UPDATE 2-U.S. senators scold prosecutors, Swiss bank in tax spat

WASHINGTON, Feb 26 (Reuters) - U.S. senators lashed out at federal prosecutors on Wednesday for a lack of zeal in going after Swiss banks that helped Americans dodge taxes, blaming them for billions of dollars in missed revenues.

The Senate Permanent Subcommittee on Investigations this week alleged new misdeeds by Switzerland's Credit Suisse , citing secret meetings in luxury hotels and hidden elevators one senator said belonged in a spy novel.

"Taxes owed on billions of dollars in hidden offshore assets remain uncollected," subcommittee Chairman Carl Levin, one of Capitol Hill's toughest questioners, said in a public hearing where bankers testified before the panel.

"To collect those unpaid taxes and hold U.S. tax evaders accountable, the critical first step is to get their names," said Levin, a Democrat from Michigan.

The Justice Department is probing 14 Swiss banks over taxes, five years after UBS, Switzerland's largest bank, admitted to helping U.S. clients hide money from the tax man, and agreed to give their names to U.S. authorities.

Credit Suisse bankers secretly traveled to the United States, sometimes on tourist visas, the senators said in a lengthy report this week, describing one customer who got bank statements tucked into the pages of an issue of Sports Illustrated magazine at a hotel meeting.

The report said Credit Suisse opened accounts for more than 22,000 U.S. customers, with combined assets of $12 billion. The bank has accepted responsibility for wrongdoing by its staff.

Switzerland has amassed assets worth trillions of dollars from foreigners over the past decades, aided by its tight bank secrecy laws. However, two small banks, Frey & Co and Bank Wegelin, have folded after U.S. authorities started targeting the country's banks over tax evasion.


At the same time, Credit Suisse bank laid out a detailed defense, saying that the perpetrators were a small group of Swiss-based bankers, and that while it wanted to hand over more client names, it was caught between U.S. and Swiss law.

"Credit Suisse is ready to provide the additional information requested by the U.S. authorities on U.S. account holders, but we have been unable to do so," the bank said in a statement provided at the hearing.

Credit Suisse had provided as much information as allowed under Swiss law, it said, and while it wanted to provide more client names, the U.S. Senate had not ratified a bilateral treaty with Switzerland that would allow it to do so.

Levin poured cold water on that argument, saying the treaty will only expose U.S. accounts at Swiss banks after 2009, which was when the treaty was signed.

If U.S. customers closed their accounts before 2009, they could evade detection and years of U.S tax bills, Levin said, which Credit Suisse bankers acknowledged.

"We can't collect taxes owed by those folks, which is what the heart of the problem is. ... Don't tell us the treaty is going to get us what we want," he said. "It won't."

Levin also scolded the Justice Department for only having retrieved 238 client names from Credit Suisse - and none from the other banks under investigation, upping the ante for Justice Department officials who will testify later.

But Credit Suisse said it was a "demonstrably inappropriate assumption" that all 20,000 U.S. clients were tax cheats, saying many U.S. clients, such as expatriates living in Switzerland, had a valid reason to hold a Swiss bank account.


Credit Suisse last week settled charges levied by the U.S. Securities and Exchange Commission, admitting to wrongdoing and paying $196 million in fines. But a settlement with the Justice Department is not imminent, a person familiar with the matter has told Reuters.

"This fine ... pales in comparison with the severity of the full extent of Credit Suisse's misconduct," said Senator John McCain of Arizona, the subcommittee's highest-ranking Republican.

Levin also grilled Credit Suisse over the way it accounted for new client money it had earned, a matter the bank admitted some of its staff had mishandled, even if the issue was not directly related to helping clients avoid taxes.

The report cited emails from staff asking whether money could be booked in a different region to make end-quarter numbers look better. The bank did not condemn the practice per se but said the emails looked out of line.

Credit Suisse's larger rival, UBS, admitted to helping U.S. taxpayers hide money and paid a $780 million fine in 2009.

Evidence culled from the UBS probe, as well as thousands of Americans coming forward under a tax amnesty program, has fed a second wave of investigation, which has ensnared Credit Suisse and 13 other Swiss banks.