Senators take on offshore tax evasion under the mantra, every billion counts

The CEO of Credit Suisse, Switzerland’s second-largest bank, will appear at a tax evasion hearing by a Senate subcommittee Wednesday, following an investigation by the panel.

When the CEO of Switzerland’s second-largest bank appears before a Senate hearing on offshore tax evasion Wednesday, what Sen. Carl Levin (D) of Michigan wants is names. Or at least a way to get the names of thousands of American tax dodgers who reportedly hid billions of dollars with the bank, Credit Suisse.

Only with the names can the US Internal Revenue Service hope to get what it’s owed. And when lawmakers are looking under every rock for budget purposes, every billion counts. “Budget realities and simple justice require that tax cheats must come clean and pony up or face the consequences,” said Senator Levin, who chairs the Permanent Subcommittee on Investigations, at a press conference Tuesday.

Five years ago, a similar hearing held by the subcommittee featured a senior official from Switzerland’s largest bank, UBS AG. At the hearing, UBS acknowledged it helped facilitate US tax evasion, apologized, and promised to end it. Later, it reached an agreement with the Department of Justice to pay a $780 million fine and – more important – turn over 4,700 accounts with US client names that had not been reported to the IRS.

The IRS then offered an amnesty that brought in $6 billion in back taxes, interest, and penalties. As Levin pointed out Tuesday, just recently lawmakers struggled to find funds to restore $6 billion in cuts to veterans’ retirement benefits.

As of 2011, the United States was being deprived of an estimated $337 billion in potential revenue because of offshore tax-haven practices, said Sen. John McCain (R) of Arizona, the senior minority member of the subcommittee, who was also at the Tuesday press conference.

At Wednesday’s hearing, the subcommittee will draw on its investigation of Credit Suisse, detailed in a bipartisan report. The findings show that as of 2006, the bank had more than 22,000 US customers whose assets, at their peak, totaled $10 billion to $12 billion. “The data suggests the vast majority were undeclared,” according to the report. But, as Levin bitterly complained, the US has been able to get the names of only 230 of the US clients.

The report outlines the extent to which Credit Suisse allegedly helped US clients conceal their Swiss accounts from US authorities. That included sending Swiss bankers to the US to meet face to face with clients to avoid a paper trail, handing a customer bank statements hidden in a Sports Illustrated magazine, passing clients on to intermediaries to set up shell entities, and conveniently providing them a full-service branch office at the Zurich Airport.

Since the UBS case in 2009, “significant progress has been made in the effort to combat offshore tax abuses,” according to the Senate subcommittee’s report. World leaders have made commitments to reduce evasion, and Congress passed the Foreign Account Tax Compliance Act, which requires foreign banks to either disclose their US customer accounts on an annual basis or pay a 30 percent tax on their US investment income.

But the report also faults loopholes in that act, as well as lax enforcement by both Swiss and US authorities. Switzerland continues to “severely restrict” the ability of Swiss banks to disclose the names of US customers, while the US has not sufficiently tried to pin down those identities. It suggests that American authorities use tools they already have, such as grand-jury subpoenas and summonses. It also urges much more vigorous prosecution of individuals and banks.

As for Credit Suisse, the bank launched its own internal review and has reduced the number of US customers to about 3,500. Reportedly, Credit Suisse is in settlement talks with the Justice Department concerning a fine of $800 million. But as Senator McCain was quick to point out: “No individuals are being held responsible. Individuals should be identified.”