
they were not.
    Senator Levin. All right. And are you going to look into 
whether the numbers on the books differed from the numbers that 
were shown to the public? Did they differ?
    Mr. Cerutti. I would not know. At this point I think I----
    Senator Levin. How do you know that----
    Mr. Cerutti. I think at this point we have just----
    Senator Levin. How do you know they are accurately stated?
    Mr. Cerutti. That is what I have been informed by the law 
firms who have looked into this already. At this point there is 
no reason to assume that the numbers are not accurately stated, 
but, please, give us the time to do the work and come back to 
your staff.
    Senator Levin. Well, except you represented here that the 
numbers are accurately stated, and so now I am asking you 
whether you were told by your lawyers that the numbers that 
were on the books were different from the numbers that were 
shown to the public. Have you talked to your lawyers about that 
problem?
    Mr. Cerutti. No, I----
    Senator Levin. Pardon?
    Mr. Cerutti. I am not--this is really----
    Senator Levin. That is OK. If you have not talked to them 
about it, you just say so.
    Mr. Cerutti. Yes, OK.
    Senator Levin. Is that true?
    Mr. Cerutti. Yes, I--really I do not have the information.
    Senator Levin. That is not my question. But have you talked 
to the lawyers about whether or not the numbers on the books 
were different from the numbers stated----
    Mr. Cerutti. May I just----
    Senator Levin. Yes, sure.
    [Pause.]
    Mr. Cerutti. The lawyers inform me that you might be 
referring to internal scorecards versus externally published 
numbers.
    Senator Levin. I.e., books versus public statements.
    Mr. Cerutti. I would not call it ``books versus public 
statements.''
    Senator Levin. What is an internal scorecard?
    Mr. Dougan. As you know, we obviously have a very robust 
and crisp process around all of our publicly stated numbers. 
This is another one of our publicly stated numbers. We are 
going to look into this. But we also have a set of what we call 
management information. You might think of it as the Management 
Information Systems (MIS). So there are MIS numbers which we 
use to judge individuals' performances, groups' performances, 
and those often have a number of different rules that might 
depart from the public numbers that are stated, and there is 
nothing unusual about that. In some cases you might double 
count revenues in order just to provide certain incentives to 
different groups and sort of those are the internal accounting 
methods of looking at numbers.
    Senator Levin. Well, we call them ``books.'' But we are 
going to get into this a little bit more.
    Take a look at Exhibit 21,\1\ if you would. Now, this is a 
Credit Suisse email dated February 2012, and the subject is 
``Important--NNA, PBMC.'' The beginning of the email is on the 
last page of this exhibit, so that is 84. And it says, ``. . . 
we will again discuss our NNA results which have been very 
disappointing up until now. As our capability to attract 
clients and new assets is of utmost importance--also 
externally--we need to take all possible measures in order to 
change this into a positive story within the next weeks.''
---------------------------------------------------------------------------
    \1\ See Exhibit No. 21, which appears in the Appendix on page 606.
---------------------------------------------------------------------------
    Now, this is a memo from Mr. Boegli. Is that correct?
    Mr. Dougan. That is right.
    Mr. Cerutti. Correct, yes.
    Senator Levin. All right. Now, did he work for you? I guess 
I will ask Mr. Meister this. Did Mr. Boegli work for you?
    Mr. Meister. Yes, that is correct.
    Senator Levin. He was the chief operating officer (COO)?
    Mr. Meister. He was the chief operating officer, and this 
area was also the chief financial officer (CFO) part for the 
division.
    Senator Levin. And he was then saying we have to ``take all 
possible measures in order to change this into a positive story 
in the next weeks.'' And you were on the email, I gather.
    Mr. Meister. Yes.
    Senator Levin. So he was pushing toward a particular NNA 
result in part, because it was reported externally. Is that 
correct?
    Mr. Meister. I think that that email was February 27, and 
generally because new net asset is one, as you said, of the key 
performance indicators. he makes everybody aware of all 
possible net new assets, positive or negative, that can be 
recognized within the FINMA rules.
    Senator Levin. Well, he did not say that.
    Mr. Meister. No, but it is a normal process----
    Senator Levin. I am not saying it is normal. I am just 
saying what he said. ``We need to take all possible measures to 
change this into a positive story.'' That is not positive or 
negative.
    Mr. Meister. So perhaps----
    Senator Levin. He did not say change this into a positive 
or negative accurate story. He said, ``We have to take all 
possible measures to change this into a positive story.'' How 
do you say ``positive or negative'' when he says ``positive''?
    Mr. Meister. Perhaps the email, I am copied on the email, 
but perhaps the language is not the right one or the 
appropriate one. But generally it is that we go through all the 
possible bigger tickets within the Bank, in order to check if 
there is a change from custody to assets under management. This 
is a normal process. The BA heads all over the world are 
contacted to see that we have the accurate numbers in the 
system and for the end of the quarter.
    Senator Levin. I am very glad to hear that you seek 
accuracy at the end of the quarter, but this is not what this 
email says. This does not say, ``We have to be absolutely 
accurate because we are making external statements.'' It says, 
``We need to take all possible measures to change this into a 
positive story.'' That is a deviation from your policy, I take 
it.
    Mr. Dougan. Mr. Chairman, we agree with that. We have a 
process to ensure that all of our NNA numbers are recognized 
properly. And you are right, this kind of language is not 
consistent with the way we would think about it.
    Senator Levin. All right. Now, take a look, if you would, 
at Exhibit No. 26,\1\ Mr. Meister.
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    \1\ See Exhibit No. 26, which appears in the Appendix on page 621.
---------------------------------------------------------------------------
    Mr. Meister. Yes.
    Senator Levin. This is another Credit Suisse email dated 
December 2012. This is about a fourth quarter forecast, also 
from Mr. Boegli. ``Our ambition to deliver WMC NNA of around 
CHF 6-7bn [Swiss francs] in 4Q12 is at risk.'' It does not say, 
Our ambition to have an accurate statement is at risk. It says 
we have an ambition to deliver WMC [wealth management clients] 
NNA of around 6 to 7 billion, it is at risk. And I take that 
back. I misspoke, because this is a slightly different issue. 
What he is saying is we want to try to bring in 6 to 7 billion, 
and I think that is a more accurate reading than what I said a 
moment ago. And I do not see anything particularly wrong with 
saying we have an ambition to add NNA. Nothing wrong with that. 
I do not think.
    Then it says, ``With 3 weeks to go until the year comes to 
a close . . . we still need CHF 2.5bn [Swiss francs] to reach 
the lower end of this ambition. This requires continued efforts 
on all levels . . .'' What does that mean, ``efforts on all 
levels?'' What is that?
    Mr. Meister. To give you perhaps a little bit of 
perspective, you have normal in-and outflows of net new assets, 
but you have these so-called big custody clients like the 
client in scope you had where we are looking in every single 
quarter. This was his intention to see if there was a change in 
the intention of the client or in the amount of advice we could 
provide or generally a change. And for that, you have to go 
through the world to all the different regions to see if there 
was a change on these big tickets. And then, of course, they 
have to go back to the relationship manager to look, and he 
does that in advance that we are of the respective quarter. 
That is what really the intention was, even if perhaps the 
language is not exactly what we want to have.
    Mr. Shafir. Mr. Chairman, may I interject?
    Senator Levin. Sure.
    Mr. Shafir. It is hard for me to say specifically what Mr. 
Boegli was intending here, but if you look at this email 
specifically, the people it is addressed to are the sales 
managers and a couple of the product managers, who actually are 
the people who are interfacing with the clients. So, I mean, to 
have an ambition, as you said earlier, to hit a target, this 
would be very similar to hitting a sales target in a quarter, 
and addressing that to the sales managers seems to be a normal 
course of business, just looking at it objectively.
    Senator Levin. Did you discuss, either one of you, with Mr. 
Boegli pushing bank employees to meet external NNA targets?
    Mr. Meister. What I wanted to explain before, as a normal 
process now--we are co-heads, of course, we always push in our 
function, that we have the right figures in the system. That 
means that all new intents of the clients or investment advice 
are correctly reflected in the system. Mr. Boegli, who at the 
time was in charge of this process, made it aware to all the 
different business heads around the world that they have to 
take responsibility and ownership to see that the right figures 
are in place.
    Senator Levin. All right. Did you ever talk to him about 
the language of this email?
    Mr. Meister. I cannot recall that.
    Senator Levin. Did you ever talk to Mr. Boegli about the 
language in this email?
    Mr. Meister. Not to my memory.
    Senator Levin. OK. Now, Mr. Meister, during 2012 Client 5 
was shifting assets, apparently to bring them under the 
investment management of Credit Suisse, and his assets were a 
boost, a big boost to the bank's net new asset total for 2012. 
And this is especially in a year when net new assets was under 
pressure because the bank did not have much new money coming 
in, particularly in Switzerland.
    Now, that is one issue. It is not the issue I want to focus 
on today, because when the bank showed the NNA stemming from 
Client 5's assets, the bank had a decision to make about what 
region should receive the credit for those assets. So one 
issue, which I am not going to focus on, has to do with whether 
or not that was properly considered custodial or investment and 
whether he properly shifted it to investment in the absence of 
a signed agreement. But, again, I am not going to focus on that 
piece.
    I am going to focus, however, on the decision as to what 
region would receive the credit for that asset. And you said it 
was your decision, I believe, Mr. Meister, and you decided to 
split that new net asset 50/50 between the two regions of the 
private bank, Americas and Switzerland. Is that right?
    Mr. Meister. That is right.
    Senator Levin. And you told us that you made that decision 
early in 2012. Is that correct?
    Mr. Meister. That is correct, yes.
    Senator Levin. So now I want to discuss what actually 
happened with the regional credit for that net new asset amount 
from Client 5 in 2012.
    In the first quarter, the NNA, net new asset, for Client 5 
was actually split 60/40 between Americas and Switzerland. Now, 
why wasn't it split 50/50 between the Americas and Switzerland, 
like you said?
    Mr. Meister. I do not know.
    Senator Levin. OK. And the second quarter, the NNA for 
Client 5 was not split at all. It was entirely credited to 
Americas. Why?
    Mr. Meister. Also this I do not know.
    Senator Levin. In the third quarter, the bank went back to 
the beginning of the year, retroactively, added up all the 
Client 5 assets, divided it in half, deducted 1.6 billion from 
the Americas, added it to Switzerland. Retroactively. Why did 
you do that?
    Mr. Meister. Also I do not know why this was done in the 
third quarter, but it was in line with my original decision to 
apply a 50/50 split because of the story looking back the last 
10 years, and especially 2 years before, before the client 
decided to sell his company.
    Senator Levin. All right. It also had a major effect, did 
it not, on net new assets for Switzerland, made it look a lot 
better than it otherwise would, wouldn't it?
    Mr. Meister. To split the 50/50 generally?
    Senator Levin. No. The retroactive shifting around these 
numbers made Switzerland look a lot better than it otherwise 
would vis-a-vis the Americas section, right?
    Mr. Meister. That is right, yes.
    Mr. Dougan. Mr. Chairman, if I could add, I think that, as 
you say, that was certainly the impact of that. We also show 
even more transparent disclosure on those net new assets in 
Switzerland, and we have been showing it in a more granular 
form. It has been showing outflows in Switzerland, and so we 
are not trying to hide the fact that there might be outflows in 
Switzerland because of certain business trends.
    So as you say, that was certainly the effect of that, but, 
again, I think our view is really we want to show the accurate 
numbers, which I think this 50/50 split was what we thought was 
the accurate way to do it.
    Now, as you point out, why that was not accurately 
reflected in the first and second quarter is one of the things 
that we will be looking into.
    Senator Levin. Now take a look----
    Mr. Shafir. If I may?
    Senator Levin. Sure.
    Mr. Shafir. The only thing I would add is, through the 
first three quarters, I was in the regional role in the 
Americas, so my involvement would be somewhat more peripheral 
until the fourth quarter. But I do remember the specific 
instances, the issues around this client.
    And there were multiple people involved with getting this 
business, from the investment banking people to the private 
banking people, both in Switzerland and the United States. And 
it is difficult to really determine whether it is a 60/40 or a 
50/50 split or a 25/75.
    I would say this. It was clear, certainly from my seat, 
that there were several people that were part of winning the 
mandate for this client, and as long as I have managed 
businesses that have involved people from different regions, 
there have often been arguments about, who gets credit for 
what. So when I heard about the logic of putting--of splitting 
this thing down the middle, that did not seem inconsistent with 
what I had observed as the fact pattern around winning this 
business.
    Senator Levin. Well, that is not the question. The question 
is the shifting around, the percentage of shifts every quarter. 
That is the problem and it obviously has an impact, an impact 
very favorably to what a public perception is. Would you agree 
with that, Mr. Dougan?
    Mr. Dougan. Yes, I agree it has an impact. Again, in terms 
of the overall financial results, though, this is one element 
which I would say in 7 years as the CEO, I have been asked 
maybe a couple handfuls of questions about the NNA numbers, 
particularly on a regional basis. So I am not sure it is that 
important an issue that investors focus on. But yes, you are 
absolutely right.
    Senator Levin. Are you serious, that that is not a factor 
that investors focus on?
    Mr. Dougan. It is a factor. It is not high on the list of 
importance, I think, with most investors. That is just my 
experience. That is my----
    Senator Levin. But would you say it is a relevant factor 
for investors?
    Mr. Dougan. It is a relevant factor. I mean, the numbers--
--
    Senator Levin. Would you say it should be accurately in----
    Mr. Dougan. Absolutely.
    Senator Levin. Would you say it should not be manipulated 
during a year----
    Mr. Dougan. Absolutely.
    Senator Levin [continuing]. From quarter to quarter----
    Mr. Dougan. Yes.
    Senator Levin [continuing]. To give a particular 
impression----
    Mr. Dougan. Of course.
    Senator Levin [continuing]. Or to avoid a bad image?
    Mr. Dougan. Of course.
    Senator Levin. OK. Well, that is what happened here. It was 
shifted around from quarter to quarter and then retroactively, 
retroactively was shifted, which then helped Switzerland--the 
Swiss part of the operation--look like it got a little bit of 
net NNA.
    Mr. Meister. Perhaps, Mr. Chairman, I understand, of 
course, when you looked at the----
    Senator Levin. That is the chart we are all looking at now, 
by the way, which shows what the----
    Mr. Meister. The only thing I wanted to add--and we had the 
discussion with the Subcommittee in my interviews--when you 
look back at the last quarter of 2013, we are not shy to show 
negative numbers in Switzerland. We had two quarters in 2011 
and we also had the last quarter in 2013, where we published 
negative Swiss NNA numbers.
