[Senate Hearing 113-397, Volume 2]
[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 2 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

                               ----------

                         U.S. GOVERNMENT PRINTING OFFICE 

89-751 PDF                       WASHINGTON : 2013 
-----------------------------------------------------------------------
  For sale by the Superintendent of Documents, U.S. Government Printing 
  Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; 
         DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, 
                          Washington, DC 20402-0001



        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
    Joint prepared statement.....................................    93
Shafir, Robert S.:
    Testimony....................................................    10
    Joint 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.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

                                 
