A massive leak has exposed shady details of HSBC’s Swiss banking arm (Here’s what you need to know about the Swiss bank document leak )

A group of journalistic institutions, including the Guardian, Le Monde, the BBC, and the International Consortium for Investigative Journalists, just published a huge story on global tax evasion through private Swiss bank accounts based on leaked documents from HSBC’s Swiss subsidiary, HSBC Private Bank.

It’s hard proof that the world’s elite keep a lot of money away from the prying eyes of their respective countries’ tax collectors by keeping private accounts in Switzerland, which the country’s bankers are legally bound to keep quiet about. There are about 30,000 documents from the years 2005-2007, with assets totalling about $120 billion.

HSBC’s Swiss banking arm helped wealthy customers dodge taxes and conceal millions of dollars of assets, doling out bundles of untraceable cash and advising clients on how to circumvent domestic tax authorities, according to a huge cache of leaked secret bank account files.

The files — obtained through an international collaboration of news outlets, including the Guardian, the French daily Le Monde, BBC Panorama and the Washington-based International Consortium of Investigative Journalists — reveal that HSBC’s Swiss private bank:

  • Routinely allowed clients to withdraw bricks of cash, often in foreign currencies of little use in Switzerland.
  • Aggressively marketed schemes likely to enable wealthy clients to avoid European taxes.
  • Colluded with some clients to conceal undeclared “black” accounts from their domestic tax authorities.
  • Provided accounts to international criminals, corrupt businessmen and other high-risk individuals.

The HSBC files, which cover the period 2005-2007, amount to the biggest banking leak in history, shedding light on some 30,000 accounts holding almost $120bn (£78bn) of assets.

The revelations will amplify calls for crackdowns on offshore tax havens and stoke political arguments in the US, Britain and elsewhere in Europe where exchequers are seen to be fighting a losing battle against fleet-footed and wealthy individuals in the globalised world.

Approached by the Guardian, HSBC, the world’s second largest bank, has now admitted wrongdoing by its Swiss subsidiary. “We acknowledge and are accountable for past compliance and control failures,” the bank said in a statement. The Swiss arm, the statement said, had not been fully integrated into HSBC after its purchase in 1999, allowing “significantly lower” standards of compliance and due diligence to persist.

That response raises serious questions about oversight of the Swiss operation by the then senior executives of its parent company, HSBC Group, headquartered in London. It has now acknowledged that it was not until 2011 that action was taken to bring the Swiss bank into line. “HSBC was run in a more federated way than it is today and decisions were frequently taken at a country level,” the bank said.

HSBC was headed during the period covered in the files by Stephen Green — now Lord Green — who served as the global bank’s chief executive, then group chairman until 2010 when he left to become a trade minister in the House of Lords for David Cameron’s new government.

stephen green hsbcEd Jones/Getty ImagesLord Stephen Green, former head of HSBC.

He declined to comment when approached by the Guardian.

Although tax authorities around the world have had confidential access to the leaked files since 2010, the true nature of the Swiss bank’s misconduct has never been made public until now. Hollywood stars, shopkeepers, royalty and clothing merchants feature in the files along with the heirs to some of Europe’s biggest fortunes.

In one memo, an HSBC manager is recorded discussing how a London-based financier whom the bank codenamed “Painter”, and his partner, could cheat on Italian tax. “The risk for the couple is, of course, that when they return to Italy the UK tax authorities will pass on information on them to the Italian tax authorities. My own view on this was that … there clearly was a risk.”

According to the files, HSBC’s Swiss bankers were also prepared to help Emmanuel Shallop, who was subsequently convicted of dealing in “blood diamonds”, the illegal trade that fuelled war in Africa.

One memo records: “We have opened a company account for him based in Dubai … The client is currently being very careful because he is under pressure from the Belgian tax authorities who are investigating his activities in the field of diamond tax evasion.”

The records indicate HSBC managers were untroubled that a customer collecting cash bundles of kroner might be breaking Danish law. HSBC staff were instructed: “All contacts through one of her 3 daughters living in London. Account holder living in Denmark, i.e. critical as it is a criminal act having an account abroad non declared.”

HSBC’s Swiss bankers routinely handed over large sums of cash to visiting clients, asking few questions, the files show. The bank said it had since tightened its controls. “The amended terms and conditions allowed the private bank to refuse a cash withdrawal request, and placed strict controls on withdrawals over $10,000 [£6,600],” its statement said.

richard caringDave M. Benett/Getty ImagesRichard Caring (second from right) and his family at The Ivy.

One example of the old system detailed in the files involves Richard Caring, a British tycoon and owner of London’s celebrity-packed Ivy restaurant, who on one day in 2005 removed 5m Swiss francs (£2.25m) in cash. When the Guardian asked him why, he declined to explain. His lawyer said it was a private matter and involved no impropriety. Caring’s UK tax status allowed him legally to keep his accounts secret from the tax authorities.

The files show how HSBC in Switzerland keenly marketed tax avoidance strategies to its wealthy clients. The bank proactively contacted clients in 2005 to suggest ways to avoid a new tax levied on the Swiss savings accounts of EU citizens, a measure brought in through a treaty between Switzerland and the EU to tackle secret offshore accounts.

The documents also show HSBC’s Swiss subsidiary providing banking services to relatives of dictators, people implicated in African corruption scandals, arms industry figures and others. Swiss banking rules have since 1998 required high levels of diligence on the accounts of politically connected figures, but the documents suggest that at the time HSBC happily provided banking services to such controversial individuals.