    So what is in line, looking back, therefore, is the 50/50 
split out of the original discussion and the reasons Mr. Shafir 
also explained before, but how it was implemented is a part of 
our investigation and hopefully we will find out what was the 
reason why it was done, not in the second quarter, but 
retroactively in the third.
    Senator Levin. With the effect that it had, which was to 
make the Swiss operation look more positive than it otherwise 
would.
    Mr. Meister. But as I said, we are not shy.
    Senator Levin. You are not shy now, maybe because you do 
not have the opportunity to do this.
    Mr. Meister. I do not say, sir----
    Senator Levin. Maybe somebody who is making a decision as 
to whether to have an investment of this $5 billion or whether 
to put it in custody. You may not have $5 billion coming in 
every day. That $5 billion is a huge part of what happened in 
2012, and the retroactive shifting around of the division of 
that number between the regions does not happen every year. So 
you may not have an alternative. You say you are not shy. There 
is no way of knowing whether or not you had the same 
opportunity. My guess is you did not. But that is my guess.
    Take a look at Exhibit 25.\1\ This is a Credit Suisse 
email, dated October 25, 2012. This is about the third quarter 
NNA. The email shows the math for the retroactive split. It 
meant that the bank's internal books, whatever you want to call 
them, you have a different word for books, Mr. Dougan, the 
internal----
---------------------------------------------------------------------------
    \1\ See Exhibit No. 25, which appears in the Appendix on page 620.
---------------------------------------------------------------------------
    Mr. Dougan. We call them MIS, so that is to distinguish 
from the financials that are, as you say, public. So it is more 
what management uses to manage the business.
    Senator Levin. OK. So your own internal management books 
had a different number from the external book, and here is what 
it says in this email. ``As per your request, please find below 
the bridge--for the NNA for third quarter 2012 as reported 
internally for Private Bank Americas versus the externally 
released figure.'' There it is. I mean, you were very much 
aware of it, that there was an external released figure that is 
different from what you were showing internally. Why?
    Mr. Dougan. Well, Mr. Chairman, that is actually--as I 
tried to explain before and probably did not do a very good job 
that is a very common occurrence within the Bank because we 
do----
    Senator Levin. On this kind of an issue? On NNA?
    Mr. Dougan. Sure, because we are trying to provide the 
right incentives around for our sales forces, and if you think 
of it as sort of MIS side of things, it is more like a sales 
credit issue, which is not as influenced by the financial 
statements. It happens in this kind of an issue; it happens on 
all sorts of issues. Revenue splits----
    Senator Levin. I am only talking about something which is--
--
    Mr. Dougan. OK.
    Senator Levin [continuing]. Shown to the public.
    Mr. Dougan. OK.
    Senator Levin. And where it is different. It is different 
in a very critical way at a very critical time for your bank. 
And what the effect was, you are saying, was a coincidence. Is 
that what you are saying?
    Mr. Dougan. No. What I am saying is that----
    Senator Levin. Are you saying it was a coincidence?
    Mr. Dougan. We have specific rules around how MIS internal 
numbers are calculated and, in fact, I think what this email is 
laying out is a reconciliation between what is reported from an 
MIS point of view, sort of a management perspective, versus the 
financials, and we would have this every quarter. Every quarter 
there would be a reconciliation between how we, the internal 
performance----
    Senator Levin. OK. On NNA?
    Mr. Dougan. On NNA, yes.
    Senator Levin. You would show this big a gap between what 
the internals show?
    Mr. Dougan. Well, the size of the gap may vary from quarter 
to quarter.
    Senator Levin. Right.
    Mr. Dougan. But there are a series of rules and the way we 
think about it internally versus the external numbers and we 
try to----
    Senator Levin. Which was more accurate?
    Mr. Dougan. I would not know how to answer that. We have, 
for externally reported numbers, we have the FINMA rules, which 
we follow, and I think as Mr. Cerutti said, we are clearly 
going to look into making sure that we are following those 
faithfully in terms of what we externally report, and then 
internally we have a different set of rules in terms of how we 
think about and show those numbers internally to manage and 
motivate our sales forces.
    Senator Levin. Can we agree on one thing? If Switzerland 
had not received the re-allocation in that quarter, it would 
have shown a negative 1.5 billion in NNA. Would you agree with 
that?
    Mr. Dougan. Well, that is correct, but also, I guess, I 
would point out that it was really--it should have been 50/50 
all along, which means Switzerland would have benefited in the 
first and the second quarter. So, in fact, we penalize 
Switzerland in the first and the second quarter by not properly 
reflecting that 50/50.
    You are right. In the third quarter, that came through and 
it benefited Switzerland, but effectively, it penalized 
Switzerland in the first and second quarter. So if someone was 
intentionally trying to benefit Switzerland, they did a poor 
job because the first two quarters it was the other way around.
    Senator Levin. No, but the question is not benefiting 
Switzerland. The question is showing Switzerland in the 
positive or in the negative. That is the issue. And by shifting 
this money retroactively, you are able to show publicly, 
externally that Switzerland is slightly up instead of massively 
down. That chart up there shows massively down. That is what 
your internal books show. Publicly you showed slightly up. That 
is not casual. That is important. That is what people count on, 
one of the things they count on when they invest.
    Now, take a look at Page 135 in the report. We are going to 
give you our report so that you can take a look at Page 135. 
This is a page from your third quarter earnings report and it 
is headed----
    Mr. Dougan. Page 134.
    Senator Levin. Sorry. Did I give you the wrong page?
    Mr. Dougan. Page 134. I think we are there.
    Senator Levin. Page 134. This is a page from your third 
quarter earnings report. It says, Swiss francs ``5.2 billion 
net assets driven by inflows and international booking centers, 
predominantly from emerging markets.'' That is what you are 
showing the public, inflows.
    And then you look at this on the right-hand side: ``Strong 
inflows from Asia Pacific', EMEA with strong inflows from 
Eastern Europe.'' Then look at that third one: ``Positive 
contribution from Americas and Switzerland albeit seasonal slow 
down.''
    Now, Mr. Dougan, I do not think you can fairly or honestly 
say that this is irrelevant, this representation to the public. 
Would you agree to that?
    Mr. Dougan. Of course I would not say it is irrelevant.
    Senator Levin. Putting aside the motive for a moment, it 
was the result of that retroactive shift. Is that correct?
    Mr. Dougan. The regional allocation was, obviously, the 
overall number as you referenced, the 5.2 billion would not 
have been impacted.
    Senator Levin. Of course.
    Mr. Dougan. But regional allocation----
    Senator Levin. Would have. OK. And how do you think this 
would have read if it said positive contribution from Americas 
and negative in Switzerland? Do you think that gives a 
different impression to the public if that is what this had 
said? It does not make any difference. The public does not read 
these things anyway. Is that what you are saying?
    Mr. Dougan. No, I think they do read it and obviously it 
needs to be correct, so I do not disagree with that. I do not 
think it would have had a significant difference in terms of 
how the earnings result would have been perceived, because 
obviously it is a much broader, more detailed set of issues. 
This is one aspect, the regional allocation between two 
regions, I am not trying to minimize it and it is relevant, but 
it is relatively--it is a detail in the overall----
    Senator Levin. It is not a detail when you say positive 
results, black and white, from Switzerland, albeit, seasonal 
slow-down. And look at your chart. This is your chart. You may 
call it a detail. I call it something that investors would 
presumably look at. I hope they care whether or not your bank 
is profitable in all the regions or which region it is or which 
it is not.
    But look at the Private Bank third quarter chart. You show 
for the Americas .2-plus for Switzerland, .1-plus, so that it 
is all on the upswing for your entire bank. By the way, you say 
it is the entire bank which counts. That is the 5.2 billion net 
assets driven by inflows. You think that is the only thing that 
counts. There is something else that counts.
    There is a visual that you created that shows NNA generally 
on the upswing, and if that visual had reflected what the 
division was before the retroactive activity, you would have 
had a big increase in the Americas and a big decrease in 
Switzerland, and that would be a hell of a lot different to the 
viewer than what your chart is. Would you agree with that? It 
would give a very different impression visually.
    Mr. Dougan. I would agree it would be different and I also 
agree the numbers need to be accurate. The question of how 
important an issue that would be to our investor base is one 
where perhaps you and I disagree. But I agree with those 
comments, yes.
    Senator Levin. OK. Now, is the bank going to look at this 
process to try to avoid this kind of a situation where your 
internal books, I will call them, is different from your 
external to this degree? Are you going to change any procedure 
at all?
    Mr. Dougan. Well, we are going to look into this whole 
process and we will take whatever measures we need to take, and 
I think as Mr. Cerutti said, it is probably a little premature 
to talk much about that, Mr. Chairman. But certainly we want--
we believe it has been a process that has had integrity, but we 
will look at it and make sure that it does and we will 
certainly make whatever changes we need to make to it.
    Senator Levin. Please take a look at Exhibit 28.\1\ This is 
a Credit Suisse email dated January 2013 regarding 
``Americas.'' And this is what Mr. Boegli wrote: ``Wealth 
management clients runs for NNA substantially below 
expectations. In order to support the Private Bank Division, a 
further''--now he refers to Client 5----
---------------------------------------------------------------------------
    \1\ See Exhibit No. 28, which appears in the Appendix on page 625.
---------------------------------------------------------------------------
    Mr. Cerutti. Sorry, Mr. Chairman. We have a problem 
locating the document.
    Senator Levin. I understand. Let me slow down.
    Mr. Cerutti. Which number?
    Senator Levin. Exhibit 28.
    Mr. Cerutti. Exhibit 28? OK, we found it.
    Senator Levin. OK.
    Mr. Cerutti. Thank you.
    Senator Levin. And it is down on the bottom. This is from 
Mr. Boegli. And it is dated--you have the date?
    Mr. Dougan. Yes, we found it.
    Senator Levin. January, OK. ``Dear Tony: Currently--for Q4 
reporting--WMC runs for NNA substantially below expectations. 
In terms of your region, latest indication from your regionally 
BI&S team estimates approx. 2.8bn NNA compared to a predicted 
Forecast of 3.0bn which is an excellent result in stormy times. 
However''--this is the part I want you to focus on--``in order 
to support the PB division, a further [redacted] portion of the 
0.9bn CHF [Swiss francs]--fully reported internally and 
externally in the Americas region--would be a great favor for 
our division.''
    Is this the way your bank should operate?
    Mr. Dougan. No, it is not. That is not language that we 
would agree with. It is not consistent with the process, so no, 
we do not think it is.
    Senator Levin. And, Mr. Meister, did you talk to Mr. Boegli 
about this before he asked his colleague for the favor?
    Mr. Meister. I can only repeat what Mr. Dougan said, that 
the language is, of course, completely inappropriate, and that 
the word ``favor'' is completely wrong in this place, because 
when we speak about 900 million, that is a completely separate 
process which goes to the CFO area of the group so nobody can 
give a favor if there is not a clear case for that. So I can 
only say the words used here in the email are completely 
inappropriate language.
    Senator Levin. But it also said that ``Mr. Meister''--that 
is you--``would be extremely happy if you could support this.''
    Mr. Meister. Also, there are----
    Senator Levin. Is that true?
    Mr. Meister. What?
    Senator Levin. Was that true?
    Mr. Meister. I cannot remember what----
    Senator Levin. But would you have been ``extremely happy?''
    Mr. Meister. I would never use such terms.
    Senator Levin. Well, where did he get that impression from?
    Mr. Meister. I am sorry?
    Senator Levin. Where did he get the impression you would be 
very happy unless you talked to him?
    Mr. Meister. No, I think generally, it is clear that we 
drive the organization, Robert Shafir and myself, that we have 
net new asset number and hopefully, positive regions, and we 
are more happy if there are bigger portions, but always in line 
with what the FINMA rules and what the process is allowing, 
even if----
    Senator Levin. You can say always in line, but that is not 
what the emails say.
    Mr. Meister. Yes, but I did not----
    Senator Levin. So it is not always in line. And the 
question is, you were reported as being ``extremely happy'' if 
that favor were granted. And my question to you is whether or 
not you talked to Mr. Boegli about this before he asked his 
colleague for that favor. That is my question.
    Mr. Meister. I cannot recall that.
    Senator Levin. Now, Mr. Shafir, are you familiar with the 
bank's account for Client 5 and how the bank showed $8.5 
billion in NNA for 2012 as a result of Client 5?
    Mr. Shafir. Yes.
    Senator Levin. Did you ask your deputy to take a careful 
look at the fourth quarter NNA recognition by Client 5?
    Mr. Shafir. Yes.
    Senator Levin. The next step was for him then to get the 
head of Finance, Carlos Onis, to review it; is that correct?
    Mr. Shafir. Well, yes. As Mr. Meister said, we have a 
process specifically--there are two parts to the process, 
Senator Levin. The first part is that we have an independent 
committee that looks at classification of NNA as a whole. The 
second piece of the process for larger transactions, 
specifically $500 million or above, is that their findings have 
to be reviewed and signed off by the Finance organization. 
Carlos Onis is the CFO of the Americas for Credit Suisse.
    Senator Levin. OK. Continuing now, if you take a look, Mr. 
Shafir and Mr. Meister, at Exhibit 29,\1\ it is on the second 
page about halfway down, the email indicates that, ``Carlos 
asks for further detail with regards to the revenues.''
---------------------------------------------------------------------------
    \1\ See Exhibit No. 29, which appears in the Appendix on page 628.
---------------------------------------------------------------------------
    And then, on the first page Mr. Bluntschli responded: 
``Given the rather weak granularity, we need to create a more 
powerful story in the sense of making more around the existing 
weak figures in the sense of redacted consists of xx accounts, 
all held in the xx branch covered by two senior RMs, xx and yy, 
which do high interaction level, blabla. Might not be relevant, 
but sounds rather good.''
    And then at the top Mr. Bluntschli wrote: ``I am convinced 
that with this enhanced story, we will get approval soon from 
Carlos.'' Enhanced story. Do you know what that is?
    Mr. Shafir. I do not know specifically.
    Senator Levin. What he means, is that not like a half-
truth?
    Mr. Shafir. I do not know.
    Senator Levin. An enhanced story. Does that language 
trouble you?
    Mr. Shafir. The language is troubling, but it is difficult 
to say really what he meant by that. I was not copied on this 
email. But as I said, this process did go through two different 
checks. It did go through the independent committee and it also 
went to the Finance organization as well.
    Senator Levin. Then what does it say, though, when it says, 
``it may not be relevant, but sounds rather good?'' Is that the 
way you folks operate? This sounds good, ``not relevant'', 
``blabla.''
    Mr. Shafir. Senator, I cannot respond to the----
    Senator Levin. ``Enhanced story.''
    Mr. Shafir [continuing]. Intent of the email.
