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Credit Suisse said to be facing two inquiries

After years of false starts and stops, the Justice Department is nearing the end of an investigation into the role Credit Suisse played in hiding American wealth offshore. But at the same time, a new investigation is beginning, threatening to entangle the giant Swiss bank for even longer.

The biggest danger to Credit Suisse, suspected of sheltering billions of dollars for American clients who evaded taxes, comes from federal prosecutors.

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FABRICE COFFRINI | AFP | Getty Images

While the Justice Department has considered a so-called deferred-prosecution agreement that would suspend any indictment in exchange for a large cash penalty and other concessions, it is also pushing for a guilty plea from a Credit Suisse subsidiary, people briefed on the case said, a punishment in some ways harsher that banks generally avoid in all but the gravest cases.

The cash penalty, the people said, is expected to exceed the $780 million that Switzerland's largest bank, UBS, paid to resolve a similar case in 2009.

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The Credit Suisse case, the outcome of which depends on settlement talks in the coming weeks, will most likely strike a blow at overseas tax shelters, a hallmark of Switzerland's banking system. And while the case will resolve a major liability for Credit Suisse, it won't put the shelter problem to rest.

Just as the criminal inquiry is reaching its conclusion in Washington, a civil investigation has started from scratch in New York. Benjamin M. Lawsky, New York State's top financial regulator, has requested documents from Credit Suisse and is expected to demand additional records this week, two people briefed on that case said.

Mr. Lawsky, who will examine whether Credit Suisse lied to New York authorities about engineering tax shelters, has also petitioned a Senate subcommittee for a trove of internal Credit Suisse documents.

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The subcommittee questioned bank executives, including Brady W. Dougan, the bank's American chief executive, at a hearing in February, and produced a scathing report exposing "a classic case of bank secrecy." In late March, the Senate agreed to release the internal Credit Suisse documents to "a state regulatory agency." The people briefed on the case, who were not authorized to speak publicly, identified that agency as Mr. Lawsky's Department of Financial Services.

The developments, coming on the heels of Credit Suisse settling a related civil case with the Securities and Exchange Commission, might inject some competition into the investigative process. Mr. Lawsky, himself a former federal prosecutor, has squeezed settlements out of banks, as his Washington colleagues continued to investigate. And while the Justice Department's investigation has evolved in fits and starts over several years, Mr. Lawsky's agency has churned out cases in a matter of months.

The heightened scrutiny of Credit Suisse, from the Justice Department and Mr. Lawsky, might quiet critics in Congress like Senator Carl Levin, the Michigan Democrat who led the subcommittee's investigation into Credit Suisse and complained that the United States government had let "them get away with it."

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The escalating Credit Suisse probe, along with some recent shifts in international law, might also provide momentum to the government's uneven effort to collect taxes and punish the banks involved. While Credit Suisse will not be the first bank to settle with American authorities, a sweeping government response could send a message of deterrence to the shadowy world of Swiss bank secrecy.

A spokesman for Mr. Lawsky declined to comment, as did spokesmen for Credit Suisse and the Justice Department.

In the Senate subcommittee hearings in February, Credit Suisse executives apologized for the misconduct. But they also argued that the problems stopped in 2008 and were contained to a few low-level rogue bankers. The bank, which said it voluntarily adopted a number of controls against tax evasion, reported that there was no evidence that executive management knew of the problems.

"Some Swiss-based private bankers went to great lengths to disguise their bad conduct from Credit Suisse executive management," Mr. Dougan testified at the hearing. "While that employee misconduct violated our policies and was unknown to our executive management, we accept responsibility for and deeply regret these employees' actions."

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Like watches and chocolate, private banking is a staple of the Swiss economy. And for decades, as wealthy Americans concealed their assets through clandestine accounts, United States authorities took scant action.

That changed in the final years of the George W. Bush administration. Name a Swiss bank, and it was suspected of harboring American assets.

UBS was first in line to settle. Through a 2009 deferred-prosecution agreement, the bank struck a $780 million settlement and produced the names of about 4,700 accounts unknown to the Internal Revenue Service. The I.R.S. also formed a program that provided Americans immunity from prosecution in exchange for divulging offshore accounts — an effort that prompted some 43,000 taxpayers to pay nearly $6 billion in taxes and penalties.

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All told, the Justice Department has charged 73 account-holders and 35 bankers, and has identified 14 banks as suspects. In 2011, federal prosecutors indicted seven Credit Suisse bankers for abetting tax evasion.

But the investigation into Credit Suisse dragged on. The quirks of international law prolonged the inquiry, requiring Swiss courts to review Credit Suisse documents before releasing them to the Justice Department.

Ultimately, the Justice Department gained access to many of the documents and interviewed bank employees. And by the time the Senate subcommittee convened its hearing in February, the Justice Department was closing in on a case.

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Bracing for a settlement, the bank announced last week that it had set aside roughly $528 million for legal expenses. Credit Suisse, which in February paid about $200 million to settle with the S.E.C., said it had earmarked much of the new provision to pay any new penalty to the Justice Department. (In a separate matter, in late March the bank agreed to an $885 million settlement to resolve claims that it sold questionable loans to Fannie Mae and Freddie Mac.)

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And Mr. Lawsky's case could bring a fine of its own. In its investigation, the New York State Department of Financial Services is expected to examine what role, if any, the bank's New York employees played in creating the tax shelters. The agency, the two people briefed on the case said, is also seeking to recover any lost tax revenue for New York.

The subcommittee's report inspired Mr. Lawsky's inquiry, the people said. After reading the report, aides to Mr. Lawsky contacted the subcommittee's lawyers to seek some of the underlying evidence in their investigation: more than 100,000 internal documents from Credit Suisse and transcripts of interviews of nearly two dozen sources.

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The materials, detailed in an inch-thick report that reads at times like a John le Carré spy novel, laid bare what the subcommittee described as a brazen attempt to dodge taxes.

The subcommittee's report accused the bank of helping thousands of United States clients to set up Swiss accounts worth as much as $12 billion, though Credit Suisse has said the sum of unreported income is far lower and the Justice Department has cited a $4 billion figure when indicting Credit Suisse bankers. The effort spanned at least seven years, the report said, from 2001 to 2008.

The report also detailed the lengths that Credit Suisse bankers took to cater to their American clients. They established an office in the Zurich airport as convenience to American customers. They opened accounts in the name of shell companies. And to limit a paper trail, the bankers would travel to the United States to meet with clients.

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On one occasion, a banker visited a client at the Mandarin Oriental Hotel. Over breakfast, the banker handed his client account statements in the pages of Sports Illustrated.

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