Credit Suisse Investigations Highlight US Frustration with Swiss Banking Law

Recently, the United States Securities and Exchange Commission (SEC) made public its Order Instituting Administrative and Cease-and-Desist Proceedings (the “Order”) In the Matter of Credit Suisse Group AG.  Under the Order, Credit Suisse agreed to admit wrongdoing and pay $196 million to settle SEC charges that Credit Suisse violated federal securities laws.  In the Order, Credit Suisse admits to providing cross-border securities services without properly registering, in accordance with the Securities and Exchange Act of 1934 (“Exchange Act”) or the Investment Advisers Act of 1940 (“Advisers Act”).

Under applicable federal law, brokers and investment advisers are required to register with the SEC.  Internationally-based Relations managers from Credit Suisse circumvented this requirement when they travelled to the US to “solicit clients, provide investment advice, and induce securities transactions.”  These actions resulted in approximately $5.6 billion in assets for Credit Suisse.

Credit Suisse is the second largest bank in Switzerland, and this Order mirrors a very similar US investigation against UBS – Switzerland’s largest bank – in 2008.  Additionally, Credit Suisse is currently fighting potential tax evasion charges, again mimicking a 2009 investigation against UBS, which resulted in a $780 million fine.

The investigations have highlighted growing frustrations with Switzerland’s notoriously bank-friendly legislation, which provides unparalleled privacy”protection to Swiss banking.  However, one man’s “privacy” is another man’s “tax evasion.”  The cornerstone of US regulation is transparency, whereas Swiss regulation is cloaked in secrecy.  The significant disparity puts Switzerland-based banks in an uncomfortable position:  if it provides the necessary disclosures to US authorities, it faces potential lawsuits in Switzerland, where secrecy is deeply imbedded in their culture, not to mention the very real potential for losing customers.  In 2013, Switzerland agreed to allow it US regulators to obtain more information from Swiss banks, but the issue is far from resolved.

Should Swiss banks be forced to comply with US banking regulations for US citizens who hold accounts in Switzerland?  Is compliance with US law the “cost of doing business” when Swiss banks accept money from US citizens?  Should the US and Switzerland work together on a stronger treaty which would govern how banks can operate legally in both nations?  Is such a treaty possible?

Sources: The Securities and Exchange Commission, the full Order is also available on SEC.gov

Photo Source:  CNBC

One comment

  1. This is a tough situation since it deals with almost opposite laws over the same matter between two countries. I do believe however that Swiss banks should have to comply when Unites States Citizens have accounts in their banks. As stated above, the theme of US securities laws is transparency. This should not change for a United States investor regardless if he is putting his money in Credit Suisse or JP Morgan. They should be afforded the same types of accommodations and standards that they would normally be subject to. Although Switzerland is known for its lax banking regulations, when dealing with the United States and U.S. citizens, they should comply with U.S. securities laws. Billions of dollars of Credit Suisse’s revenue is coming from the United States, thus they should be held to the same standard as United States Banks.

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