    Senator Levin. What do you think, Mr. Dougan?
    Mr. Dougan. Certainly I do not think that is consistent 
with our process. I think as Mr. Shafir said, when I hear 
something like enhanced story, it could mean--as you say, that 
it is a story, that it is something that is made up. On the 
other hand, enhanced--the enhanced--if there are enhanced facts 
around it, that I would support it.
    Senator Levin. No, no. It is not----
    Mr. Dougan. Well, maybe----
    Senator Levin. Let us try to get a better input. It is an 
enhanced story.
    Mr. Dougan. I think it may be hard to determine that just 
from this language. As you know, I mean, it is hard to exactly 
determine that. I agree with you that we would have the same 
concern that you have voiced. We would have that same concern 
and that is part of what we are going to be looking into.
    Senator Levin. Well, these are examples of your process at 
work and I think you have real problems with your process.
    Mr. Dougan. Well, we are going to look into it and we are 
going to determine if we do have problems, we are going to 
address them and we are going to fix it.
    Senator Levin. Will you get back with us as to what, if 
anything, you do about it?
    Mr. Dougan. Sure.
    Senator Levin. And by the way, you said, I think, Mr. 
Shafir, you did not see Mr. Bluntschli's email; is that 
correct?
    Mr. Shafir. That is correct.
    Senator Levin. How about you, Mr. Meister? Did you see that 
email before today?
    Mr. Meister. No, not to my memory.
    Senator Levin. OK. Is this an appropriate way to recognize 
NNA, to ``make more around existing weak figures? Is that 
appropriate?
    Mr. Meister. I am sorry. I think I am to repeat again. The 
language used here out of this context, it is definitely not 
what we want to see.
    Senator Levin. I am giving you the context. You have the 
whole context. You have the whole email.
    Mr. Meister. But what you do not know is Mr. Onis--is Mr. 
Onis really asking about more granularity about why he could 
really reclass this? I do not know what it really means, and 
this email, Mr. Bluntschli is a German-speaking guy, so this is 
also, perhaps taking into consideration about the language 
around this. Therefore, it is difficult only based on this 
email to say what the intention was.
    Senator Levin. Well, Mr. Dougan, I would hope in your 
investigation that you would take a look at the process for 
recognizing NNA. That is represented to the public. And it 
cannot be accurate and involve colleagues like Mr. Boegli did, 
to recognize NNA as a ``favor.'' Would you agree?
    Mr. Dougan. I would agree with that, yes, sir.
    Senator Levin. And it cannot have enhanced stories. It has 
got to be accurate stories. Would you agree with that?
    Mr. Dougan. I would agree. Again, I am not sure what his 
exact meaning was there, but I agree with you in the sense----
    Senator Levin. The common understanding of enhanced story. 
Would you not agree?
    Mr. Dougan. Well, again, he is not a native English 
speaker, so it is a little unclear. But in your--the way you 
have interpreted it, we agree, yes.
    Senator Levin. The way I have interpreted it? This is an 
email, enhanced story. The way you interpret the words enhanced 
story, would you not agree you do not want enhanced stories? 
You want enhanced profits.
    Mr. Dougan. Again, as native English speakers, I completely 
agree with you.
    Senator Levin. All right. And you do not think, I hope, 
that we should ``make more around the existing weak figures,'' 
but we ought----
    Mr. Dougan. Not language that I think is appropriate.
    Senator Levin. OK. And ``blabla might be relevant, but 
sounds rather good?''
    Mr. Dougan. Not language I think is appropriate.
    Senator Levin. This process, the way you read it, is not a 
good process?
    Mr. Dougan. Well, I actually do believe the process--we 
believe the process is actually a good process, but we are 
going to get to the bottom of it and we are going to figure it 
out.
    Senator Levin. Was the process, as reflected in these 
emails, the kind of process that you want to defend?
    Mr. Dougan. The language and the things that have happened 
here, no, absolutely not. Whether the ultimate decisions that 
were made and whether the actual determinations that were made 
were correct is a different issue. But absolutely, this kind of 
language, this kind of an approach to the process is not 
consistent, it is not acceptable.
    Senator Levin. Thank you. Well, it has been a long hearing. 
We are very grateful that you appeared here today and for your 
cooperation with the Subcommittee. We will look forward to the 
reports that you have promised to give us.
    The bottom line for me is that your bank is a bank that 
really wants to be seen as a reformed bank, and you, in your 
opening statement, laid out the reforms that you have made. So 
that is something which is important to you. You do not want to 
be in the dirty business any longer of helping U.S. clients 
cheat on their taxes. But it is important, if you are going to 
really be a reformed bank, that you have to acknowledge what is 
clear in our report, that the wrongdoing went beyond a small 
group of rogue bankers; that there is 22,000 Swiss accounts 
that were hidden from our authorities and we need full 
cooperation if we are going to be able to collect the taxes 
owing from those accounts. We need your cooperation.
    And the bank right now is hiding behind a shield that the 
Swiss law tries to provide it, which cannot be recognized in 
any other country because we have to apply our own laws, and if 
you do banking in this country, you have to abide by our own 
laws and you have to take on your own government. You have to 
explain to your own government that you are banking in these 
other countries. You cannot cite a Swiss law that says account 
names are going to be kept secret in defense of what I hope 
will be the enforcement of subpoenas or other appropriate 
actions in order to get those names.
    And so, what we will now do is recess the hearing. We are 
going to resume at 3 o'clock in a different room. We are going 
to resume at 3 p.m. in 342 Dirksen, which is the full 
Committee's hearing room because the Department of Justice has 
informed us that Mr. Cole has to go to the White House. We have 
agreed to accommodate him. So that is the reason for the delay, 
is the reason for the change in the room. I do not have it in 
front of me so I do not know, but for those of you who are 
going to be here this afternoon, or want to be here, it will be 
a different location.
    We thank you again, all of you, for your presence and you 
are excused.
    Mr. Dougan. Mr. Chairman, thank you very much.
    [Whereupon, at 12:58 p.m., the committee recessed, to 
reconvene at 3 p.m. this same day, in room 342, Dirksen Senate 
Office Building.]
    Senator Levin. The Subcommittee will come back to order and 
we will now call our second and final panel of witnesses for 
today's hearing. James M. Cole, the Deputy Attorney General at 
the U.S. Department of Justice, and Kathryn Keneally, Assistant 
Attorney General of the Tax Division of the U.S. Department of 
Justice. We thank you both for being with us today. We look 
forward to your testimony.
    As you know, pursuant to Rule 6, all witnesses who testify 
before this Subcommittee are required to be sworn, so at this 
time I would ask that you please stand and raise your right 
hand.
    Do you swear that the testimony you are about to give 
before this Subcommittee will be the truth, the whole truth, 
and nothing but the truth so help you, God?
    Mr. Cole. I do.
    Ms. Keneally. I do.
    Senator Levin. Thank you very much and we will be using our 
timing system today. A minute before the red light comes on, 
you will see the lights change from green to yellow, which 
gives you an opportunity to conclude your remarks. Your written 
testimony will be printed in the record in its entirety. We 
would appreciate you limiting your oral testimony to no more 
than 15 minutes. And if you need more than that, we will try to 
arrange it. We will have you go first, Mr. Cole, followed by 
Ms. Keneally, and then after we have heard the testimony, we 
will turn to questions. Mr. Cole.

 TESTIMONY OF HON. JAMES M. COLE,\1\ DEPUTY ATTORNEY GENERAL, 
OFFICE OF THE ATTORNEY GENERAL, U.S. DEPARTMENT OF JUSTICE, AND 
   HON. KATHRYN M. KENEALLY, ASSISTANT ATTORNEY GENERAL, TAX 
              DIVISION, U.S. DEPARTMENT OF JUSTICE

    Mr. Cole. Thank you, Chairman Levin, and Ranking Member 
McCain. And first of all, Mr. Chairman, I want to thank you for 
accommodating the scheduling that we had to do today. I very 
much appreciate it.
---------------------------------------------------------------------------
    \1\ The joint prepared statement of Mr. Cole and Mr. Keneally 
appears in the Appendix on page 107.
---------------------------------------------------------------------------
    I want to thank you for inviting us here to testify in the 
Department of Justice's efforts to address Swiss bank 
facilitation of U.S. tax evasion. With me this morning, as you 
have noted, is Kathryn Keneally, who is the Assistant Attorney 
General for the Tax Division. She oversees the Department's tax 
enforcement program.
    The Department of Justice is committed to global 
enforcement against financial institutions that facilitate 
cross-border tax evasion, as well as against the individuals 
who evade their tax and reporting obligations and the bankers, 
accountants, lawyers, and other professionals who help them do 
it.
    And while the Department's initial efforts and this hearing 
have focused on Switzerland, we have expanded our 
investigations to go after tax cheats and the banks assisting 
them in India, Israel, Liechtenstein, Luxembourg, and several 
Caribbean countries.
    Since 2009, the Department has publicly charged 73 account 
holders and 35 professionals with violations arising from their 
offshore banking activities, and 72 individuals have pled 
guilty or were convicted at trial. Just as importantly, our 
enforcement efforts have driven over 43,000 taxpayers with 
secret offshore accounts to identify themselves to the IRS, 
disclose their offshore accounts, and to pay a total of over $6 
billion in back taxes, penalties, and interest, and that number 
is growing.
    As this Subcommittee well knows, investigating offshore 
banks and U.S. taxpayers with secret foreign accounts is 
difficult and time-consuming. It requires us to use virtually 
all of the tools at our disposal and to be creative and 
innovative. We must pursue not just legal avenues such as grand 
jury subpoenas and John Doe summons, but also discussions with 
the Swiss Government to obtain information we need.
    And we need to make full use of cooperators and 
whistleblowers, and I can tell you that we are receiving 
information from such individuals in the offshore cases we are 
working right now. In appropriate circumstances, the Department 
may seek the enforcement of a Bank of Nova Scotia grand jury 
subpoena or a John Doe summons for Swiss bank records, but 
those tools cannot always be effectively employed.
    First, they can only be used against a foreign bank that 
has a U.S. presence, and the majority of the Swiss financial 
institutions that we are currently investigating do not. 
Second, the use of Bank of Nova Scotia grand jury subpoenas or 
John Doe summons for extraterritorial records may result in 
protracted litigation.
    Absent acquiescence by the Swiss Government, a bank may be 
caught between facing contempt sanctions in the United States 
or violating Swiss law or a Swiss blocking order. Because we 
are involved in active ongoing criminal investigations we are 
quite limited in what we can disclose publicly. But just 
because we cannot disclose what we are doing does not mean we 
are not actively pursuing these cases.
    I do, however, want to quickly discuss a number of public 
actions we have taken recently and we fully expect additional 
public developments over the course of the coming months. By 
way of example, in 2013, the Department obtained four separate 
orders authorizing the IRS to issue John Doe summons seeking 
records from banks in the United States for the U.S. 
Correspondent accounts of banks located in the Caribbean, 
Switzerland, and other European countries, and we have 
successfully compelled account holders to provide us with their 
personal records of their foreign banking activities.
    Since the UBS Deferred Prosecution Agreement in February 
2009, the Department has taken public action against two other 
banks. In January, 2013, Wegelin Bank, one of the oldest 
financial institutions in Switzerland, pled guilty to 
conspiracy to defraud the United States and was ordered to pay 
substantial fines and to forfeit funds. As a result of its 
criminal conviction, Wegelin was forced to close its doors, 
which sent a shockwave through the community of banks in 
Switzerland and bankers in Switzerland that had been engaging 
in facilitating U.S. tax evasion.
    In July 2013, Liechtensteinische Landesbank AG entered into 
a non-prosecution agreement and paid substantial fines. What is 
particularly notable about this case is that we were able to 
take an innovative approach, and with the bank's cooperation 
have Liechtenstein actually change its bank secrecy laws 
retroactively. This enabled the Department to obtain files 
relating to non-compliant U.S. account holders.
    In August 2013, the Department publicly stated that 14 
banks have been authorized for investigation concerning the use 
of Swiss bank accounts. This is in addition to ongoing 
investigations concerning cross-border activities by banks in 
India, Israel, Liechtenstein, Luxembourg, and several Caribbean 
countries.
    A fundamental issue with respect to obtaining cooperation 
from Swiss banks has been the degree to which Swiss law blocks 
disclosure of banking information, including the identity of 
account holders, and for this reason, the Department and the 
IRS engaged in a series of discussions with representatives of 
the Swiss Government.
    On August 29, 2013, the Department announced the program 
for non-prosecution agreements or non-target letters for Swiss 
banks. This program is designed to encourage Swiss banks not 
currently under investigation to cooperate with our law 
enforcement efforts in return for the possibility of non-
prosecution agreements or deferred prosecution agreements.
    I want to emphasize that the program expressly does not 
include the 14 Swiss banks we have targeted and are actively 
investigating. Each of those banks will need to negotiate a 
separate resolution with the Department that reflects the 
severity and the magnitude of its conduct, nor does the program 
offer or provide protection or immunity to any U.S. account 
holders or foreign bankers or other advisors.
    What the program does do is provide an opportunity to banks 
that we currently have little or no information about to self-
report to the Department that they have committed or 
facilitated U.S. tax evasion. By the program's December 31, 
2013 deadline, the Department received letters from 106 Swiss 
financial institutions concerning their intent to participate 
in the program.
    The program requires extensive cooperation by each 
participating bank, including full disclosure of its illegal 
activities, the names of each of its culpable employees and 
third-party advisors, and the number and value of each of its 
U.S. accounts. For the accounts that closed after the 
Department's investigations became public, the banks are 
required to provide information that will allow the Department 
to follow the money. That is, we will be given detailed 
information to enable us to go after Swiss banks and banks 
around the globe to which those secret accounts were 
transferred.
    In addition to this, the terms of the program require 
cooperation. Each of the banks must also pay steep penalties 
calibrated to reflect both the magnitude and the severity of 
the bank's conduct and agree to get out of the business of 
facilitating U.S. tax evasion.
    Every Swiss bank that comes forward to cooperate under the 
program represents an opportunity to obtain valuable law 
enforcement information that is new to the Department and from 
a source which the Department did not previously have. While 
the program does not expressly require the banks to provide the 
identities of account holders, which is barred under Swiss law, 
we will be able to use the information the banks are obligated 
to provide under the program to formulate more effective treaty 
requests to obtain that very information.
    And as one of the requirements for obtaining an NPA or a 
DPA, the banks are obligated to assist the Department in 
preparing such treaty requests, requests that the Swiss 
Government have committed to process on an expedited basis.
