Photo: Will McNamee/Getty Images News/Getty Images
Why Is the Justice Dept. More Concerned with Respecting Swiss Laws Than Enforcing Our Own?
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Why Is the Justice Dept. More Concerned with Respecting Swiss Laws Than Enforcing Our Own?

By Photo: Will McNamee/Getty Images News/Getty Images

Yesterday, Carl Levin proved that there’s more to Congressional life than a voting record, and that he will be sorely missed when he retires at the end of this term. In Senate hearings, Levin grilled executives from Credit Suisse, and more important, top officials from the Justice Department, about massive tax evasion by wealthy Americans using Swiss bank accounts and law enforcement’s failure to track down the lawbreakers.

The excuses from Justice Department officials were very familiar. In fact, they mirrored the excuses Justice consistently offers for failing to prosecute Wall Street executives for the financial crisis. DoJ seems more obsessed with coming up with reasons not to prosecute criminals than actually compiling evidence and using all available tools to bring them to justice. It follows this up with overblown claims of success and promises about imminent prosecutions that never come to pass. “The problem I have,” Levin said yesterday, “is the endless negotiations with the Swiss about their laws instead of implementing our own laws.” Just replace “Swiss” with “the banks” and you get the picture.

That Swiss banks attract the rich with anonymous private accounts comes as no surprise: It’s official Swiss policy through their bank secrecy laws. Credit Suisse was particularly aggressive, according to the report, opening an office in New York and holding parties and golf tournaments dedicated to attracting American clients. And they would help customers form shell corporations to add another layer of secrecy to the secret accounts.

With its client list of over 22,000 U.S. account holders, Credit Suisse became a target for the Justice Department. In 2011, DoJ indicted seven Credit Suisse bankers for aiding and abetting U.S. tax evasion. But none of those bankers ever faced trial, and all still live freely in Switzerland. Also in 2011, DoJ sent target letters and issued subpoenas to Credit Suisse, informing them that they had substantial knowledge of wrongdoing at the bank and demanding information about U.S. customers. But the letters were not followed up and the subpoenas never enforced. After three years, Credit Suissse has only revealed 238 of their 22,000 U.S. account holders.

At yesterday’s hearing, Levin asked Justice Department officials James Cole and Kathryn Keneally why they haven’t enforced the subpoenas or rounded up the indicted bankers. And Cole and Keneally basically cited a jurisdictional issue, the same one that Credit Suisse bankers highlighted earlier in the day. If Swiss bankers release the names of account holders to comply with American subpoenas, they would be subject to fines and even imprisonment in Switzerland. They will only deliver names as part of bilateral treaty protocols, a slow process undermined by heavy evidentiary burdens implemented by the Swiss Parliament and its courts.

Cole and Keneally repeated this argument, maintaining that enforcing subpoenas would not be successful, because Swiss bankers would rather pay fines in America for not complying than face jail in their home country by complying. But Levin made the correct point that the dilemmas of Swiss bankers who violate U.S. law shouldn’t matter to the Justice Department. “That’s a terrible admission, that enforcing subpoenas has no effect,” Levin said. And it reflects how DoJ has simply lived in its own head when it comes to enforcing white-collar crime. Time and again law enforcement officials have alleged that financial crimes are hard for juries to decipher and involve too many burdens for conviction, essentially playing out hypotheticals about jury trials that have never been conducted. The idea that enforcing U.S. law would endanger Swiss bankers sounds like Attorney General Eric Holder’s admission that prosecuting financial crimes would endanger the U.S. economy.

Levin also criticized Cole and Keneally for a lack of creativity and urgency in bringing pressure to bear on Swiss banks to give up names. For instance, Levin asked if the Justice Department consulted with the Federal Reserve to threaten the U.S. operating licenses of Swiss banks that refuse to comply with subpoenas. “If we do that I can almost guarantee you that those banks are going to have to comply,” Levin said. Cole refused to answer questions about tactics and procedures used against Swiss banks.

The same question about tactics can be asked about financial fraud prosecutions. The Justice Department has never used the provision of the Sarbanes-Oxley law that forces CEOs to certify the accuracy of their financial statements and the establishment of internal controls that guard against fraud. Though this provision carries a five-year prison sentence, it has never been contemplated as a tool in enforcement.

When not evading Levin’s questions about the lack of aggressiveness or the preoccupation with Swiss law over U.S. law, Cole and Keneally argued that DoJ has, actually, done a good job enforcing tax evasion. But the numbers fall apart upon scrutiny. Cole said that the Department has publicly cited 73 account holders and 35 bankers with criminal charges related to offshore banking. But then he acknowledged that only seven of the account holders have been convicted, only five of the bankers have made guilty pleas, and none of the bankers have been extradited from their home countries. When asked whether the DoJ has attempted extradition, Cole said simply, “the Swiss will not extradite their civilians.”

This completely undermines the claim of tough enforcement, a familiar position for the Justice Department. Last August they had to make an unusual correction, stating that the numbers they gave of successful financial prosecutions were wildly over-inflated.

When they weren’t fudging the numbers, Cole and Keneally were promising results from ongoing investigations that they were prohibited from talking about. This is a common trick–“I’ve seen that movie before,” said John McCain at the hearing–to claim that the real prosecutions are just around the corner, a corner that never arrives. Eric Holder consistently claims that more financial prosecutions are imminent. In the case of Swiss banks, of the 14 banks under active investigation by DoJ since 2009, only one, Wegelin, has been indicted, probably because they were going out of business anyway. Even in that case, Wegelin was not required to release names in the aftermath of their guilty plea, which Cole justified by saying that the Swiss government blocked disclosure. An apoplectic Levin replied, “I know the Swiss government doesn’t allow things but the plea deal was here!”

If the Justice Department really wanted to bring tax evasion at Swiss banks to heel, it has that ability. It could provoke enough fear to force compliance, and indeed it did before, in a case against UBS in 2009. There, after a strong criminal case was established, UBS and the Swiss finally agreed to release 4,700 account holder names. But five years later, DoJ has never matched that kind of effort, and has been far less creative in their enforcement practices.

“You’re going to have to be far more aggressive,” Levin concluded yesterday. “If not, we’re not going to hold accountable those that aided and abetted the massive fraud that occurred for decades.” The statement certainly had a familiar ring to it.

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