# Report: HSBC Helped Thousands of Wealthy Individuals Illegally Evade Taxes



## BBCWatcher

The Guardian, the BBC, Le Monde, and many other members of an international consortium of investigative journalists are reporting on a leak of thousands of documents detailing HSBC's activities aiding and abetting thousands of wealthy individuals in their illegal tax evasion worth billions of dollars. (The suspicious assets themselves were worth about $120 billion.) The Guardian's report is available here.

The U.K. government is under fire for appointing HSBC's former chief to a senior ministerial post and to the House of Lords. The U.K. government, quite unlike several other governments around the world, has thus far not mounted a criminal investigation of HSBC. Belgian authorities, for example, are reportedly poised to issue international arrest warrants for several HSBC executives.

HSBC helped practically every sort of individual around the world primarily through its Swiss private banking subsidiary: Hollywood stars, diamond dealers (including those dealing in blood diamonds), "housewives," royalty, international criminals, current and former despots. There are about 1,200 Indian names on the list, for example -- a "who's who" of India's most upper class including politicians, Bollywood celebrities, athletes, and titans of industry. The Indian government promises to investigate, although the Indian government is also coming under fire for failing to pursue tax evasion with vigor and for letting some individuals skate free.

Several governments have had access to the leaked files since 2010, but now journalists have gained access and are reporting on the documents. HSBC admits that there were serious problems with its Swiss arm.

There's much more available at the link above. This story continues to develop.

HSBC is, by one measure, the world's second largest bank.


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## BBCWatcher

Here's information on the U.S. aspects of the HSBC tax evasion scandal. There were 2,900 U.S. persons who held HSBC accounts in Switzerland. French authorities shared the documents with their counterparts at the IRS in 2010.

One serious problem for HSBC is they are widely viewed to have gotten off with a slap on the wrist in December, 2012. HSBC paid a civil penalty to settle its offenses helping Mexican drug cartels illegally launder billions and helping other clients evade international embargoes. The $1.9 billion settlement (that may be less due to tax and other factors) was panned for its failure to either criminally prosecute any bank managers or employees or terminate HSBC's banking charter in the U.S. This new press focus may force U.S. policymakers to hold HSBC more fully accountable. (CBS's 60 Minutes is part of the press consortium.)


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## BBCWatcher

Here's the 60 Minutes report that aired on February 8, 2015. BBC's Panorama report on HSBC airs tonight (February 9).

According to Jack Blum, a former investigator for the U.S. Senate, under U.S. law aiding someone in U.S. tax evasion is itself a felony. It doesn't matter where the "helpful" bank or bankers were located.

So it's very reasonable to ask: where are the prosecutions? The arrest warrants? The indictments? Several governments and individuals are facing those and several other hard questions now. For a tax scandal so outrageous and so widespread there seems awfully little enforcement action. The HSBC documents illustrate illegal activities around the world, in practically every country. Yet the U.K., for example, has prosecuted only one individual. Really, seriously?

And why did U.S. authorities strike such a milquetoast deal with HSBC in December, 2012, when the IRS first got ahold of these leaked documents in 2010? What is going on here? Senator Sherrod Brown of Ohio is among those who want some answers, particularly from the Justice Department.


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## Bevdeforges

No big surprise here. I think the whole HSBC thing must have been reported earlier in France than in the US, because I recall hearing about it some time ago. And really, all the fines levied against the various banks these last few years have amounted to just a slap on the wrist. Serious jail time for some of the executive would probably do much more good - but I guess we'll never know.
Cheers,
Bev


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## Nononymous

BBCWatcher said:


> And why did U.S. authorities strike such a milquetoast deal with HSBC in December, 2012, when the IRS first got ahold of these leaked documents in 2010? What is going on here? Senator Sherrod Brown of Ohio is among those who want some answers, particularly from the Justice Department.


The IRS is so exhausted after dreaming up ways to go after Canadian retirement accounts that it just doesn't have the energy left for this nickel-and-dime tax evasion ****e.