    The treaty process is working, to some extent, and we are 
receiving some information. We cannot disclose the details 
publicly, but our success has not escaped notice. Since the 
announcement of the program, the IRS has advised us that they 
have seen an increase in the number of U.S. taxpayers 
participating in their offshore voluntary disclosure program.
    But we believe we could obtain substantially more account 
information if the Senate were to ratify the new treaty known 
as the Protocol Amending the Convention Between the United 
States of America and the Swiss Confederation for the Avoidance 
of Double Taxation with Respect to Taxes on Income, which was 
ratified by Switzerland in September 2009. And as you yourself 
have mentioned, Mr. Chairman, I understand that there is a 
hearing on this treaty this morning before the Senate Foreign 
Relations Committee.
    As I noted earlier, as a result of our enforcement efforts, 
over 43,000 individuals have self-reported that they have held 
secret Swiss bank accounts and paid over $6 billion in back 
taxes, interest, and penalties. In contrast, before 2009 and 
our law enforcement efforts in this area, the average number of 
voluntary disclosures submitted to the IRS ranged from 
approximately 50 to slightly over 100 per year.
    Because the Swiss banks that cooperate under the program 
will provide information about bank accounts globally, anyone 
who has not yet come forward to disclose a secret bank account 
anywhere in the world is on notice that their time is running 
out. The Department is engaged in and committed to robust 
enforcement globally using all available tools to enforce the 
law that we have at our disposal.
    I want to thank you again, Mr. Chairman, for the 
opportunity to appear this morning to discuss our law 
enforcement efforts, and I want to thank you for your strong 
support of this vital law enforcement matter. We are happy to 
answer any questions that you or the other Members of the 
Subcommittee may have. I have given this opening statement on 
behalf of both myself and Ms. Keneally.
    Senator Levin. Thank you so much, Mr. Cole. We will have 10 
minutes for our first round and the subsequent rounds for each 
of us.
    On Page 4 of your statement, your written statement, you 
say the following: A fundamental issue with respect to 
obtaining information about accounts located in Switzerland has 
been the degree to which Swiss law permits disclosure under the 
Convention Between the United States and the Swiss 
Confederation for the Avoidance of Double Taxation with Respect 
to Taxes on Income signed in 1996. And then you say, Swiss 
banks have often contended, in response to our investigations, 
that Swiss law prohibits meaningful cooperation.
    As part of our efforts to obtain information, you say, from 
these banks, the Department and the IRS engaged in a series of 
discussions with representatives of the Swiss Government. Now, 
the bottom line here, and I think the real problem that we have 
is this endless negotiation with the Swiss about their laws 
instead of implementing our laws, year after year after year 
instead of using the tools at our command.
    We had a deal. In 2011, we issued subpoenas to Credit 
Suisse; they have not been enforced. And so, we have tens of 
thousands of names of people who have evaded taxes which Credit 
Suisse has, but what they do is say, Well, we have to go 
through a treaty request because there is a Swiss law that we 
are worried about.
    Well, I am worried about implementing our laws and the 
failure to aggressively use the tools at our command to 
implement our laws. So why is it that you focus, right in your 
testimony, about a series of discussions with the 
representatives of the Swiss Government? Why is that such at 
the heart of what you are doing here, instead of doing what we 
know succeeds?
    And that is what we did with UBS when we blew the whistle 
on them here in this Subcommittee. And then as a result of the 
exposure and as a result of the embarrassment and as a result 
of our investigation with UBS, what they did was basically 
confess error and turn over names, and those names led then to 
a fear of God in the hearts of a whole lot of tax evaders, and 
that is what led to people paying their taxes. It was the fear 
that accompanied UBS' release of names. This is the heart of 
the matter--names, names, names. It is like location, location, 
location for the value of real estate. You have to get names.
    You are going to get--and you talk a lot about this--this 
new program that you have, you are going to get bits and 
pieces. You are going to get leads and those leads will go to 
other banks, and then you are going to have to make treaty 
requests with those banks. Those are goose chases. And what we 
need is to see aggressive implementation by the Department of 
Justice.
    In 2011, Credit Suisse received subpoenas. We do not see 
any enforcement. Now, you have issued a subpoena. You have 
issued a subpoena and you have not enforced it. And I want to 
just say one other thing about these treaty requests. We always 
have not been so willing to rely on treaty process. Now, there 
is value to the treaty process. I hope we ratify the treaty. 
OK? Let me get that clear. It was slightly better criteria. Not 
much, by the way, but slightly better criteria than the old 
treaty does and I hope we ratify it.
    It has also got some holes in it. It does not get us to the 
names before 2009. The major number of names that Credit Suisse 
has, or at least half of the names, are the pre-2009 names. 
They are not covered by this new protocol.
    And then there is something else which has happened. The 
Swiss unilaterally announced in their Parliament that the 
Protocol is not going to apply unless the person who makes the 
treaty request can show that the bank that it seeks the names 
and information from, significantly contributed to a pattern of 
conduct by the very unnamed people. You do not have the names. 
It is a chicken-egg kind of a deal.
    It gives you just the hints and then you have to make a 
treaty request, and then it is against the bank, under a 
unilateral law passed by the Swiss, you have to make a showing. 
And where is the showing made? In a Swiss court. And what have 
the Swiss courts done? They have weakened every effort that we 
have made to pierce their secrecy because bank secrecy is the 
law of Switzerland.
    Now, we have not always been willing to rely on the treaty 
process. Barry Schott, who was a senior IRS official, Deputy 
Commissioner, told a U.S. court the following about these so-
called treaty requests. He said he spoke with the officials of 
the Swiss Government about the treaty requests on January 21, 
2009.
    During that conversation, I learned that the Swiss 
Government had made final determinations to provide the 
requested records for only 12 accounts. They will not provide 
records to the IRS about those 12 accounts until after the 
account holders had been given an opportunity to litigate in a 
Swiss court the Swiss Government's decision to turn those 12 
records over to the IRS.
    In sum, he said to the court, the American court, the Swiss 
Government has not provided any records sought under the treaty 
requests and it is not clear when, if ever, it will.
    Now, it is very clear that the Department has the authority 
right here at home to require the banks to hand over client 
names and account information. It has been established law for 
30 years that a foreign bank operating here in the United 
States served with a grand jury subpoena to provide records in 
its offshore offices--in other words, in its offices back 
home--must obey and abide by that subpoena.
    And the court here, the 11th Circuit Court of Appeals, 
upheld the subpoena and it said in the Bank of Nova Scotia 
cases, this Court simply cannot acquiesce in the proposition 
the U.S. criminal investigations must be thwarted whenever 
there is a conflict with the interest of other States.
    The foreign origin of the subpoenaed documents should not 
be a decisive factor. The nationality of the bank was Canadian 
in that case, but its presence was pervasive in the United 
States. That is true with Credit Suisse. It cannot expect to 
avail itself, the Court said, of the benefits of doing business 
here without accepting the concomitant obligations.
    Now, that is a good law today. It is established that the 
Department has the ability to control our own destiny on these 
matters and we do not always have to play ball with the other 
country and to play on their play field. It has the authority 
and the power to create for itself a direct line of evidence 
that it needs and it wants in order to identify tax cheats and 
the entities that abet them and collect what is owed to the 
U.S. Government.
    That is a much more productive way, it seems to me, and a 
preferable way to move forward than using this frustrating, 
unproductive treaty process, and it has been a proven way to 
get names as seen in the UBS case. So I am going to ask you 
whether or not you accept the decision of the Swiss Parliament 
to unilaterally place limitations on this 2009 protocol.
    Mr. Cole. Mr. Chairman, I want to start out by telling you 
how much I share your frustration in trying to get the names of 
account holders, U.S. taxpayers, who use Swiss banks to try and 
hide their money from lawful U.S. taxes. This has been a source 
of frustration from the day I got into office here as the 
Deputy Attorney General.
    This is why we are using all our tools, because it is tough 
to get through the Swiss secrecy laws. We have gone through the 
analysis of the Bank of Nova Scotia subpoena and what we have 
determined it would give us to enforce it. We have never seen 
one, a Bank of Nova Scotia subpoena, that has actually produced 
an account record from Switzerland.
    What you get, if you try and enforce it, is a contempt 
citation for failure to actually produce from the court with 
fines that will go each day. Many of these financial 
institutions are very wealthy and can afford those fines and do 
not want to run afoul of Swiss law where they are.
    Second, you can only bring one against a company or a 
financial institution that is in the United States.
    Senator Levin. Is Credit Suisse in the United States?
    Mr. Cole. It is.
    Senator Levin. Thank you.
    Mr. Cole. It is. But we raise the UBS example, which I 
think is a good one, because it really informs how we go about 
trying to get through this very frustrating brick wall that the 
Swiss put up.
    In that case, they built a case against UBS, and at the end 
of the day, as I understand how the names came through, it was 
through the resolution of that case, and then ultimately, 
actually, a treaty request that produced the 4,700 account 
names. Many, many more were sought from UBS at that time, but 
only 4,700 were produced, and it was as part of a treaty 
request process in relation to their deferred prosecution 
agreement.
    So what does that tell me about the best way for us to go 
about this? What it tells me is the best way to go about it is 
to build a strong criminal case against the banks in 
Switzerland who are fostering the tax evasion by U.S. citizens.
    And what I have been focusing on is ways that I can go 
about getting information that I can use to build a solid 
criminal case against those 14 banks, and that involves maybe 
not the account records because that seems to be the real brick 
wall, but a lot of the discussions we had with the Swiss were 
about getting the internal bank records, non-account records, 
about how those banks conducted their business, about who the 
employees were in those banks who were fostering and 
facilitating this tax evasion, about who the managers were who 
were operating it and running it and condoning it so that we 
can bring criminal charges here in the United States against 
the financial institutions and against their officers and their 
employees who are doing it, because when you do that, that, the 
lesson from UBS taught us, is how you get account records out 
of the Swiss. Otherwise, they put up their wall.
    Senator Levin. Thank you. My time is up. I want to come 
back to the UBS case when it comes back to me. I guess Dr. 
Coburn was next.
    Senator Coburn. Mr. Chairman, I am going to defer at this 
time. I have another meeting I have to go to.
    Senator Levin. Senator Johnson.
    Senator Johnson. Thank you, Mr. Chairman. I am no lawyer, 
so can you talk to me a little bit about what types of criminal 
charges would you try to bring, and what are the impediments? 
What are the challenges doing that here in the United States 
against a Swiss entity?
    Mr. Cole. Well, there is a whole host of criminal charges 
that you could bring depending on what kind of evidence you 
have from aiding and abetting tax evasion to conspiracy to 
fraud. I mean, there is a whole host. You would have to just 
sit and try to go through what your best alternatives would be. 
But there are a number of provisions in both the Tax Code and 
the Criminal Code that could be used.
    Senator Johnson. And what were the charges, specifically 
criminal charges, brought against UBS? I am pretty new to this 
issue.
    Mr. Cole. I was not here during that time. It ended up 
being a deferred prosecution agreement. I defer to Ms. Keneally 
as to the details of what were the topic of that deferred 
prosecution agreement.
    Ms. Keneally. I also was not here at the time, but I 
understand it was conspiracy to evade taxes in the United 
States.
    Senator Johnson. OK. In the morning hearing, what I was 
trying to establish was kind of the obvious in terms of, why 
does Switzerland have this very huge banking sector and is 
there value there? Is it nice to have some place where people 
can diversify where they hold their money? I am not necessarily 
opposed to that, but obviously totally opposed, as we all are, 
to tax evasion.
    My guess is the reason the Swiss Government is so utterly 
opposed to any kind of transparency is they do not want to 
destroy that safe haven for other countries. So is there some 
way of preserving that safe haven in Switzerland for other 
countries and still allow the United States to get the type of 
information we want so there is no tax fraud?
    Mr. Cole. This is what we are trying to discuss with the 
Swiss. Chairman Levin mentioned the 2009 treaty, which is very 
different in many respects. It is not perfect. It is not going 
to be a panacea that is going to solve every problem. It will 
be another tool.
    Senator Johnson. Let me stop you right there. Talk to me 
about the holes in it, because Senator Levin has certainly been 
talking about that. I mean, what is the primary problem with 
that treaty?
    Mr. Cole. Senator Levin has described what he views as a 
number of the holes. I think there is no treaty that is perfect 
and we just look for as many tools as we can find in order to 
use them all, because we need to come at this problem from a 
number of different angles. There is no one strategy that is 
going to solve this problem. You have to do a number of 
different strategies to try and break through it.
    Senator Johnson. But again, do you have a comment? It 
looked like you wanted to say something, Ms. Keneally.
    Ms. Keneally. Well, I would comment on the treaty process. 
Under the current treaty, we are required to establish fraud or 
the like, which is a Swiss standard that would be higher than 
tax evasion. Under the protocol, it is a relevance standard, 
and under the protocol it is a relevance standard to any tax 
enforcement. So it would give us information both on the civil 
and criminal side. The protocol would enhance our ability to 
get information in those ways.
    To answer your question, Senator, on why--on how to allow 
Switzerland to maintain its banking system for other reasons 
and eliminate this, I think the protocol goes a long way toward 
addressing that issue, as do other steps that Switzerland and 
its banks have taken.
    Senator Johnson. Can you describe how?
    Ms. Keneally. Well, Switzerland ratified the protocol which 
will enable us to get information from its banks in--when we 
need it for tax enforcement reasons in a far simpler approach 
than not. Separately----
    Senator Johnson. But that is going to require us to 
actually have knowledge that there may be some fraudulent 
activity occurring, correct or not?
    Ms. Keneally. Senator, we need to be able to say that the 
information that we are looking for is relevant to our tax 
enforcement efforts. Senator Levin is correct that the Swiss 
did enact this legislation saying that there would need to be 
involvement shown by the banks. We need to ratify the protocol 
and test that.
    But the way we have designed our law enforcement efforts 
under this program that we have for the Swiss banks, those 
banks that we did not already have under investigation and were 
not on our radar screen who have come forward will need to tell 
us what they did and what their wrongdoing was and cooperate 
with us in formulating treaty requests. And we believe that 
will get us the account information, we believe, under the 
current treaty, but certainly more effectively and probably 
more completely under the protocol.
    Senator Johnson. That would not be blanket information. 
That would be, specific taxpayers at a time? Or is that a 
broader requirement?
    Ms. Keneally. Under either the 1996 treaty in effect today 
or the protocol, we can make a request that are known as 
pattern requests. We can describe a kind of conduct or a kind 
of category of accounts and then get the account information 
which would give us the individual account holders.
    Senator Johnson. What percent of the U.S.-based accounts or 
U.S.-owned accounts do you think that would reveal? A high 
percentage? Or would we still be scratching the surface? Would 
we be talking about 238 names out of a list of 22,000?
