HSBC's dirty secrets exposed

Leaked files alleging bank helped clients dodge taxes have caused shock waves

FEB 15, 2015


BY YASMINE YAHYA ASSISTANT MONEY EDITOR

The elements could have come straight from a Hollywood thriller: secret meetings held in posh hotels around the world, people using code names to avoid detection and the handing over of bags loaded with cash.

Only that this is not a movie and the players are bankers from one of the world's biggest financial institutions and their super- wealthy clients.

Files leaked by Herve Falciani, an IT worker turned whistleblower at HSBC's Swiss division, allegedly show that the bank actively helped its clients hide millions of dollars of assets and evade taxes, and provided services to drug smugglers and corrupt businessmen and politicians.

Falciani is now in France, which has refused to extradite him to Switzerland, where he faces criminal charges of qualified industrial espionage, unauthorised obtaining of data and violation of banking secrecy.

The revelations came to light earlier this month as a result of the SwissLeaks project led by French newspaper Le Monde and the International Consortium of Investigative Journalists (ICIJ), which worked with more than 140 reporters in 45 countries to analyse the 60,000 files leaked by Falciani.

These files expose how employees at HSBC's Swiss branch told clients that the bank would not report details of their accounts to their home tax authorities, and outlined options for how clients could avoid paying taxes on those assets.


The total value held in the bank accounts has been reported to amount to US$119 billion (S$161 billion), involving clients in more than 200 countries. The leaks come at a time when tax authorities around the world, especially in the West, have been clamping down on tax evaders as a way to bolster government revenues in the wake of the 2008 financial crisis.

The leaked files show that in 2004 and 2005, HSBC Swiss bankers held at least 1,645 meetings in 25 countries with clients or prospective clients, the Swiss newspapers Tages Anzeiger and Le Temps reported. The meetings were held in places as diverse as luxury hotels in Paris and Tel Aviv, a piano bar in Antwerp, the airport in Pointe- Noire, Congo, and a summer residence in Copenhagen.

The files show bank employees blatantly discussing how to get around the law by, for example, helping clients to open offshore trusts and shell corporations to conceal their assets from the taxman.

Banks are legally obliged to conduct special checks on high-risk customers, such as "politically exposed people" - senior political figures or their relatives who may be at greater risk of being involved in corruption, money laundering or avoiding international sanctions.

Banks are also supposed to report suspicious transactions to the authorities.

Yet, the files show HSBC concealing large sums of money for people even after they had been charged with serious wrongdoing, including drug-running, corruption and money laundering, The Guardian reported.

According to The Guardian, the bank serviced clients implicated in six scandals in Africa, including Kenya's biggest corruption case, blood diamond trading and several corrupt military sales.

Other dodgy account holders include bankers accused of looting funds from former Soviet states, and cocaine smugglers operating in the Dominican Republic, The Guardian said.

According to the ICIJ, one of the clients who received cash supplies of US dollars and euros was Arturo del Tiempo Marques, a Spanish property developer who was given a seven-year jail sentence in 2013 for smuggling cocaine. He controlled up to 19 HSBC accounts containing over US$3 million.

One leaked document tells of client Hanne Tox, a Danish woman then 57 years old and listed in her banking records as being a "housewife", who visited the Swiss offices of HSBC Private Bank in 2005 to discuss her account.

A bank employee noted: "Account holder living in Denmark, ie, critical as it is a criminal act having an account abroad non-declared... issue could be solved by… alternatives such as creating an offshore company."

Months later, Ms Tox visited her bankers again, spending the night in Zurich at the Baur au Lac, one of the world's most luxurious and historic hotels, where one night in a suite costs over US$4,000.

The next day, she withdrew 100,000 Danish krone, which at the time amounted to about US$16,000 - in cold, hard cash.

"We just handed out the cash," her bank file noted.

In fact, the leaked files record that throughout 2005, clients arrived in Switzerland to make cash withdrawals in British pounds, euros, Swiss francs, US dollars and Danish krone, sometimes asking for small used notes. Withdrawing and carrying large sums of cash, especially in small or used notes, is seen as a red flag for suspicious activity.

