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AG ups the stakes in US tax crackdown

Paying the price: Credit Suisse’s main bank subsidiary was fined $2.6 billion last week after pleading guilty in a case that resulted from a US crackdown on offshore tax evasion.

NEW JERSEY, GENEVA (Bloomberg) — Thirteen Swiss banks face rising stakes in their own criminal inquiries after Credit Suisse Group AG set a new standard for punishment in the US crackdown on offshore tax evasion.

Julius Baer Group Ltd., Zuercher Kantonalbank and the Swiss unit of HSBC Holdings Plc are among those seeking to avoid pleading guilty to helping Americans cheat the Internal Revenue Service — an unprecedented step taken by Credit Suisse on May 19. Their degree of wrongdoing and cooperation with investigators will help decide their fate, said the top US tax prosecutor.

“We will look at the facts and circumstances of each investigation to determine an appropriate penalty,” Assistant US. Attorney General Kathryn Keneally said in an interview.

“It should be very clear from the Credit Suisse investigation that cooperation, or the lack thereof, is an important factor.”

The guilty plea by Credit Suisse’s main bank subsidiary and $2.6 billion penalty last week marked a watershed in a campaign that has led to charges against more than 100 people since 2009.

Another 100 or so Swiss banks and 43,000 US taxpayers applied to the Justice Department to avoid prosecution by disclosing in detail how the evasion worked. The data, compiled by the IRS, has strengthened the US hand against the 13 banks.

With the Credit Suisse case over, the pace of the remaining cases will quicken, the Swiss Finance Minister said last week.

“It looks like DOJ has a plan in certain cases where they can get a guilty plea but not destroy the bank,” said Mark Matthews, a former IRS deputy commissioner who is now a tax attorney in Washington.

“I’m sure that any bank confronted with that can hardly take comfort.”

Prosecutors have already charged taxpayers or bankers in cases implicating Julius Baer, the third-largest Swiss wealth manager; Zuercher Kantonalbank, the biggest Swiss publicly owned regional bank; and Mizrahi Tefahot Bank Ltd. and Bank Leumi Le-Israel Ltd., two Israeli banks with Swiss units.

Two Julius Baer bankers were charged in 2011 for practices similar to what Credit Suisse admitted and three ZKB bankers were indicted the following year.

Several clients of Leumi and Mizrahi have pleaded guilty, and dozens of bank customers have helped the government investigation. Benny Shoukron, a Mizrahi spokesman, and Leumi spokesman Lee Neumann declined to comment on the probe.

The 13 Swiss banks vary in size and scope of business, with only HSBC having substantial operations in the US. Like Credit Suisse, HSBC could seek the blessing of regulators to operate in the US if it pleads guilty.

The smaller banks without a US presence could lose the ability to engage in US dollar clearing if they are charged or plead guilty.

The crackdown picked up in 2009 after UBS AG, the largest Swiss bank, avoided prosecution by paying $780 million and handing over the names of 4,700 US account holders.

Swiss banks that took in UBS clients with undeclared accounts are in the cross hairs, said Milan Patel, a former IRS attorney now at Zurich-based law firm Anaford AG.

“If you stick your nose up to the Department of Justice, you might go the way of Wegelin and be indicted,” Patel said, referring to the Swiss bank that pleaded guilty last year to US charges and closed its doors to clients.