    Ms. Keneally. I think if you take the standards under the 
protocol and combine it with the information that we expect to 
receive from the banks through the bank program that we have 
set up, it would be a very high percentage of the accounts that 
are currently in Switzerland, and we would also be getting 
information about accounts that closed and were transferred. I 
think we would get a very high percentage through these two 
mechanisms and the interaction between the two of them.
    Senator Johnson. Now, earlier, obviously, we had a hearing 
with Credit Suisse and they have actually reduced the number of 
U.S.-held or U.S.-owned accounts pretty dramatically. What are 
the facts on the ground with the other banks? Have other banks 
taken similar action that you are aware of?
    Mr. Cole. We are a little limited on what we can talk about 
that we have learned in the course of our investigation because 
these are banks that are currently under investigation, and we, 
in a long rule, both from statutory secrecy rules, grand jury 
secrecy rules, and long-standing Department of Justice rules, 
do not talk about all the things we are finding in a lot of 
these investigations.
    Senator Johnson. Have you developed an estimate of how many 
dollars or how many Americans, how many dollars have Swiss bank 
accounts and how much is invested there? Do you have any 
estimate at all?
    Mr. Cole. There have been a lot of numbers thrown out, 
Senator, and I think----
    Senator Johnson. A range?
    Mr. Cole. I am not sure exactly what the range would be and 
how valuable it would be. I think we would want to measure it 
more by how many dollars we bring in. From the voluntary 
disclosure program so far, we have gotten $6 billion and that 
number is growing every day. Since we established this latest 
program, the numbers in the voluntary disclosure are going up 
significantly. So we are looking forward to that number going 
up. It will be a post-view that will tell us how much.
    Senator Johnson. I understand that, but again, I would 
think you would be making some kind of estimate. Have you been 
50 percent effective in terms of that voluntary program? Do you 
think maybe the outstanding liability would be $12 billion? Is 
it 1 percent and is it going to be even higher?
    Mr. Cole. I will let Ms. Keneally talk about it but some of 
it is you do not know what you do not know.
    Senator Johnson. I understand.
    Mr. Cole. We do not know how many people really put that in 
there. If we knew, we would be a lot better off because we 
would have more information about what is there. We know it is 
a sizable number.
    Senator Johnson. Ms. Keneally.
    Ms. Keneally. Senator, all I can say on that is we set this 
program in place in late August and 106 Swiss financial 
institutions came forward. If you had asked me in August or 
September, I would not have anticipated 106 to come forward. So 
I have to agree with the Deputy Attorney General, I do not know 
what I do not know.
    Senator Johnson. One hundred six out of how many? What is 
the total universe there?
    Ms. Keneally. Somewhat over 300 is the total universe.
    Senator Johnson. OK, so about a third.
    Ms. Keneally. About a third. I would hope that it is true 
that not every Swiss bank engaged in this kind of conduct. So I 
think about a third was a remarkable response to the program.
    Senator Johnson. But again, you are saying that the 
Department of Justice has made no estimate whatsoever in terms 
of the dollar amount of assets held in Swiss bank accounts? We 
really do not--not even give a guesstimate?
    Mr. Cole. We really do not. It would be pure speculation.
    Senator Johnson. Are you aware of any other agency that has 
done so?
    Mr. Cole. Not offhand.
    Senator Johnson. OK, I have no further questions.
    Senator Levin. Thank you, Senator Johnson. Senator McCain.
    Senator McCain. Thank you, Mr. Chairman. I thank the 
witnesses for being here.
    In the previous panel, Credit Suisse took great pains to 
assert the narrative that after UBS they fully cleaned up their 
act. They would have done even more if the 2009 protocol had 
been ratified or FATCA had been finalized. I believe that 
narrative glosses over the years of widespread misconduct 
across the Bank.
    They asserted that they would have turned over the names of 
the tax-evading account holders but they were prevented from 
doing so by Swiss bank secrecy laws.
    However, it appears that FATCA loopholes in the 2009 
protocol will not permit U.S. authorities to get names for 
accounts closed before 2009. This means it is highly unlikely 
the United States will be able to collect much of the lost tax 
revenues from the billions hidden overseas. I do not buy their 
narrative. The American people should not, nor should the 
Department of Justice, Mr. Cole.
    I ask that you keep in mind and use all already available 
legal tools at your disposal rather than relying on the treaty 
process.
    So I guess my first question, Mr. Cole, is it not true 
that, even if the Senate ratifies the 2009 protocol to amend 
the Convention between our two countries for the avoidance of 
double taxation, the Justice Department will be no closer to 
obtaining information for non-compliant bank accounts closed 
prior to 2009?
    Mr. Cole. Senator, that is true. The 2009 treaty only 
applies to matters and situations after the September 2009 time 
that it was put into place.
    Senator McCain. So basically, we will never--certainly in 
the way we are approaching it now, have information about non-
compliant bank accounts prior--that were closed prior to 2009?
    Mr. Cole. I do not think that is necessarily the case, 
Senator, because I----
    Senator McCain. How do you do that, then?
    Mr. Cole. Because the program that we have is going to 
require that banks, even prior to 2009, going back into 2008, 
provide us with the information about accounts that will enable 
us to make much more effective treaty requests----
    Senator McCain. Going back to 2008.
    Mr. Cole. That is right.
    Senator McCain. One year.
    Mr. Cole. It is an additional year, that is correct.
    Senator McCain. That is good.
    Mr. Cole. And many of those accounts were there in 2008 and 
had been there for quite a bit of time. It was not until, 
frankly, later in 2008 that the accounts really started to 
move.
    Senator McCain. So you are saying you will be able to 
obtain information for non-compliant bank accounts closed prior 
to 2009?
    Mr. Cole. That is our hope. That is the goal we have with 
this program, yes.
    Senator Levin. For the one year?
    Mr. Cole. Well, we think that many of those accounts will 
have been in place for longer than just 2008. They will have 
been----
    Senator McCain. You think that----
    Mr. Cole. We think that.
    Senator McCain. But the fact is, you will not be able to go 
back before that.
    Let us move on here a second. The Justice Department's 
voluntary disclosure program allows banks to enter into non-
prosecution agreements, avoiding a conviction or going to 
trial. Doesn't this change the risk/reward equation for 
complying with U.S. tax laws?
    Mr. Cole. I do not think it does, Senator. A couple of 
things that need to be kept in mind about this program. One, it 
is only applying to banks that we really did not have any 
information about. These banks were not on our radar screen. 
The vast, vast majority of them have no presence here in the 
United States at all, so there is not any tools that we would 
have that we could really use.
    The 14 banks are not covered. Individuals are not covered. 
We are going to get, first, a lot of information from these 
banks that will help us prosecute their employees and their 
officers. Second, we are going to get a lot of penalties from 
them, a lot of money, which is what this is all about. Third, 
we are going to get information that will help us do treaty 
requests in a better way because there is the proverbial wall 
that the Swiss keep putting up.
    And all of this is, in fact, going to lead us to a lot of 
different beneficial avenues.
    And the final one is they are contacting their bank account 
holders, who are U.S. citizens, and telling them that they are 
going to be providing this information and it is causing 
increases in the voluntary disclosure to the IRS and the U.S. 
people coming in, paying their taxes, their penalties and their 
interest. So it is having those effects.
    The only thing we are not getting--and this is the thing we 
have always had a problem with--is the name of the account 
holders. But we are trying to get another set of tools to help 
us break through that wall.
    Senator McCain. In the last nearly 5 years your Department 
has achieved a plea of guilty from one out of the 14 banks 
under investigation. True?
    Mr. Cole. That is correct.
    Senator McCain. So 5 years----
    Mr. Cole. Not of the 14 necessarily. We have achieved a 
plea of guilty from one bank, which is Wegelin. We had an 
agreement with the Liechtenstein Bank. And we have an 
additional 14 Swiss banks, and that is not counting others that 
may be there, as well.
    Senator McCain. You have 14 banks that you have gotten a 
plea of guilty from?
    Mr. Cole. No, that we are in the process of investigating.
    Senator McCain. Over 5 years.
    Mr. Cole. I would not say it is necessarily over 5 years. 
There is periods of time----
    Senator McCain. Well, over 5 years you have gotten one 
guilty plea; right?
    Mr. Cole. Well, if you go back 5 years, you would include 
UBS, which was a preferred prosecution case.
    Senator McCain. Since UBS----
    Mr. Cole. Since UBS----
    Senator McCain. Let us not quibble here, Mr. Cole. Since 
UBS, you have had one plea of guilty.
    Mr. Cole. That is correct, Senator.
    Senator McCain. So over the next 5 years, can we then count 
on two? The fact is that you have been incredibly slow over a 
5-year period since UBS, getting one guilty plea and--my 
understanding is--14 banks under investigation.
    Now if you think that is progress, fine. I do not.
    Ms. Keneally, do you think that is progress over 5 years? 
One plea of guilty out of 14? And of course, over a 5-year 
period, we cannot discuss ``ongoing investigations''; right? We 
cannot discuss any of these other 13 because they are ``ongoing 
investigations'' that have been going on for 5 years. I have 
seen that movie before.
    Go ahead.
    Ms. Keneally. Senator, just to clarify, Wegelin is not one 
of the 14. So there are 14 banks under investigation.
    To specifically answer your question, yes, I do think it is 
progress. A number of those banks have----
    Senator McCain. You think it is progress?
    Ms. Keneally. A number of those banks have come under 
investigation only recently. The majority----
    Senator McCain. Why only recently?
    Ms. Keneally. The majority of those banks do not have a 
U.S. presence. It takes time to find out what is going on.
    Senator McCain. It takes 5 years.
    Ms. Keneally. It takes time to find out what is going on in 
activity that is secret.
    Senator McCain. I disagree. I disagree, and so would any 
objective observer. That is not progress when nearly 5 years 
goes by and you have one bank.
    Mr. Cole. Senator, if I may----
    Senator McCain. Yes, go ahead.
    Mr. Cole. You also have 73 account holders who have been 
charged.
    Senator McCain. How many?
    Mr. Cole. Seventy-three.
    Senator McCain. Seventy-three out of the estimate of 
23,000----
    Mr. Cole. Thirty-five professionals.
    Senator McCain [continuing]. I think it is.
    Mr. Cole. Thirty-five professionals who are bankers and 
financial advisors. So it is not just one bank with a guilty 
plea. There have been many charges.
    We are talking about people who are taking great pains to 
hide what they are doing. It takes time----
    Senator McCain. Excuse me, it was only----
    Mr. Cole [continuing]. To disclose that.
    Senator McCain. It was only 22,000 accounts that Credit 
Suisse alone had, and you have gotten how many? Three hundred, 
did you say?
    Mr. Cole. I am not saying they are all from Credit Suisse, 
73 account holders have been prosecuted.
    Senator McCain. Then there is many thousands more?
    Mr. Cole. There may well be and we are trying to find out 
who they are, Senator.
    Senator McCain. And you are doing a job that, frankly, has 
not shown any progress. That is the point, Mr. Cole. And if you 
want to sit there as a witness and say that one bank has been 
guilty over nearly 5 years, that of the 22,000 accounts just in 
Credit Suisse--and you say you have gotten how many, 300? Is 
that what you said?
    Mr. Cole. No, I did not say that.
    Senator McCain. Mr. Cole, the taxpayers' dollars are not 
well spent by the way that you and your organization and you, 
Ms. Keneally, have been pursuing these individuals. And I still 
do not get it. If somebody comes forward and then just agrees 
to pay their taxes, even though they have been violating law, 
all is forgiven. That is not my idea of incentive for people to 
do the right thing.
    So you have seen 106 Swiss banks file a letter of intent, 
Ms. Keneally, to enter into the Justice Department voluntary 
disclosure program, which will allow these banks to avoid 
prosecution in court. As to those banks that profited 
considerably from their wrongdoing, how do you justify that? 
Banks--they made a lot of money off of these depositors.
    Ms. Keneally. Senator, the program is designed to have 
those banks pay penalties that will be higher than the money 
that they made. The program has very steep penalties that are 
based on the amount of U.S. assets that were under management 
and not disclosed to the United States. The program is designed 
to have those banks provide us with information that will lead 
to other wrongdoing and will further our investigations. The 
program is motivating taxpayers into voluntary compliance.
    We may disagree on this, but 43,000 people coming forward 
and becoming compliant taxpayers voluntarily, to me, is a very 
meaningful thing. And the program is motivating more people in. 
Those 43,000 people have paid not just the back taxes but 
penalties and interest that is now well over $6 billion.
    So I see all of these tools working to that result.
    And again, Senator, the 106 banks are banks we did not know 
about. So they have come in.
    Senator McCain. Maybe we should have. Maybe we should have 
known about them.
    Thank you, Mr. Chairman.
    Senator Levin. Thank you.
    Let us just go through a few more numbers here.
    Since 2009, either one bank or no banks of the 14 that were 
under criminal investigation have been indicted, depending on 
whether you count Wegelin. Now Ms. Keneally, you said Wegelin 
was not one of the 14, but whether it was or not--by the way, 
it did not have a presence here in the United States. 
Nonetheless, it was indicted and then pled guilty.
    So your point, Mr. Cole, about you have to have a presence 
here in the United States if we are going to be using our tools 
against you, the one example we have was not the case because 
Wegelin did not have a presence here in the United States.
    You also said that 38 bankers have been indicted. Is that 
correct?
    Mr. Cole. I think it is 35.
    Senator Levin. And how many convicted?
    Mr. Cole. I will give that to Ms. Keneally, as to the exact 
number.
    Senator Levin. How about four?
    Ms. Keneally. If four is the number in our testimony, then 
the number is five as of today.
    Senator Levin. OK, so five out of 30----
    Ms. Keneally. One more pled guilty today, so the number--if 
four is the number, then five would be the number today.
    Senator Levin. Out of how many?
    Mr. Cole. Thirty-five.
    Senator Levin. Now most of those would require extradition; 
is that correct?
    Mr. Cole. That is correct.
    Senator Levin. And have you sought extradition?
    Mr. Cole. We have not filed an extradition request because 
we have been, through our experience in our Office of 
International Affairs, the Swiss will not extradite their 
citizens. So we have been focusing our efforts on things we 
thought would be more productive.
    Senator Levin. But there is no prohibition on our 
requesting extradition?
    Mr. Cole. There is not.
    Senator Levin. And wouldn't we make a pretty clear point 
about our determination also about the Swiss being unhelpful if 
we file a request for extradition, in a criminal case, for 
people who have operated in the United States. If the Swiss 
reject that, that says something about their willingness to 
cooperate. But the failure to even seek extradition says 
something about our willpower.
    In any event, we have not sought extradition for any of 
them.
