Black money: HSBC admits 'failures' by its Swiss arm
09 February 2015
HSBC Holdings Plc, Britain's largest bank, admitted on Sunday that there were 'failings' by its Swiss subsidiary, which helped wealthy customers to dodge taxes and conceal billions of dollars of assets.
"We acknowledge and are accountable for past compliance and control failures," HSBC said on Sunday after several reputed news outlets, including French newspaper Le Monde and Britain's The Guardian, published allegations about its Swiss private bank.
In a report released on Sunday, the International Consortium of Investigative Journalists, an organisation based in Washington, along with the newspaper Le Monde in France, The Guardian, the BBC, and CBS News said that secret documents revealed that bank employees had reassured clients that HSBC would not disclose details of their accounts to tax authorities in their home countries and discussed options to avoid paying taxes on those assets.
The documents were stolen from HSBC by a former employee in Switzerland in 2007 and were given to French authorities, who in 2010 shared them with officials in the United States, Britain and Spain, among other nations. Some of those jurisdictions (including India) have used the information to seek back taxes and penalties from individuals and HSBC has paid fines to the United States related to those disclosures.
The ICIJ report said the Swiss unit's clients included politicians, actors, rock stars and individuals with ties to arms dealers and dealers of 'blood diamonds' or 'conflict diamonds', which are mined in war zones and sold in violation of international bans.
The revelations are the latest embarrassment for HSBC, which is facing investigations of the prior activities of its Swiss unit by authorities in Argentina, France, and Belgium; and is thought to facing a similar inquiry by United States authorities.
In a lengthy response, HSBC said that the lender's Swiss operations ''have undergone a radical transformation'' in recent years and that tax reporting obligations in the past had fallen to individuals, rather than to their banking institutions.
''We have taken significant steps over the past several years to implement reforms and exit clients who did not meet strict new HSBC standards, including those where we had concerns in relation to tax compliance,'' the bank said.
''We have also refocused our Swiss private bank on clients from strategic markets of the group, such as owners and principals of the group's commercial banking clients. As a result of this repositioning, HSBC's Swiss private bank has reduced its client base by almost 70 per cent since 2007.''
HSBC also said that it was fully committed to exchanging information with tax authorities and was ''actively pursuing measures that ensure clients are tax transparent, even in advance of a regulatory or legal requirement to do so.''
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 US private bank.
The documents were taken by Hervé Falciani, a former information technology employee of HSBC in Switzerland. Falciani, who now lives in France, is facing criminal charges in Switzerland for breaching that country's bank secrecy laws.
Falciani turned over the documents to the French authorities, and Le Monde then obtained them from a French investigator, according to a ''60 Minutes'' report that was broadcast on Sunday.
France later shared the names of potential tax evaders in 2010 with tax authorities in Britain, the United States and other countries, including India - where the matter has created a major uproar.
The list is often referred to as the ''Lagarde'' list, referencing Christine Lagarde, the head of the International Monetary Fund and France's finance minister at the time the list was circulated.
Tax authorities in Britain, France and Spain have since recovered more than £500 million in back taxes and penalties from individuals, according to the consortium. India is in the process of recovering some of its dues, although its moves are heavily clouded with politics.
In recent years, UBS, Credit Suisse and Wegelin & Co - at one time Switzerland's oldest operating bank - all reached settlements with the United States over their role in helping wealthy Americans hide assets overseas.
In May, Credit Suisse agreed to plead guilty to criminal wrongdoing and pay $2.6 billion in penalties.
In November, HSBC agreed to settle an investigation by the Securities and Exchange Commission regarding how its Swiss private banking unit had solicited and provided advice to American clients, with the unit paying a $12.5 million fine and admitting to wrongdoing.
That same month, the Belgian authorities charged HSBC's Swiss private banking arm with assisting wealthy individuals to avoid paying taxes dating to 2003, and the unit was placed under formal investigation by French magistrates examining whether the bank had helped wealthy clients to avoid French tax reporting requirements.
Authorities in Argentina have also accused the Swiss unit of assisting clients in avoiding taxes in the South American country.
In 2012, after a lengthy investigation, the bank agreed to pay $1.92 billion to the United States authorities to settle accusations that it had transferred billions of dollars for nations like Iran and had enabled Mexican drug cartels to move money illegally through its American subsidiaries. The bank entered into a deferred prosecution agreement with the Justice Department and the Manhattan district attorney's office as part of that settlement.