The Guardian’s evidence of a pattern of misconduct at HSBC in Switzerland is supported by the outcome of recent court cases in the US and Europe. The bank was named in the US as a co-conspirator for handing over “bricks” of $100,000 a time to American surgeon Andrew Silva in Geneva, so that he could illegally post cash back to the US.

Another US client, Sanjay Sethi, pleaded guilty in 2013 to cheating the US tax authorities. He was one of a group of convicted HSBC clients. The prosecution said an HSBC banker promised “the undeclared account would allow [his] assets to grow tax-free, and bank secrecy laws in Switzerland would allow Sethi to conceal the existence of the account”.

In France, an HSBC manager, Nessim el-Maleh, was able to run a cash pipeline in which plastic bags full of currency from the sale of marijuana to immigrants in the Paris suburbs were collected. The cash was then taken round to HSBC’s respectable clients in the French capital. Bank accounts back in Switzerland were manipulated to reimburse the drug dealers.

HSBC is already facing criminal investigations and charges in France, Belgium, the US and Argentina as a result of the leak of the files, but no legal action has been taken against it in Britain.

Former tax inspector Richard Brooks tells BBC Panorama in a programme to be aired on Monday night: “I think they were a tax avoidance and tax evasion service. I think that’s what they were offering.

“There are very few reasons to have an offshore bank account, apart from just saving tax. There are some people who can use an … account to avoid tax legally. For others it’s just a way to keep money secret.”

This article originally appeared on guardian.co.uk.

This article was written by David Leigh, James Ball, Juliette Garside and David Pegg from The Guardian and was legally licensed through the NewsCred publisher network.

The details

These aren’t new documents, they were leaked to the French government in 2010 and shared with various governments around the world. The US Department of Justice fined HSBC $1.92 billion — a record, at the time — back in 2012 after receiving the documents. Matt Taibbi wrote a long piece in Rolling Stone about it in 2013.

But this appears to be the first time journalists have had access to the full trove of documents. According to the various reports, there are a lot of things like this (from the Guardian’s post):

In one memo, an HSBC manager is recorded discussing how a London-based financier whom the bank codenamed “Painter”, and his partner, could cheat on Italian tax. “The risk for the couple is, of course, that when they return to Italy the UK tax authorities will pass on information on them to the Italian tax authorities. My own view on this was that … there clearly was a risk.”

And this:

HSBC’s Swiss bankers routinely handed over large sums of cash to visiting clients, asking few questions, the files show. The bank said it had since tightened its controls. “The amended terms and conditions allowed the private bank to refuse a cash withdrawal request, and placed strict controls on withdrawals over $10,000 [£6,600],” its statement said.

The bank’s official response is that, while it takes full responsibility, its Swiss subsidiary basically operated on its own until the last couple of years. It was acquired in 1999, included in a deal for HSBC to acquire the Republic National Bank of New York and Safra Republic Holdings SA, another private bank. The bank’s statement says the Swiss subsidiary, “focused on a very different client base and had a significantly different culture to HSBC. The business acquired was not fully integrated into HSBC, allowing different cultures and standards to persist.”

So why does this matter?

For one thing, if you’re rich and you want to avoid paying taxes, there are legal and illegal ways to do that. There’s a giant industry devoted to finding (and creating!) the legal ways to do it. The evidence in these documents seems to show that this isn’t what HSBC was doing. It was pretty clearly advising its clients on the illegal ways to do it, which mostly have to do with pretending the money you have sitting in Switzerland doesn’t exist.

On the other side, these documents name the names of the people who were using these services.

The bank also was pretty lax about background checks. Well-known international criminals — drugs, arms, blood diamonds, etc — could come into the bank, put down some cash, and open an account without anyone asking too many questions about where the money came from.

If you believe that global inequality is rising, and that it’s mostly because the wealthy are getting wealthier, then this is a big problem. The role of taxes in society is to redistribute wealth, and every dollar in a secret Swiss tax shelter account is a part of a dollar that isn’t being spent on roads or schools or healthcare somewhere else. (Places like Greece, which would really use the tax revenue right about now.)

That said, there is a lot of money and power in the world demanding these kinds of services. HSBC isn’t the only private bank operating like this, and shutting down its operation isn’t likely to mean that wealthy individuals who are committed to finding any and all ways to avoid paying taxes suddenly have a change of heart — although according to Le Monde, the French are taking 72 individuals to court over what’s in the documents, and “most of the French taxpayers whose identity was revealed in the Falciani lists have since regularised their tax affairs.”

Global tax avoidance crackdown

There is a relatively serious global movement to crack down on tax avoidance being led by the Organization for Economic Cooperation and Development (OECD). It has been working with the finance ministers of the G20 nations to come up with some global guidelines for tax reform and reporting. And it’s sort of working.

Because of the OECD’s pressure on corporate tax reform, Ireland killed the popular double Irish tax loophole last year.

More importantly to this story, there’s something called the Convention on Mutual Administrative Assistance in Tax Matters, which is basically just an agreement between countries, including Switzerland, to share important financial information with one another. Swiss banking has been conducted in secret, by law, since 1934.

The Guardian writes:

By 2018, Switzerland has committed to automatic exchange of information about individual accounts, taxes, assets and income along with 50 other nations… This information exchange [has] been trumpeted as the end of banking secrecy.

Even with this agreement, though, Swiss banking law hasn’t changed that much. Don’t count on this as the end of secret Swiss bank accounts

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