    Now, in terms of 73 account holders being--I think that was 
the number you used--being found guilty or pleading guilty, 
that is out of--my numbers are 74,000 that we had from UBS and 
Credit Suisse together: 52,000 UBS; 22,000 Credit Suisse. So 73 
account holders is out of 74,000 possibilities of names we did 
not get.
    So this is all about names. And so I want to go back to the 
UBS issue. We got names from UBS and that is what started this 
flood that you have talked about, of all these voluntary 
payments. It was the threat that their names would be disclosed 
following UBS that began the flood.
    With UBS, one of you said that we got the names through a 
treaty process. That is really very inaccurate except 
technically because, as a matter of fact, the treaty process 
was not working. The testimony that I read before was testimony 
about the failure of the treaty process in that matter.
    And it was only because there was criminal evidence in the 
United States, related to an indictment that was going to be 
issued against UBS, and the fear of that indictment led to a 
deferred prosecution agreement because the treaty process was 
not working.
    So now you have a deferred prosecution agreement with UBS. 
And then a John Doe summons, another one of the tools in our 
toolkit, was requested because the treaty process was not 
working.
    And then, and only then, the Swiss agreed to release the 
names ``under the treaty process'' because it believed that the 
results under either the deferred prosecution agreement or the 
John Doe summons--would have been worse for the Swiss.
    So it really is inaccurate for you to say that it was the 
treaty process in UBS that worked. It was the failure of the 
treaty process in UBS to work that led us to use the tools, the 
threat of indictment, and the John Doe summons request, that 
led then to the UBS outcome. And it was that outcome again--and 
it was acknowledged by Credit Suisse this morning--it was the 
UBS outcome, and this Subcommittee frankly going after UBS, 
that led to that outcome.
    But it was that outcome, not driven by a treaty process, 
but by a failure of the treaty process and the willingness then 
of the Department of Justice to use the very strong tools that 
are available to you.
    Mr. Cole. May I answer that?
    Senator Levin. Sure.
    Mr. Cole. I think that is what I was trying to--if I did 
not convey that that clearly, Senator, that was what I was 
trying to say is that UBS was, in fact, the model. That it was 
the threat of building a strong case that produced those 
records and that it was not a grand jury subpoena that got 
them----
    Senator Levin. But it was not the treaty process.
    Mr. Cole. Well, it ended up--as I believe I testified----
    Senator Levin. Technically.
    Mr. Cole [continuing]. Technically it was the treaty 
process, but it was the threat of the criminal process that got 
it.
    Senator Levin. There you go.
    Mr. Cole. Which is why I am focusing, and the Department of 
Justice is focusing its efforts, on trying to build the 
criminal cases against the 14. Because we think that is what is 
going to work.
    Senator Levin. But you issued indictments against Credit 
Suisse in 2011. It is now 2014.
    Mr. Cole. It was indictments against individuals.
    Senator Levin. OK, in 2011.
    Mr. Cole. Right.
    Senator Levin. It is 2014. What is going on with Credit 
Suisse?
    Mr. Cole. Senator, there is a lot that I cannot talk 
about--about what it is we are investigating. And as you and I 
discussed yesterday when we met, we explained that we cannot 
talk about the cases that we have pending and what we are doing 
with those in public forums. We cannot do that. That is not 
allowed.
    Senator Levin. All right.
    Now let us then talk about this new treaty again. Is it not 
true that the Swiss Parliament, after this new treaty was 
entered into, passed a law which put up a barrier to the 
usefulness of this new treaty? Is that correct?
    Mr. Cole. That is my understanding and I think the treaty 
is helpful but it is not going to solve every problem.
    Senator Levin. Well, the Swiss went ahead and passed laws 
unilaterally which created a barrier to the use of the treaty, 
saying that the effort to collect names must show a significant 
contribution by the bank to a pattern of conduct, by the very 
unnamed people who we do not know the names of.
    Now what protest did we make, if we did, when the Swiss 
passed a law which nullifies some of the value--to the extent 
there is value--in the new treaty? Did we tell the Swiss, hey, 
that is inconsistent with the law, the treaty that you agreed 
to?
    How do you expect to get a treaty ratified in the Senate--
and I am all for it, by the way, for whatever value it has; it 
has some--but how do you expect to get that ratified if the 
other party, the partner to that treaty, then unilaterally 
passes a law which nullifies part of the value of the treaty?
    Did you protest to the Swiss?
    Mr. Cole. Did I personally? No.
    Senator Levin. Did the government, our government, protest?
    Mr. Cole. I do not know.
    Senator Levin. Should we not know? Should you not know? Do 
you know, Ms. Keneally?
    Ms. Keneally. I know that in designing the program, we 
took----
    Senator Levin. Do you know whether we protested to the 
Swiss when they passed the law which nullified part of the 
treaty?
    Ms. Keneally. I do not know if we formally protested----
    Senator Levin. How about informally?
    Ms. Keneally. I know that I raised the issue with the 
Swiss.
    Senator Levin. Yes, but you do not know whether our 
government has?
    Ms. Keneally. I do not know whether the government has. I 
know that I took it into account in how we designed the program 
so that we will be able to get the information through treaty 
requests based on the information that the banks need to give 
us under the Swiss bank program.
    Senator Levin. You took it into account? You accepted that, 
what they did?
    Ms. Keneally. Senator--I--we thought through----
    Senator Levin. I know, but----
    Ms. Keneally. What information we needed to make effective 
treaty requests and we are requiring that of the banks. We did 
not do that in a vacuum. We were aware of what positions the 
Swiss had taken in terms of how their treaty system would work.
    Senator Levin. Does that unilaterally created hurdle create 
a problem for us of any kind?
    Ms. Keneally. Again, Senator, I----
    Senator Levin. Is that a problem? You objected to it, I 
assume, informally. Is that because it was improper for them to 
unilaterally try to change a treaty?
    Ms. Keneally. Senator, I would defer to those in the 
government who are responsible for the treaty process. In this 
case, I believe that would be Treasury. I did what I thought we 
needed to do for law enforcement, which was to build into the 
program the ability to get the information that we need to make 
effective treaty requests.
    Senator Levin. OK.
    [Pause.]
    We have shown a chart this morning, I guess you may not 
have been here for it, Exhibit 1a\1\ in your book. It shows 
that since 2011, Credit Suisse has turned over to the United 
States 238 accounts with U.S. client names out of the 22,000 
U.S. customers with Swiss accounts, which is less than 1 
percent of the relevant accounts.
---------------------------------------------------------------------------
    \1\ See Exhibit No. 1a, which appears in the Appendix on page 329.
---------------------------------------------------------------------------
    The Department of Justice never apparently tried to enforce 
a subpoena against Credit Suisse, although they issued 
subpoenas that were not complied with. And they never worked 
with the IRS to issue a John Doe summons to Credit Suisse to 
get records from Switzerland.
    Looking more broadly, all 14 banks under investigation for 
facilitating U.S. tax evasion, we have seen no grand jury 
subpoenas enforced, no John Doe summons issued to get the bank 
records in Switzerland, and less than 250 accounts from the 
Swiss with U.S. client names during that period.
    Would you call that experiment a success?
    Mr. Cole. Senator, I think as I have said a couple of times 
here, I have not seen Bank of Nova Scotia subpoenas, frankly, 
or John Doe summons on their own be very successful----
    Senator Levin. Not on their own, but they have been 
helpful, have they not?
    Mr. Cole. They set up a situation where if you have--
frankly, you look at the UBS model again. If you have 
sufficient leverage from the criminal prosecution end, then 
maybe you can use those vehicles as the formality with which to 
get this. But without that, I have not seen them produce Swiss 
account records. And that has been the frustration, is that 
they do not.
    So we try and build our cases against the individual 
institutions to hope that that will, in fact, try to blast out 
some of the account records because that seems to be what it 
takes.
    Senator Levin. It is difficult for me to accept that, when 
you do not try to enforce a subpoena, when you do not go to a 
court when you have a subpoena which you have issued, to 
enforce it to get records, to help put the pressure on a bank. 
They are not going to want, for instance, lose their 
accreditation here in the United States if they are in 
violation of an order of a court to produce records.
    Mr. Cole. I am not sure. That is not part of the Justice 
Department rulings, to lose their accreditation. But I am not 
sure that if they are not complying with a subpoena because 
they have received a blocking order from their home country, 
that that is going to cause them to lose their accreditation. 
These are things where there----
    Senator Levin. I am not sure either. At least I think it 
might. What do you think? Do you think it might? Could it?
    Mr. Cole. My experience, Senator, is what happens is they 
get a fine per day that they are not in compliance from the 
court, and that that goes on for an appreciable period of time 
and does not result in getting the records.
    What I would rather do is have the resources----
    Senator Levin. Yes, but have we sought to have their 
registration revoked in the United States for any bank for 
failure to follow a court order to produce records?
    Mr. Cole. I am not aware of that.
    Senator Levin. Have you tried?
    Mr. Cole. What I have tried----
    Senator Levin. These banks operate in the United States. 
They come here, they get clients here. OK? They have to operate 
according to our laws. And if they do not operate according to 
our laws and disclose client information, then it seems to me 
our laws have been violated.
    You go to a court. You say we want to see those documents. 
We want those names. You are entitled to them against every 
American account holder in an American bank.
    And so now you are telling me that, that a court will 
enforce the subpoena. You know that. But you do not know what 
the implications are, in terms of a bank losing its license to 
operate in the United States.
    Frankly, you ought to know what it is. And we ought to 
argue. We ought to raise the fear of God that if you are going 
to aid and abet violations of American law, you are not going 
to be allowed to operate in America.
    And I do not see that kind of a passion from you. I just do 
not see it.
    Mr. Cole. Well, these are the issues that come out of the 
Treasury Department and the Fed, who control banks' abilities 
to operate in the United States.
    Senator Levin. I know, but do you not ask them whether or 
not they might consider revoking a license to operate here in 
the United States if an order of a Federal Court is ignored? Do 
you ask the Fed?
    Mr. Cole. Senator, again, there is a lot of things that we 
cannot talk about that we are involved in in our 
investigations.
    Senator Levin. Well, you can tell me whether or not you 
asked the Fed to revoke a license of a bank which is in 
violation of a U.S. court order. You can tell me that without 
identifying the bank.
    Mr. Cole. We are constrained from talking about the 
procedures we use, the tactics we use, things of that nature.
    Senator Levin. You are not constrained about talking about 
whether or not, as a policy, you go to the Fed if there is a 
violation of a court order and urge the Fed to withdraw a 
license. There is no possible constraint on you. You are not 
identifying somebody or a bank. You are talking about a policy 
here. And that is the problem. We do not sense that kind of 
urgency here.
    We collected $6 billion when Americans who had been 
avoiding and evading taxes they should not have been avoiding. 
They are evading their taxes, their obligations to the people 
of the United States, to their own countrymen.
    And they run overseas and they put this money in banks and 
they hide it. And a lot of them are going to get away with it. 
And the ones that came forward, those 43,000, came forward 
because they were afraid, after UBS, that their names might get 
out there. That is what it is. It is just that simple.
    And so, if nothing has happened since 2011 when indictments 
were issued, then there is a lag in this feeling on the part of 
these tax evaders that something is going to happen, they are 
going to pay a price. They have to fear that. They should fear 
it.
    Mr. Cole. They do, Senator, and the numbers are going up 
right now as we sit here.
    Senator Levin. I know, they are going up. How much are they 
going up?
    Mr. Cole. Substantially. We are getting 400 or 500 a month.
    Senator Levin. Four hundred or 500, great. And is it 
because then there is some fear?
    Mr. Cole. Yes.
    Senator Levin. Can you add to the fear?
    Mr. Cole. We are trying to.
    Senator Levin. By what publicly? By what?
    Mr. Cole. By trying to bring cases. By trying to 
investigate things that people are hiding.
    Senator Levin. You cannot talk about cases.
    Mr. Cole. When we finally bring cases, they will be talked 
about, Senator.
    Senator Levin. I will tell you, the $6 billion that was 
produced was the result of a tough enforcement action that 
worked, and the threat of an indictment and the John Doe 
summons against UBS. Even Credit Suisse acknowledged that this 
morning. They were very clear about it.
    It was the UBS model. And we do not see that model being 
used, using our enforcement techniques.
    Let me go on into the next question. Would you agree that 
the goal----
    Ms. Keneally. Senator, can I comment on what scares 
taxpayers?
    Senator Levin. Sure.
    Ms. Keneally. Because before I was in this position, I 
represented taxpayers who came in through the voluntary 
disclosure program. And without question, the concern that 
names were going to be turned over by UBS scared taxpayers. But 
they are scared today because they know that we are getting 
names. We are getting names through treaty requests. We are 
getting names through cooperators. We are getting a lot of 
information.
    We are getting information through John Doe summons that we 
are serving on U.S. banks for the correspondent accounts of 
offshore banks. That is an easy tool that we are using now 
because those records are in the United States and those banks 
cooperate almost immediately.
    Senator Levin. Of course they do. They are in the United 
States. We are talking about names of accounts outside of the 
United States where American--some Americans who do not want to 
be full Americans, and instead they want to evade their 
obligations--get involved in tax evasion.
    The accounts in the United States are the easy ones. I 
agree with you on that.
    Ms. Keneally. But no, these are not accounts that are not 
in the United States.
    Senator Levin. They are correspondent accounts----
    Ms. Keneally. These are records in the United States----
    Senator Levin [continuing]. For records in the United 
States.
    Ms. Keneally [continuing]. Of transactions in foreign 
banks. They are not U.S. account records. They are foreign bank 
records.
    Senator Levin. With correspondent accounts, you said, in 
the United States.
    Ms. Keneally. They are correspondent accounts in the United 
States. It is a very powerful tool.
    Also, Senator, in the program we built in an incentive to 
the banks to drive their remaining account holders into the 
voluntary disclosure program.
    Senator Levin. And I know, and Mr. Cole made reference to 
that before.
    Ms. Keneally. And so Senator, there are a lot of things 
that motivate taxpayers into that voluntary disclosure program 
and we are doing those things.
    Senator Levin. Now the finance minister of Switzerland and 
president of the Swiss Confederation in 2012 said ``It is 
important for us''--for them--``to be able to let the past be 
the past.''
    Are we going to take that attitude toward people who have 
evaded taxes and who owe Uncle Sam money? Is that our attitude?
    Mr. Cole. It is not our attitude, Senator. And when they 
said that to us, when we were having discussions with them, we 
said that is not the case here.
    Senator Levin. Good. I am glad you brought it to their 
attention.
    In February 2011, the Department of Justice indicted four 
Credit Suisse bankers for participation in an ongoing 
conspiracy to defraud the government of tax revenue. In July of 
that year, a superceding indictment charged three more Credit 
Suisse bankers, as well as a corporate service provider who was 
a former Credit Suisse employee.