Singapore's anti-money laundering and counter-terrorism financing guidelines, for example, tell banks to watch out for "frequent withdrawal of large cash amounts that do not appear to be justified by the customer's business activity" as an example of a suspicious transaction that should be flagged and possibly investigated.

US surgeon Andrew Silva admitted in 2010 that HSBC's Swiss bank gave him "bricks" of US$100,000 in notes, to secretly post home in a series of envelopes, The Guardian reported.

According to court papers, the bank told its client not to wire money because that would "create a trail for US authorities".

The Guardian reported that Nina Ricci perfume heiress Arlette Ricci kept the equivalent of £15 million in Swiss accounts. The bank passed her 10 packets of 7,500 euros each throughout 2005. She has denied any wrongdoing.

In some cases, the files show that bank employees were uneasy about certain clients' dealings, but still continued to handle their transactions.

For example, there was a 20 million euro transaction by a Serbian businessman that raised flags within the bank, but the employees simply advised him to be more discreet in the future. "Explained that, as per today, the bank did not interfered (sic) in his money transfer transactions, but would have preferred to reduce those activities on a lower scale. (He) understands our concerns and will use smaller amounts," the document noted.

Other clients used their own initiative to stay under the radar of the authorities. HSBC staff wrote this description of Canadian doctor Irwin Rodier: "This client is somwhat (sic) paranoid, e.g., whenever he was coming to ZH (Zurich), he flew to Paris and hired a car to drive to ZH, in order not to re-enact his final destination, etc."

In another set of documents, a HSBC employee referred to one of Australia's most prominent corporate figures, Mr Charles Barrington Goode, by his initials.

"Account holder Mr Ch.B.G. would like to be called Mr Shaw... so the entire discussion we were speaking about Mr Shaw," the employee wrote in one document. At the time of the note, Mr Goode was the chairman of ANZ Bank.

Mr Goode told ICIJ that he opened his account 30 years ago and that HSBC staff had insisted that he use a pseudonym "for security purposes".

He added that the account was dormant for about 25 years and that before he closed the account five years ago, he had declared it to the Australian tax authorities and paid tax on any income he derived.

The 60,000 leaked files list hundreds of prominent corporate figures, athletes, rock stars and Hollywood actors alongside known arms dealers and war criminals as being among clients of HSBC's Swiss unit.

Prominent names include Ms Li Xiaolin, the daughter of former Chinese premier Li Peng, who reportedly held, together with her husband, as much as US$2.48 million in an account at one point.

Also mentioned are: deposed Egyptian president Hosni Mubarak, deposed Tunisian president Ben Ali and current Syrian President Bashar al-Assad. But having a Swiss banking account is not illegal, and not necessarily an indication of tax evasion or other illicit activity. Not all the clients named in the leaked files were necessarily hiding money from the taxman.

In a statement, HSBC Private Bank said: "In the past, the Swiss private banking industry operated very differently to the way it does today.

"HSBC Global Private Banking and in particular its Swiss private bank have undergone a radical transformation in recent years. HSBC has implemented numerous initiatives designed to prevent its banking services being used to evade taxes or launder money."

[Note that this "leak" occurred as early as 2007 (see below) and governments have taken action against HSBC. So this is in fact, old news. Of course the point is (the last sentence of this article) that no one has been held criminally liable or punished. ]

The leaked files have sent shock waves around the world and governments have launched their investigations.

Several governments around the world received the leaked files from Falciani as early as 2007, including France, which has been investigating the bank since then.

The Australian Tax Office revealed last week that it received the files in 2010 and has collected US$30 million as a direct result.

India, too, said it has received a version of the HSBC files and has launched 60 prosecutions.

In the United States, attorney- general nominee Loretta Lynch has warned that the Department of Justice could bring a criminal prosecution against the bank.

Spanish Finance Minister Cristobal Montoro has announced a government-led study into the possibilities of legal action against the bank. In Belgium, a judge is considering issuing international arrest warrants for directors of HSBC's Swiss branch.

In Switzerland itself, public pressure is mounting on the authorities to take action, but the government has so far not made any moves.

Nobody at HSBC has so far been taken to task publicly.