BNP Paribas and Credit Suisse May Face Criminal Charges on Tax and Sanctions

Investigations by US authorities into Credit Suisse and BNP Paribas may be resolved with criminal charges, rather than paid-for deferred prosecution agreements, as is normally the case.

Bloomberg sources said US authorities were mulling the tougher option of prosecution, while Preet Bharara, the US Attorney for the Southern District of New York, said last month that "a significant financial institution" will soon be charged.

Credit Suisse is the largest of 14 Swiss wealth managers under investigation since 2011 by the US Justice Department's tax division; it putatively assisted US account holders in tax avoidance schemes, depriving the IRS of billions in revenue. It has set aside over half a billion pounds to broker a deferred prosecution agreement.

BNP Paribas is fielding probes over violations of US economic sanctions relating to parties in Iran, Sudan and Cuba. BNP Paribas said in 2011 it was reviewing operations to see if it has complied with sanction rules of the Office of Foreign Assets Control. It has set aside $1.1bn.

Bharara, Manhattan District Attorney Cyrus Vance Jr. and David O'Neil, the head of the Justice Department's criminal division in Washington, are working together in the BNP Paribas investigation, according to Bloomberg.

Benjamin Lawsky, superintendent of New York's Department of Financial Services, recently joined the investigation into Credit Suisse.

However, charges against big banks are rare, as the report states. In an interview with CNBC former Citigroup boss Sanford Weill suggested the prosecution rumour mill may be to speed a resolution without the need for arraignment.

"How does a bank stay in business if they're charged criminally?" asked Weill.

It is worth noting that both banks have previously been the subject of federal probes into alleged criminal behavior involving sanctions violations.

In 2009 Credit Suisse settled federal investigations of illegal transactions involving Iran, Sudan, Burma, Cuba and Libya from mid-1990s through 2006 by paying $536 million.

The far-reaching US tax investigation, currently focused on Credit Suisse among others, was initiated in 2007-8 when a wealth manager turned whistleblower at UBS alerted US authorities to over $20bn of US client funds "hidden" in its off-shore accounts.

At that time the Swiss banking sector invoked its statutory rights of secrecy and legal dispute quickly escalated into diplomatic incident. The Justice Department's ultimate threat was that UBS would be prevented from doing business in the US, so the Swiss government stepped in, account details were disclosed, and a $780m deferred prosecution agreement was reached.

However, since then a number of smaller Swiss private banks have been forced to close in the wake of US tax probes.