    According to the indictment, the Credit Suisse bankers were 
coming here to the United States, facilitating tax evasion, 
violating our securities laws. At about the same time, Credit 
Suisse announced that it had received a target letter from the 
Department of Justice.
    The U.S. Attorneys' manual indicates that a target letter 
is a very serious matter. It states that a target letter is 
only sent to: ``A person as to whom the prosecutor or the grand 
jury has substantial evidence linking him or her to the 
commission of a crime and who, in the judgment of the 
prosecutor, is a putative defendant.''
    So a target letter was sent to Credit Suisse, they say. I 
do not know whether you can confirm that or not? Do you want to 
confirm that?
    Mr. Cole. I cannot confirm it.
    Senator Levin. They said it was and acknowledged it again 
today.
    If it was sent, would that have presumably met the 
standards for a target letter? If it was sent, do you presume 
it met those standards that I just read?
    Mr. Cole. When the Justice Department sends out target 
letters, it is because we meet the standard in the U.S. 
Attorneys' Manual. But it does not necessarily mean that we 
have sufficient evidence to go into court and win the case----
    Senator Levin. Of course.
    Mr. Cole [continuing]. And fully expose the complete 
breadth and scope of the misconduct that any particular 
putative defendant may have engaged in.
    Senator Levin. Of course, but it means you have substantial 
evidence.
    Mr. Cole. That is correct.
    Senator Levin. And that substantial evidence is enough that 
it could lead to summons and indictments.
    Mr. Cole. It can, but you want to make sure that if you 
pull the trigger and indict somebody that you are ready to go 
to trial and you are ready to describe the full breadth and 
scope of their conduct.
    Senator Levin. And there is also, however, a fear of an 
indictment, is there not? Particularly of a bank that has a 
widely known name around the world and wants to maintain its 
reputation? That also exists, too, does it not?
    Mr. Cole. As a general matter, financial institutions are 
afraid of being indicted.
    Senator Levin. Now, take a look, if you would, at Exhibit 
32b\1\ in your book.
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    \1\ See Exhibit No. 32b, which appears in the Appendix on page 707.
---------------------------------------------------------------------------
    [Pause.]
    Mr. Cole. Yes, Senator.
    Senator Levin. What is this?
    Mr. Cole. This is a draft of a position that the Department 
of Justice was taking in the course of our discussions with the 
Swiss. It is not what was actually communicated.
    Senator Levin. I am going to show you what we think is the 
final document. We did not have it until last night, but we 
will show it to you now.
    [Pause.]
    What is that document that I showed you?
    Mr. Cole. This is a final copy that was communicated to the 
Swiss in regard to some negotiations that they were having with 
the IRS.
    Senator Levin. Is this the one that led to that test case 
in November 2011?
    Mr. Cole. I am not sure. I do not believe so----
    Senator Levin. Is this an agreement----
    Mr. Cole [continuing]. Because I do not think this was sent 
until December 2011.
    Senator Levin. In any event, was this an agreement between 
us and them?
    Mr. Cole. No, it was not an agreement.
    Senator Levin. Is this our statement or their statement?
    Mr. Cole. It is our statement.
    Senator Levin. And it says, down in the middle there, ``The 
records need not identify account holders.''
    Mr. Cole. At this point, what we were trying to do is the 
Swiss were not even allowing the banks to produce to us their 
own corporate records. Forget about account holder records, we 
were trying to get corporate records so we could build our 
criminal cases against the banks.
    This was another block that the Swiss were throwing up 
against us and we were, at that point, trying to work to get 
some freedom from them to give those records over.
    And so this really focuses on that aspect of it so we could 
build our criminal cases in the investigation.
    Senator Levin. In any event, this is not an agreement?
    Mr. Cole. It is not.
    Senator Levin. There was a treaty request on September 26, 
2011 seeking Credit Suisse account records; is that correct?
    Mr. Cole. I believe that is--well, I will refer that to Ms. 
Keneally.
    Senator Levin. Is that correct?
    Ms. Keneally. My understanding is under Section 6105 of the 
Internal Revenue Code we cannot discuss specific treaty 
requests or responses.
    Senator Levin. OK.
    Did we, at some point, have a test of the Swiss 
Government's intent and ability to provide U.S. client names? 
Did we ever have a test case with them?
    Ms. Keneally. Senator, I would have two problems responding 
to that. One would be timing. I would not--whether it happened 
on my watch or not. And second, again, I think it would be 
blocked by Section 6105.
    Senator Levin. You cannot tell us that either?
    Ms. Keneally. That is my understanding, yes, Senator.
    Senator Levin. Go back then and look at the document, if 
you would, that I showed you there. Take a look at paragraph 
three of that document.
    [Pause.]
    ``To assess the feasibility of such agreements, DOJ needs--
and the Swiss government reasonably expects to produce by 
February 14, 2012--complete, unredacted account records for 
100-150 accounts covered by the September 26, 2011 treaty 
request.''
    Do you see that?
    Ms. Keneally. If that is directed to me, I see it. Yes, 
Senator.
    Senator Levin. So there is--that is our document; right?
    Ms. Keneally. That is my understanding. Yes, Senator.
    Senator Levin. So we make reference there to a treaty 
request.
    Ms. Keneally. Yes, it does, Senator.
    Senator Levin. Does this violate the law?
    Ms. Keneally. I do not know, Senator. And I do not have 
personal knowledge of the document or the treaty request.
    Senator Levin. Then let me ask you, Mr. Cole. You are 
familiar with this document?
    Mr. Cole. I am familiar with it, yes.
    Senator Levin. There is a reference here: ``To assess the 
feasibility of such agreements, DOJ needs--and the Swiss 
government reasonably expects to produce''--even though this is 
our document--``by February 14, 2012--complete, unredacted 
account records for 100-150 accounts covered by the September 
26, 2011 treaty request.''
    Right? So it is public that there was a treaty request?
    Mr. Cole. It is not public that there was a treaty request 
and this was not a public document. And what the Swiss were 
saying is let us show you that we can produce some account 
records to you.
    Senator Levin. Well, it is a public document now.
    Mr. Cole. Not that we made public, Senator.
    Senator Levin. No, but it is a public document now.
    Mr. Cole. Yes.
    Senator Levin. And so, according to this document, we were 
seeking account records for 100 to 150 accounts covered by a 
treaty request. Right? Am I reading it correctly?
    Mr. Cole. That is what it says, Senator.
    Senator Levin. But you cannot confirm that is what we were 
seeking?
    Mr. Cole. I cannot confirm the treaty request. I can 
confirm that we were talking with the Swiss at that time to see 
if they could produce account information, as a test to see if 
what they were saying was, in fact, valid.
    Senator Levin. Take a look at Exhibit 33,\1\ if you would.
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    \1\ See Exhibit No. 33, which appears in the Appendix on page 711.
---------------------------------------------------------------------------
    [Pause.]
    Can you tell us what this document is?
    Mr. Cole. I do not know what it is, Senator.
    Senator Levin. You do not?
    Mr. Cole. No.
    Senator Levin. It is on Department of Justice Tax Division 
stationery?
    Mr. Cole. That is correct.
    Senator Levin. OK. Do you know John Dicicco?
    Mr. Cole. Yes. He used to be the Principal Deputy Assistant 
Attorney General for the Tax Division. He was the Acting 
Assisting Attorney General for the Tax Division.
    I saw this yesterday for the first time so I do not really 
know what it is.
    [Pause.]
    Senator Levin. In March 2012, the United States indicted 
the Wegelin Bank, which is a small Swiss-based bank. And the 
President of Switzerland, I believe, is quoted in the press as 
saying that the Swiss Government was ``very surprised'' by the 
indictment because we that is, the Swiss, understood there to 
be an implicit agreement that they would not do something like 
that during the negotiations.
    Mr. Cole. That was not our understanding, implicit or 
explicit.
    Senator Levin. All right, so there was no such agreement?
    Mr. Cole. No, there was not.
    Senator Levin. And have you let the Swiss know that?
    Mr. Cole. By indicting Wegelin they knew that pretty 
clearly.
    Senator Levin. But did you tell them that you had never 
made such an agreement?
    Mr. Cole. Yes.
    Senator Levin. Do you know where they got the idea that the 
United States had made an implicit agreement?
    Mr. Cole. I do not. You would have to ask them.
    Senator Levin. OK.
    Are you familiar with the fact that there were Tax Division 
attorneys that were sent off to U.S. Attorneys' offices to help 
out with work? Are you familiar with that?
    Mr. Cole. Yes, I am, Senator.
    Senator Levin. While we have all of these actions that we 
need to enforce our tax laws, everything has been frozen now, 
waiting for 2 years for treaty requests to be resolved. Now, 
apparently things are slowed down to the point that Tax 
Division attorneys are actually sent to another office to work 
on some other important business.
    A letter to the Subcommittee says that the Department wrote 
that the attorneys continued to work on tax matters. But is it 
not the case that those transfers focused on something else 
other than tax matters?
    Mr. Cole. Well, first of all, our work was not frozen. 
During that entire period of time, even if there was treaty 
requests out that were not being honored, we were doing a lot 
of other work at that same time doing lots of other things, 
Senator. So that is one premise that I think is not completely 
accurate.
    Second, with the tax attorneys, they were doing work--many 
of them, I think most of them--on these kinds of cases, on 
offshore cases, even while they were detailed. Lots of U.S. 
Attorneys' offices are involved in these cases, as well.
    Senator Levin. Is that their major mission, do you know?
    Mr. Cole. I would have to go back on each one, but I think 
it was----
    Senator Levin. Well, for the most of them. Put them all 
together, was the major----
    Mr. Cole. Most of them, I think, were very involved. Ms. 
Keneally could----
    Senator Levin. Was the major mission of most of them tax 
enforcement?
    Ms. Keneally. Senator, I just want to make sure I 
understand the question. We are talking about the lawyers who 
were detailed?
    Senator Levin. Right.
    Ms. Keneally. The details began----
    Senator Levin. My question is, was the main mission of 
those that were detailed tax enforcement? That is my question.
    Ms. Keneally. A significant portion of what they did----
    Senator Levin. No. Was the major mission--not significant 
portion, major mission--of those detailed attorneys tax 
enforcement? That is my question.
    Ms. Keneally. Senator, I am not sure I can sit here and 
quantify it. I know what I did when I joined the Tax Division, 
because the details were already in place----
    Senator Levin. All right.
    Ms. Keneally [continuing]. I spoke to each of the U.S. 
Attorneys who had our detailed attorneys and confirmed that 
they were working on tax or other financial matters.
    Senator Levin. As their main mission?
    Ms. Keneally. As their main mission, tax or financial 
matters. Some of them were civil attorneys. Some of them were 
prosecutors. Where they were prosecutors, they were prosecuting 
tax and financial crimes.
    And a number of them--it was only a small number of them 
that were handling any offshore matters before the details and 
a number of them continued to handle the same offshore matters 
on their details.
    And again, the Deputy Attorney General is right, we work in 
conjunction with the U.S. Attorneys' offices. A very 
significant portion of the work in this area, in offshore tax 
enforcement, has taken place in the U.S. Attorneys' offices.
    Senator Levin. They were not detailed to the U.S. 
Attorneys' office mainly to continue the work they were doing 
here. That is not why you detail people.
    Ms. Keneally. Senator----
    Senator Levin. If the main mission is to do the same thing 
they were doing here, you do not detail.
    Mr. Cole. Well, actually Senator, the main reason we were 
detailing them was budget oriented.
    Senator Levin. All right, fair enough.
    Mr. Cole. We were in a position where the attrition rate at 
the Tax Division was not what it used to be. They were running 
out of money, as you may recall back then. The Federal 
Government had very strict constraints on our money. The U.S. 
Attorneys' budget had more money. So this was a way to 
alleviate some of the pressure on the Tax Division's budget by 
sending them there.
    Senator Levin. OK, let us talk about the Wegelin plea. In 
2013 February they pled guilty to aiding and abetting tax 
evasion. They paid $74 million in fines, forfeitures and 
restitution. In the indictment, the government charged that 
Wegelin had helped over 100 U.S. tax cheats hide $1.2 billion 
from 2002 to 2010.
    And as I understand it, however, as part of that agreement 
we did not require Wegelin to turn over any client names. Is 
that true?
    Mr. Cole. This was not an agreement with Wegelin. They pled 
to the indictment. So it was not a negotiated plea, in that 
regard.
    Senator Levin. But there was a plea, was there not?
    Mr. Cole. There was a plea. And people can plead guilty 
whenever they want. We did not have to agree.
    Senator Levin. Of course, but was there not an agreement as 
to the sentence?
    Mr. Cole. I think there may have been some understanding 
that were reached about the fine because there was only so much 
money available.
    Senator Levin. And was there an understanding that they 
would turn over the names?
    Mr. Cole. There was not.
    Senator Levin. So instead, the IRS ends up issuing a John 
Doe summons to a UBS branch in the United States to obtain the 
records of a Wegelin correspondent account here.
    Is that not awfully convoluted? Do you know whether there 
was an effort as part of an agreement on sentencing following 
that plea to have Wegelin provide the names? Do you know if 
that effort was made?
    Mr. Cole. I do not know what the discussions were with 
Wegelin at that time, but the Swiss Government was not allowing 
account names to be given over. Wegelin was not continuing in 
existence. There was no ability to try and force that at that 
point because the Swiss Government was blocking it.
    And so all we would have ended up having was the same thing 
we have now, which is Wegelin went out of business, paid us the 
money that they had. We made a big point in Switzerland about 
how we will take this seriously. And we were able to try and 
pursue whatever leads we could through the correspondent 
accounts to try and find the names of some of the people who 
were using the Wegelin account to evade their taxes here.
    Senator Levin. Anyway, as far as you know, there were no 
names that were provided as part of a sentencing agreement or 
sentencing negotiation nor were there any names that were 
provided?
    Mr. Cole. As far as I know, that is correct, Senator. But I 
did not do the negotiation.
    Senator Levin. I understand.
    Mr. Cole. I understand, but the Swiss Government was not 
allowing that.
    Senator Levin. I know the Swiss Government does not allow 
things but that plea was not in Switzerland.
    Mr. Cole. The plea was here----
    Senator Levin. Right.
    Mr. Cole [continuing]. And we had very little leverage to 
do that with a bank like Wegelin at that time.
    Senator Levin. It was a criminal case, was it not?
    Mr. Cole. It was, and they pled guilty to the full 
indictment.
    Ms. Keneally. Senator, may I add something?
    Senator Levin. No, I want to go to another matter, which is 
Julius Baer.
