HSBC's tax evasion allegations explained

HSBC's Swiss bank has been accused of allowing clients to evade millions in tax.

by Adam Gale
Last Updated: 23 Apr 2015

The world’s local bank’s Swiss branch is at the centre of a tax evasion storm today, after leaked files allegedly reveal how HSBC’s Swiss Private Bank helped thousands of wealthy clients dodge their taxes between 2005 and 2007.

The documents, originally obtained by French newspaper Le Monde, were taken by one of HSBC’s IT workers in Geneva, Hervé Falciani, who fled with the data to France in 2007. They contain details on over 100,000 clients, some of whom used Swiss banking privacy laws to evade their taxes. No fewer than 1,100 of those were British.

What is HSBC accused of?

The most serious allegation is that HSBC’s Swiss bank allowed clients to withdraw large sums of cash in currencies other than Swiss francs, effectively causing the money to ‘disappear’ from exchequers’ radar. The BBC reported one family was given a credit card so that they could withdraw huge sums of undeclared money from overseas cash points. Very Wolf of Wall Street.

HSBC is also accused of helping clients hide their Swiss bank accounts from tax authorities during the period, advising on ways to protect their funds from the European Savings Directive, which is designed to ensure interest on money held abroad is taxed by the depositor’s home state.

Just in case that didn’t seem like enough, the documents allegedly implicate HSBC’s Swiss bank in providing accounts for criminals and in – you guessed it – aggressively mass-marketing tax avoidance schemes. You can almost hear Margaret Hodge’s ears prick up at the sound of it.

Why is it only coming to light now?

The documents were obtained by French authorities nearly eight years ago, but they haven’t exactly been sitting in an electronic version of a dusty filing cabinet all this time. The data have formed the basis of French and Belgian charges against the bank, and were passed to UK tax authorities in 2010.

Of the 1,100 British individuals the BBC claimed had evaded tax through HSBC’s Swiss Private Bank, only one has been successfully prosecuted. Michael Shanly pled guilty to evasion in 2012. That’s clearly not enough for everybody.

‘I just don't think the tax authorities have been strong enough, assertive enough, brave enough, tough enough in securing for the British taxpayer the monies that are due,’ said Public Accounts Committee chair (PAC) and PwC-basher Hodge.

HMRC insists it has done all it should and all it can. ‘We have systematically worked through all the Lagarde data’, it said, referring to the documents leaked during current IMF chief Christine Lagarde’s tenure as French finance minister. ‘The decision to prosecute is made by the Crown Prosecution Service based on the facts.’

What does HSBC say?

HSBC admitted earlier this year that some of its Swiss Private bank clients ‘may not have met their tax obligations’ in the past, but denied it was their fault, saying that private banks had ‘assumed that responsibility for payment of taxes rested with individual clients’.

It also said it’s dramatically changed its business in the neutral nation, where it has been operating since 1999. ‘We have taken significant steps over the past several years to implement reforms and exit clients who did not meet strict new HSBC standards,’ it said. The result was that its Swiss bank ‘has reduced its client base by almost 70% since 2007’.

While HSBC said it’s fully co-operating with authorities, it pointed out that ‘recent allegations by a French law enforcement official in Nice suggest that the data has been manipulated and could therefore contain material inaccuracies’. While of course HSBC has the original data, it said it’s unable to provide this to foreign authorities under Swiss law. Pesky Swiss law, eh?

What will happen next?

HMRC, Tory peer and former HSBC boss Lord Green and Ed Balls, who was City minister in 2007, have all taken flack from the scandal, but the biggest blow is obviously to HSBC itself. It may have been voted Britain’s Most Admired bank in MT’s December awards, but its reputation has taken a serious knock today.

Fines may follow. In particular, HSBC may face repercussions in the US, where it agreed a $1.9bn (£1.25bn) fine and a deferred prosecution in 2012 over its alleged involvement in two Mexican drug cartels’ money laundering operations.

The terms of the deal mean that if the bank is found guilty of wrongdoing during the deferral, then it could face bigger fines and even have its American banking license revoked. Even a bank which made £7.3bn in six months would feel that.

Investors, or at least the patient, no doubt scandal-hardened investors who hold shares in banks, seem typically nonplussed. HSBC shares dropped 1.8% to 609.6p on the news.

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