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Saturday 18 November 2017

HSBC admits to failings by Swiss arm over tax scam

Emilio Botin
Emilio Botin

Tom Miles

HSBC has admitted failings by its Swiss subsidiary in response to reports it helped wealthy customers dodge taxes and conceal millions of dollars of assets.

The International Consortium of Investigative Journalists (ICIJ), which coordinated the reporting, said a list of people who held HSBC accounts in Switzerland included soccer and tennis professionals, rock stars and Hollywood actors.

The client list included royalty such as Morocco's King Mohammed, politicians, corporate executives including former Santander chairman Emilio Botin, who died last year, and wealthy families, the ICIJ said. A spokesman for the Moroccan royal palace declined to comment.

It also listed arms dealers, people linked to former dictators and traffickers in blood diamonds, and several individuals on the current U.S. sanctions list, including Gennady Timchenko, an associate of Russian President Vladimir Putin. Timchenko's Volga Group declined to comment.

"We acknowledge and are accountable for past compliance and control failures," HSBC said after news outlets published the allegations about its Swiss private bank.

HSBC said that its Swiss arm had not been fully integrated into HSBC after its purchase in 1999, allowing "significantly lower" standards of compliance and due diligence to persist.

The files appeared to show HSBC's Swiss bank routinely allowed clients to withdraw "bricks" of cash, often in foreign currencies which were of little use in Switzerland.

HSBC also marketed schemes which were likely to enable wealthy clients to avoid European taxes and colluded with some to conceal undeclared accounts from domestic tax authorities, it is alleged.

The reports triggered political debate in Britain ahead of a parliamentary election in May. David Gauke, a Conservative lawmaker and a junior minister in the finance ministry, criticised HSBC and said the case lifted the lid on poor banking behaviour at the time.

"Clearly HSBC have got questions to answer. Clearly the behaviour that is set out in these disclosures reveal behaviour in 2005 to 2007 that is not what we would expect from a major bank," he said, calling tax evasion "completely unacceptable."

The HSBC client data were supplied by Herve Falciani, a former IT employee of HSBC's Swiss private bank, HSBC said. HSBC said Falciani downloaded details of accounts and clients at the end of 2006 and early 2007. French authorities have obtained data on thousands of the customers and shared them with tax authorities elsewhere, including Argentina.

HSBC said the Swiss private banking industry, long known for its secrecy, operated differently in the past and this may have resulted in HSBC having had "a number of clients that may not have been fully compliant with their applicable tax obligations."

Its private bank, especially its Swiss arm, had undergone "a radical transformation" in recent years, it said in a detailed four-page statement.


HSBC's Swiss private bank was largely acquired as part of its purchase of Republic National Bank of New York and Safra Republic Holdings, a U.S. private bank.

The ICIJ said details of more than 100,000 clients had been obtained from more than 200 countries.

It said 11,235 were based in Switzerland, 9,187 were in France, 8,844 were in Britain, 8,667 were in Brazil and 7,499 were from Italy.

The clients' accounts held more than $100bn, including $31.2bn from clients based in Switzerland, $21.7bn from Britain, $14.8bn from Venezuela and $13.4bn from US clients, the ICIJ said.

HSBC said it was cooperating with authorities investigating tax matters. Authorities in France, Belgium and Argentina have said they are investigating.



How did this begin?

A former HSBC employee-turned-whistleblower, Hervé Falciani, pictured, gave the data to French tax authorities in 2008. France shared it with other governments and launched investigations.

The French newspaper ‘Le Monde’ obtained a version of the data and shared the material with the International Consortium of Investigative Journalists, which analysed the material with ‘The Guardian’ and the BBC in Britain.

What the files show

The leaked documents cover the period up to 2007 and relate to accounts worth $100bn (€88bn) held by more than 100,000 people and legal entities from 200 countries.

HSBC served those close to the regimes of former Egyptian President Hosni Mubarak, former Tunisian leader Ben Ali and Syria’s Bashar Assad.

The consortium said clients include former and current politicians from Britain, Russia, Ukraine, Kenya, India, Mexico, Lebanon, the Democratic Republic of the Congo, Zimbabwe, and Algeria.

Switzerland had the greatest number of clients of the data examined, followed by France, the United Kingdom, Brazil and Italy. In terms of ranking by value, Switzerland was first with $31.2bn (€27.5bn), followed by the United Kingdom with $21.7bn (€19.1bn); Venezuela with $14.8bn (€13bn); the US with $13.4bn (€11.8bn); and France with $12.5bn (€11bn).

What happened?

Though some of the details of such operations were disclosed previously, when HSBC was fined in 2012 by the US for allowing criminals to use its branches for money laundering, yesterday’s information suggests HSBC took an active role in assisting the wealthy in hiding their money from authorities.

“The bank repeatedly reassured clients that it would not disclose details of accounts to national authorities, even if evidence suggested that the accounts were undeclared to tax authorities in the client’s home country,” the consortium said. “Bank employees also discussed with clients a range of measures that would ultimately allow clients to avoid paying taxes in their home countries.”

Crawford Spence, a professor of accounting at the University of Warwick, said this case was different than other recent tax scandals.

“HSBC has been complicit in clear tax evasion and law breaking rather than legitimate tax avoidance,” he said.

The potential fallout

The disclosures could see governments step up their efforts to prosecute tax evaders and the bank itself. Governments are looking to crack down on tax evasion to bolster their coffers depleted by the financial crisis and amid criticism that the rich aren’t paying their fair share.

In Britain, the report sparked criticism of tax authorities. The national tax agency clawed back £135m (€208m) from some of the 3,600 Britons identified as using the Geneva branch of HSBC, but only one person has been prosecuted. France, by contrast, launched 103 legal actions.

“You are left wondering, as you see the enormity of what has been going on, what it actually takes to bring a tax cheat to court,” Margaret Hodge, chair of the UK parliament’s Public Accounts Committee, told the BBC.

Ms Hodge said the former chairman of HSBC, Stephen Green, must face questions about whether he was “asleep at the wheel, or he did know and he was therefore involved in dodgy tax practices.”

In Belgium, an investigating judge is considering arrest warrants against some former and current officials of the HSBC bank if cooperation in an investigation on the Swiss operations does not improve.

What HSBC says

HSBC stressed that the documents were from eight years ago and said it has since implemented initiatives designed to prevent its banking services from being used to evade taxes or launder money.

Franco Morra, CEO of HSBC’s Swiss subsidiary, said the new management had shut down accounts from clients who “did not meet our high standards.”

Irish Independent

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