For years, HSBC Holdings Plc, the private-banking unit in London, has made substantial profits with accounts that many won’t believe. Sources have reported that arms dealers, drug cartels, fugitive diamond merchants and tax evaders have all hid money with the aid of HSBC. As a result, HSBC along with several other banks are facing prosecution.
This type of investigation isn’t new to HSBC or the other banks. They had been investigated for allowing depositors to hide their identity in the Swiss banking system already. They permitted these depositors to hide their identities, evade taxes and even launder money that had been ill-gotten.
HSBC has an extensive list of clients with offshore accounts
The first time this activity was exposed was in 2007 by Washington-based International Consortium of Investigative Journalists. Back then, HSBC’s private-banking arm controlled assets valued at $100 billion belong to elite and criminal wealthy depositors as well. The large sweep of HSBC private-banking arm lowered their shares 2 percent, leaving them valued 117 billion pounds ($178 billion).
A list of clients with HSBS was the basis of this report. The list was turned over to European officials by a former employee of HSBC. Immediately afterward it was reported that Argentina, Belgium, France and Greece all began tax investigations into the matter. By Sunday, additional accounts were listed that had over 100,000 people and legal entities had been reported.
It has been said that this investigation now includes over 200 nations. According to a European Union spokeswoman, Vanessa Mock, “These revelations confirm that banking secrecy has been used to avoid taxation.”
Ambassadors and royal families as well as entertainers, were among the account holders listed. The list also included convicted cocaine dealers, terror suspects and even elected officials as well as athletes and corporate executives. It would seem no class was left behind by HSBC’s help in hiding assets from tax collectors. It is stated that the bank went so far as to promote the efficient way to these clients.
According to a written statement by HSBC, they stated their efforts to be sufficient in compliance efforts lacked. They also pointed out that there had been “a radical transformation” by the bank since 2007 and they were now enforcing stricter reporting requirements.
The statement also said “HSBC has initiated numerous initiatives designed to ensure that its banking services are not used to evade taxes or launder money.” A former CEO, Stephen Green, declined comment to the BBC. In addition to operating in mover 70 countries, London-based HSBC also has a private-banking unit located in Geneva.
Diamond Dealers and Russian Ties
Also included in the report are name of controversial figures that have made deposits. Those deposits include the late Haitian President Jean-Claude “Baby Doc” Duvalier. Duvalier had been accused of embezzlement of hundreds of millions prior to fleeing his country. Listed by Interpol, other fugitives listed included Kenneth Lee Akselrod and Mozes Victor Konig, both diamond dealers.
Billionaire Gennady Timchenko, the Russian oligarch and other depositors are on U.S. sanction lists. Timchenko is said to have close ties to Russian President Vladimir Putin. Spokesman Anton Kurevin, declined to comment.
For the Swiss banking systems, these disclosures of HSBC’s clients are just one more blow. Depositors once had a strong privacy at one time. Now with all these disclosures and investigations, that once strong screen of privacy is gone.
The majority of countries do not prohibit citizens from keeping offshore accounts, many of which are legitimate. Among those depositors are entertainers like Swiss citizen David Bowie. Mr. Bowie was not accused of any wrongdoing.
Countries unite to fight tax evasion
With steps like adopting the Organization for Economic Cooperation and Development is just one step taken by EU and Switzerland. It is hoped that information sharing transparency will improved by such steps being taken. Twenty countries have joined together to end the use of secret bank accounts for fraud and tax evasion by 2018. This includes accounts of depositors who are anxious to hide their money from not only law-enforcement but creditors, ex-spouses and political opponents.
The IRS and DOJ have conducted several investigations the past few years and threatened criminal prosecution and financial sanctions. This has put pressure on those like UBS Group AG and Credit Suisse Group AG. Both have had to pay fines as well as turn over lists that held the names of depositors that were helped in hiding monies. The Swiss government was persuaded by diplomatic pressure to put stricter reporting regulations in process.
Drug Cartels used HSBC
Herve Falciani, a former computer technician for HSBC is said to have leaked this information he possessed. In 2008 when Falciani, a self-proclaimed whistle-blower, left HSBC, he took five disks of confidential information. He was able to provide the details of over 100,000 accounts to Christine Lagarde, the French Finance Minister.
The head of the International Monetary Fund, Christine Lagarde then passed on those details contained in the cache. That cache would now be known worldwide as the Falciani List or Lagarde List.
Political tensions were fueled as some account-holders’ names emerged throughout the financial crisis. More so in Europe where there many of the narrative of banks that helped wealthy clients evade taxes. This banking practice was taking place in Europe even though it was their governments that were talking austerity and reducing social services.
Investigators in several European countries stated they were able to collect billions of unpaid taxes because of the leaked information. Officials in France stated that the IRS received the lists of HSBC depositors. However, they declined to provide the amount of unpaid taxes were recovered from those HSBC depositors.
HSBC came to an agreement with the DOJ in 2013 and paid almost $2 billion to settle the charges of enabling drug cartel to launder money.
Royal Accounts are on the HSBC list too.
According to reports by ICIJ, many members of royalty used HSBC. Among the royalty listed was King Mohammed VI of Morocco, Prince Salman bin Hamad Al Khalifa of Bahrain and dozens of the Saudi royal family.
It is legal in both Bahrain and Saudi Arabi, where there are not taxes, to hold foreign accounts. A Bahraini government spokesman said the only connect the crown prince has to the HSBC account is a minority investment. That minority investment is in a regional hedge fund where money has been deposited. However, he did not have control of any financial activities with the fund. The spokesman went on to say that there was not any tax advantage to the Swiss account.
Any changes on the horizon?
Known as “the man who makes the rich tremble”, Falciani is a contentious figure in Europe by the French press. He is accused by the Swiss government of attempting to sell the stolen account information in Lebanon. They are attempting to extradite and prosecute Falciani on charges of industrial espionage as well as violating bank secrecy laws. Falciani has stated that the Swiss government has an “agenda” to protect the bank and his prosecution is a part of that.
The ICIJ partners with publications around the globe state they obtained access to the depositor list by collaborating with Le Monde. The French newspaper it is said, obtained thee list from French government sources.
HSBC issued a statement that they are accepting its responsibility to ensure that their clients are within the law and paying taxes. They are also closing accounts of those that aren’t abiding the law. The bank went on to say “As a result of this repositioning, HSBC’s Swiss private bank has reduced its client base by almost 70% since 2007”.
More news to come..