    In January 2014, a Swiss court rejected a U.S. treaty 
request filed around April 2013 for client names and 
information from Bank Julius Baer about accounts in the name of 
offshore corporations that were owned by U.S. taxpayers.
    Now this is what, this morning, the head of the Credit 
Suisse Bank said was ``egregious.'' And this is really 
egregious, by the way. I cannot think of anything much more 
egregious in this area than a bank telling a customer, helping 
a customer to open up an account in a shell corporation account 
in some tax haven, the purpose of which is to then transfer 
that same money to the Swiss bank--in this case Credit Suisse--
but now in the name of the shell corporation instead of the 
beneficial owner. And that was aided and abetted by Credit 
Suisse.
    I cannot think of anything much more egregious. As a matter 
of fact, that is what constituted fraud, which produced the 
couple of hundred names that we did get from Credit Suisse.
    So now Julius Baer. The Department of Justice apparently 
did not get any client names from the treaty request after 
almost a year of effort. Is that true?
    Mr. Cole. We cannot talk about that under Section 6105. We 
are prohibited.
    Senator Levin. All right.
    Ms. Keneally. Senator, I may be able to add some 
information on that.
    Senator Levin. On this case? On my question?
    Ms. Keneally. Well Senator, I----
    Senator Levin. Is it in response to my question?
    Ms. Keneally. I believe it is in response to your question.
    Senator Levin. Fine.
    Ms. Keneally. Senator, when we make treaty requests, the 
Swiss Government publishes the fact of the treaty requests. The 
Swiss Government gives notice of the treaty request. And this 
is something I wanted to point out earlier.
    So where we cannot speak, there is something out there that 
may indicate where there have been treaty requests. And we 
cannot comment on what responses we get to the treaty requests. 
But what happens is if an account holder seeks to block the 
treaty request they are required by U.S. law to notify the 
Attorney General that they have made that effort in the foreign 
country.
    So what we usually see happen with the treaty requests is 
that the account holders do not try to block it. When they see 
the treaty requests, they come into the voluntary disclosure 
program.
    So that a particular account holder actually attempted to 
block it and litigate it should not be interpreted as meaning 
we got nothing from a treaty request to a particular bank.
    Senator Levin. You may have gotten some people coming in 
the office and you do not know whether they would have come in 
anyway. But that is not the point. The point is----
    Ms. Keneally. But Senator, if I----
    Senator Levin. Let me just finish. The point is that you 
were denied access to those names after making a treaty request 
by a Swiss court; is that correct?
    Ms. Keneally. Senator, we were denied access for the 
account holder who brought that case.
    Senator Levin. OK, that is fine.
    Ms. Keneally. And you cannot draw the inference from that 
that other names did not come. I cannot say whether they did or 
they did not.
    Senator Levin. I am not drawing the inference, but we could 
not get the name of that account holder from that court. Is 
that correct?
    Ms. Keneally. One account holder. Yes, Senator.
    Senator Levin. One account holder. So we go to get the name 
of one account holder with a treaty request that we had alleged 
had engaged in something that the Swiss have said constitutes 
fraud under the old treaty. And we cannot get that name from a 
Swiss court.
    Ms. Keneally. Senator, my understanding is that the court 
said that the treaty request was too broad, that the treaty 
request can be redrawn, and the treaty request can be 
resubmitted. And my point is, it does not mean we got nothing 
under that treaty request. I just cannot comment on that.
    Senator Levin. I know, you are trying to say the fact that 
making this request maybe encouraged other people to enter into 
a voluntary program.
    Ms. Keneally. No, Senator----
    Mr. Cole. Senator, the request may have been broader than 
just----
    Ms. Keneally. I am saying that the request may--the fact 
that one account holder did not have that account holder's 
information turned over does not mean we got nothing under that 
treaty request. We just simply cannot comment on that specific 
treaty request.
    Senator Levin. We were trying to get, as I understand, a 
client name and information from Bank Julius Baer; is that 
correct?
    Ms. Keneally. Senator, I cannot comment on the specific 
treaty request but I cannot----
    Senator Levin. Was there not a decision by the court that 
denied that request?
    Ms. Keneally. As to one account holder----
    Senator Levin. I know that----
    Ms. Keneally [continuing]. Who opposed it, yes.
    Senator Levin [continuing]. You cannot comment on it.
    Ms. Keneally. Yes, Senator.
    Senator Levin. I am just asking you whether or not we were 
denied and you are saying you cannot comment, it was a treaty 
request and the denial was a public opinion of a Swiss court, 
was it not?
    Ms. Keneally. As to that account holder, yes.
    Senator Levin. But you cannot confirm it?
    Ms. Keneally. I can confirm that the decision exists.
    Senator Levin. Every time, just about every time here that 
a reason is provided for a problem in trying to get names, it 
comes back to a refusal or reluctance or some act of 
obstruction by the Swiss Government or a Swiss court. Over and 
over again. This is what we come back to.
    And that is why--we have all spoken on this subject now--we 
have to rely on our tools. Now you can give us the reasons why 
you think it is premature, Mr. Cole. But we also have a pretty 
good record with the UBS model that worked. And we do not have 
evidence of that model being used as to these folks, in 2011, 
were indicted, and no letters of target notices going out since 
2011.
    So you can say things are happening that you cannot comment 
about. But we do not see is what we saw with UBS, where two 
things were threatened, involving tools in our toolbox that 
were used successfully to pry out a solution in UBS, which then 
helped to create--and I think most observers will agree--a 
flood of people coming forward with so-called voluntary payment 
of their taxes.
    And every time, it seems like everything we come back to as 
to what the problem is, the problem goes back to Switzerland.
    And now we have another deal with Switzerland. And under 
this deal, which was again discussed in another room this 
morning, in the Foreign Relations room, under this deal we have 
the Swiss adopting a law which vitiates part of the value of 
the deal unilaterally. But then we do not know whether or not 
we made a formal protest or not.
    And that is the weakness on our part. The Swiss roadblocks 
seem to be forever. It is just one after another. You enter 
into a deal with them, they will pass a law vitiating part of 
the deal, the value. Our response? We do not even know if we 
had a formal protest.
    That is what we see. And it is important that you see what 
we see and what we do not see because, it is a very important 
effort that we made, for all of the reasons that we gave this 
morning. When people try to evade paying Uncle Sam the taxes 
they owe, we should go after them vigorously. And it is the 
lack of vigor that we feel and you should be aware of it.
    Now we talked about the Swiss Parliament, and you do not 
like what they did and so forth.
    [Pause.]
    I think there was a little confusion about dates earlier 
this afternoon. Whatever the benefits of the new treaty 
language is, it states that the provision will only apply to 
``information that relates to any date beginning on or after 
the date of the signature of the Protocol.'' The information 
that relates to any date beginning or after that date, which is 
September 23, 2009.
    So if an account is closed before that date, the date the 
Protocol is signed, the information about that account will not 
be provided under the revised treaty.
    Do we agree on those dates?
    Mr. Cole. Yes.
    Senator Levin. OK.
    And I can only tell you that tax abuse was rampant between 
2005 and mid-2009. The amount of taxes being evaded with 
accounts opened during that period, from our investigation, was 
very high. And so we are going to have to go through the old 
treaty, apparently, to get that information, which is hopeless. 
And so the only way it is possible to get it, is using the 
tools that are at your service.
    Would you also agree that targets of treaty requests have a 
right to challenge those requests in Swiss courts?
    Mr. Cole. That is my understanding.
    [Pause.]
    Senator Levin. Mr. Cole, we have talked a bit, at least, 
about the subpoenas that were issued in 2011 involving Credit 
Suisse. The Department issued a grand jury subpoena to Credit 
Suisse in 2011, and they reiterated that today. It asked for 
client names in that subpoena, account information going back 
to January 2000.
    I wonder if you can tell us why the Department of Justice 
has not attempted to enforce the subpoenas that it issued in 
2011 against Credit Suisse?
    Mr. Cole. First of all, I do not think I did talk about 
those because I cannot talk about grand jury subpoenas that 
were issued. But I can talk about----
    Senator Levin. I talked about it.
    Mr. Cole. You did. But I can talk generally about our view 
on the effectiveness of enforcing these grand jury subpoenas 
and I think we have talked about that. And I have heard your 
views and I have tried to express mine that I do not think that 
has proven to be an effective method to get the records. The 
Swiss block it.
    And so we have tried to----
    Senator Levin. That is a terrible admission, by the way, 
that enforcing a subpoena does not have effects.
    Mr. Cole. In the face of another country's laws that they 
then enforce on the banks that are resident there and say you 
cannot do this, this is very frustrating, Senator.
    Senator Levin. Are they not bound by our law, Mr. Cole?
    Mr. Cole. They are----
    Senator Levin. Is there going to be an order----
    Mr. Cole. They are subject to our law as well as to the 
laws of their home country. And this is where we get very 
frustrated. I share your frustration, Senator.
    Senator Levin. This goes to the heart of the matter. If 
they want to operate here and they are bound by our laws, it 
seems to me, for us to give away the power of subpoena 
enforcement because that can get them in trouble back home when 
and if they are ordered by a court in the United States to do 
something, and they then do it, I do not think we have any 
alternative if people want to operate here. They abide by our 
laws. And if they do not abide by our laws, then it is our 
responsibility to then say, sorry, you cannot operate here.
    And if we say that--and you do not know whether or not that 
has been said to them and you do not know whether you have 
asked the licensee or the people who issue the licenses to 
people to operate here. If we do that, I can almost guarantee 
you that those banks, if they want to function here, are going 
to have to comply. They are going to want to stay in the United 
States.
    It is an unacceptable explanation. That is their 
explanation. It should not be your explanation. Your 
explanation, it seems to me, must be that you are going to 
aggressively go after the enforcement of subpoenas and if you 
win in court and if they do not abide by the subpoena, that you 
are going to aggressively seek to end their ability to do 
business in a country where they will not abide by the laws 
because of some other country's laws.
    That is what I would like to hear from you and we have not.
    Mr. Cole. Senator, what I can tell you is we are going to 
use every tool we can and we are going to use every tool that 
we think is going to be effective. And in particular, we think 
that the UBS model proved effective to a degree, and even that 
had its limitations. And that is where we are focusing, is 
building good solid cases against these banks to try and use 
that to make sure we get the information we want. And, through 
all of the other things we have talked about today, trying to 
ferret through voluntary disclosures and other kinds of 
information to find ways to encourage taxpayers to come forward 
and enable us to make whatever inroads we can in trying to find 
them.
    It is hard. It is frustrating. It is time consuming. There 
are walls in our way. And we are going at it from every angle 
we can find that we think is going to work.
    Senator Levin. Well, we have focused on two main issues 
today: the Credit Suisse history, showing how a major bank got 
into the dirty business of actively facilitating U.S. tax 
evasion. The other issue is the response of the Department of 
Justice which has--from my perspective--turned away from the 
UBS model and has chosen to rely instead on Swiss courts and 
treaty requests, which then has basically given up the full 
value of our home court advantage and U.S. tools.
    Now the Swiss banks sought out U.S. clients. They traveled 
here. They sold Swiss secrecy to U.S. taxpayers. And they made 
a heck of a lot of money doing it. And they should be subject 
to U.S. transparency and not shielded by Swiss secrecy.
    Now the Swiss Government has said it is willing to turn 
over a new leaf. And with some of the terms of the new treaty, 
frankly I am somewhat skeptical. But in any event, it has 
clearly indicated time and time again--including statements of 
its President, including keeping on its books its law that 
makes it a crime to divulge the name of a client or a 
customer--it will not unlock the vault to the secrets and 
misdeeds of the past.
    There are promises about future conduct. They are not very 
effective as long as it does not provide the names. Instead, it 
provides a treasure hunt, of bits and pieces. Here, here is a 
few hints. Go and try to ferret it out from the banks now, the 
banks that have received the accounts from earlier banks that 
have maintained the secrecy, for instance.
    So most of the tax evasion is probably in the past, we hope 
it is in the past. But in any event, if it is not going to be 
in the future, we have to go after the tax evaders and get them 
to pay what is owed. That is the best way to make sure that 
there is going to be less tax evasion in the future than there 
was in the past, is to go after these folks and to not allow 
Swiss law, Swiss interpretation, Swiss regulation, Swiss 
commentary to thwart our efforts.
    And so it is important for our government to use every 
power and authority that we have to reclaim this money and to 
hold accountable those that have helped the tax avoiders, 
rather than to allow itself to be run through a convoluted and 
an unproductive process by a Swiss Government that has shown 
over and over again it is going to resist giving up the 
information, giving up the secrecy.
    So I believe that the Department of Justice and the IRS has 
good intention, they are dedicated people. But I think also 
that you are going to have to be far more aggressive, as you 
were in the UBS case. And if you are not, we are not going to 
get the taxes owed and we are not going to be able to hold 
accountable those institutions that aided and abetted this 
massive fraud that has gone on for decades.
    So at some point, Mr. Cole, you are going to have to play 
your cards. If you do not, no one is going to believe that you 
have a strong hand. That is the bottom line. It is the threat 
of prosecution that has been the incentive for tax cheats to go 
into the voluntary program. But that threat is going to lose 
force if people believe that our government is not serious 
about pursuing them.
    The only people, roughly, who have been convicted so far at 
least in these major Swiss banks--and their names that they had 
on their accounts--were the folks that the UBS Bank were 
involved with.
    And so that is what we are going to urge you to do, and 
with all of our energies we are going to keep on this case. We 
just simply cannot spend years negotiating treaties, watch the 
treaty partner poke holes in them, allow the courts in 
Switzerland to interpret their value away or to minimize their 
value, to then watch people that we go after be provided the 
kind of immunity that we have provided to them without, in 
exchange, insisting that we get the names from the banks that 
we are providing amnesty to.
    It is all about the names. It is not about the hints. It is 
not about a treasure hunt. It is a treasure hunt. The treasure 
is the money that belongs to the U.S. Government. So I use the 
word treasure hunt here in kind of two ways. One way, it is 
what we cannot do, just be diverted to a hunt with clues. But 
in some sense, it is a treasure hunt. And if we are going to 
win the treasure that is owed to our Uncle Sam, we are going to 
need a very aggressive Department of Justice and IRS.
    We thank you both. Thank you for your service and for your 
work for our government. We urge you on with much greater 
strength and we would ask you to keep us informed in the ways 
that we have requested.
    Mr. Cole. Mr. Chairman, thank you for this hearing today. 
Thank you for your thoughts. We share your goals. We share your 
frustration. And we are trying to build a pretty good hand, 
which hopefully will show.
    Senator Levin. Thank you.
    [Whereupon, at 4:49 p.m., the Subcommittee was adjourned.]



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