Leaked customer data from HSBC’s private banking unit in Switzerland details how the bank assisted clients in hiding their assets from tax authorities, according to a report released Sunday by the International Consortium of Investigative Journalists in collaboration with journalists from more than 50 newspapers and news programs around the world.
British newspaper The Guardian said that while recent court cases in the U.S. and Europe have given isolated examples of the HSBC’s wrongdoing, the leaked data showed “how these cases were part of a persistent pattern of misconduct.”
And the BBC said the documents showed that HSBC “had helped wealthy clients across the world evade hundreds of millions [in taxes].”
According to ICIJ, the bank repeatedly reassured clients that it would not disclose details of the accounts to national authorities, even if evidence suggested that the accounts were undeclared to tax authorities in the client’s home country.
In addition, bank employees discussed with clients measures that would allow the clients to avoid paying taxes in their home countries.
Some of the leaked files are based on notes on clients and conversations with them made by bank employees during 2005. The Guardian quoted an HSBC manager who wrote on the file of Irish businessman John Cashell, who was later convicted of tax fraud: “His preoccupation is with the risk of disclosure to the Irish authorities. Once again I endeavored to reassure him that there is no risk of that happening.”
In a separate case where an Australian banker wanted to share his Swiss account with his daughter, the Guardian reported, the bank wrote in its internal files: “The account is ‘undeclared’, a fact with which [she] may not be entirely at ease – as a compliance officer at Kleinwort Benson.”
For another client, HSBC staff noted it kept bearer shares for a beneficial owner from Israel in a safe “for tax reasons.” To make use of the funds in undeclared accounts, the leaked documents allegedly show that bank staff suggested large cash withdrawals in Switzerland and the use of credit cards for withdrawals outside the client’s home country.
Richard Brooks, a former tax inspector and author of “The Great Tax Robbery,” told BBC Panorama: “I think they were a tax avoidance and tax evasion service. I think that’s what they were offering. They knew full well that people come to them to dodge their tax liabilities.”
The report is based on a list of 106,000 HSBC clients from more than 203 nations, stolen by Hervé Falciani, a former HSBC employee-turned-whistleblower, who passed it on to the French government in 2008. The French government subsequently shared the data with governments around the world, sparking tax investigations in France, Argentina, Belgium, Greece and other countries.
According to the ICIJ, depositors included royal families, convicted cocaine dealers, terror suspects, entertainers, athletes, politicians and corporate executives. “To these and other clients, the bank actively promoted its accounts as an efficient way to hide assets from tax collectors,” the report said.
It is not the first time the global banking giant has been accused of large-scale wrongdoing. In 2012, the U.S. Senate’s Permanent Subcommittee on Investigations released a report detailing anti-money laundering weaknesses at HSBC, which, it said, provided a vehicle for “drug kingpins” and “rogue nations.”
The subcommittee found among other things a large number of high-risk transactions with insufficient anti-money laundering controls involving U.S. dollar accounts held by Mexican residents at HSBC Cayman SA, at the time a class B banking license holder in the Cayman Islands. For some of the accounts, the bank did not have any customer information at all; others were “misused by organized crime,” according to a compliance officer at HSBC’s Mexican subsidiary that controlled the Cayman branch.
The Cayman Islands Monetary Authority withdrew HSBC Cayman SA’s banking license in 2013. In the same year, HSBC reached a $1.9 billion deferred-prosecution deal with the U.S. Justice Department to resolve the claims that it enabled drug cartels to launder money.
In July 2014, HSBC Bank in the Cayman Islands announced the sale of the majority of its corporate and retail banking business worth about US$800 million to Butterfield and declared it was leaving Cayman.
The latest data leak was obtained by French newspaper Le Monde, apparently from French tax authorities, and covers clients and their accounts from 1988 to 2007, as well as the maximum amounts maintained in the accounts during 2006 and 2007, which totaled more than $118 billion.
The majority of the funds, about $31.2 billion, were held by Swiss clients, followed by U.K. clients with $21.7 billion, Venezuelan customers with $14.8 billion, U.S. clients with $13.4 billion and French accounts with $12.5 billion.
About $3.4 billion of assets related to 206 individuals and entities connected to the Cayman Islands although none of them had a “Caymanian passport or nationality,” according to the ICIJ website.
More than 90 percent of the 742 accounts connected to Cayman account holders were personal bank accounts with the remainder linked to an offshore company. The largest amount associated with a client connected to Cayman was $731.5 million.
However, ICIJ said that there are legitimate uses for Swiss bank accounts and trusts and the organization did not intend to suggest or imply that those account holders have broken the law or acted improperly.
HSBC says bank has changed
HSBC said in a reaction to the revelations that the bank had undergone a radical transformation in recent years.
“We acknowledge that the compliance culture and standards of due diligence in HSBC’s Swiss private bank, as well as the industry in general, were significantly lower than they are today,” the bank said in a statement.
The bank admitted that while there are numerous legitimate reasons to have a Swiss bank account, in some cases individuals took advantage of bank secrecy to hold undeclared accounts and may not have fully met their tax obligations.
The written statement said the bank had “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.”
As a result of a repositioning, HSBC’s Swiss private bank has reduced its client base by almost 70 percent since 2007, the bank said.
HSBC further noted that regulatory and public expectations of a bank’s role in ensuring tax compliance by its clients have dramatically shifted and that banks are now expected to assist tax authorities in pursuing tax evaders in addition to not facilitating tax evasion or any form of non-compliance with tax obligations.
The bank said it welcomes tax information measures such as the common reporting standard which will enable the automatic exchange of tax information and prevent the “hiding” of assets from tax authorities.