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## BBCWatcher

Canadian authorities haven't prosecuted anybody. That's despite the fact HSBC helped Canadians illegally evade Canadian taxes at what seems to be a much higher per capita rate than south of the border.

"Voluntary compliance," after authorities already have caught you red handed with bank records? That's quite a sweetheart deal. Far too sweet.


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## maz57

BBCWatcher said:


> So it's very reasonable to ask: where are the prosecutions? The arrest warrants? The indictments? Several governments and individuals are facing those and several other hard questions now. For a tax scandal so outrageous and so widespread there seems awfully little enforcement action. The HSBC documents illustrate illegal activities around the world, in practically every country. Yet the U.K., for example, has prosecuted only one individual. Really, seriously?
> 
> And why did U.S. authorities strike such a milquetoast deal with HSBC in December, 2012, when the IRS first got ahold of these leaked documents in 2010? What is going on here? Senator Sherrod Brown of Ohio is among those who want some answers, particularly from the Justice Department.


Because if they really cracked down a lot of politicians, officials, and their cronies would wind up being indicted. No one wants that.


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## maz57

BBCWatcher said:


> Canadian authorities haven't prosecuted anybody. That's despite the fact HSBC helped Canadians illegally evade Canadian taxes at what seems to be a much higher per capita rate than south of the border.
> 
> "Voluntary compliance," after authorities already have caught you red handed with bank records? That's quite a sweetheart deal. Far too sweet.


That's because Canada isn't quite as punishment oriented as the US. Heck, we don't even have the death penalty here!

Compliance is compliance no matter how it is accomplished. (However, I do believe that after taking advantage of the voluntary compliance program a repeat offense does result in prosecution. That's not likely to happen once one has come in from the cold.)


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## jbr439

BBCWatcher said:


> Canadian authorities haven't prosecuted anybody. That's despite the fact HSBC helped Canadians illegally evade Canadian taxes at what seems to be a much higher per capita rate than south of the border.
> 
> "Voluntary compliance," after authorities already have caught you red handed with bank records? That's quite a sweetheart deal. Far too sweet.


Kinda have to agree. The US approach often seems draconian in many ways, however, Canada's approach just seems to invite genuine tax evasion. Would like to see Canada adopt some kind of happy medium.


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## BBCWatcher

That's one theory, and it fits the facts.  That said, this scandal touches ~200 countries -- it's truly global. The scope of criminality is breathtaking. You'd think at least a couple countries would be throwing at least a few people in prison. The French and the Belgians might be ahead of the game, and maybe, just maybe, this reporting will wake other countries' authorities from their comas.

As one commenter pointed out, steal a bottle of water in the U.K. and you land in prison for six months. Criminally evade millions of pounds in taxes -- or help people do it -- and worst case you might have to pay a tiny fraction as a cost of doing business.


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## BBCWatcher

Yes, as expected, the HSBC document dump is shaking things up. UBS chose today to confirm that they're also under criminal investigation in the U.S. for helping wealthy clients illegally evade taxes. UBS has already paid fines and is also under investigation for currency manipulation.

These are quite simply criminal enterprises. It's long past time to throw some guilty bankers in prison.


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## Bevdeforges

BBCWatcher said:


> These are quite simply criminal enterprises. It's long past time to throw some guilty bankers in prison.


I wouldn't hold my breath on this one.... 
Cheers,
Bev


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## BBCWatcher

Another shoe (boot?) has dropped. Swiss authorities have raided HSBC's Geneva office in an inquiry into alleged money laundering.


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## BBCWatcher

Oh dear, another bombshell. The _current_ chief executive of HSBC, Stuart Gulliver, used his own bank's Swiss subsidiary to shelter money, perhaps illegally. Moreover, HSBC is headquartered and based in the U.K., but its own chief executive is domiciled in Hong Kong for legal and tax purposes. That's quite a commute he's got!

It gets better (or worse). Gulliver has a Panamanian company in the mix, and he's on secondment from the Netherlands-based HSBC Asia Holdings to the U.K. parent company. Follow that? Neither do I.

Of course there's no other reason for any of this complication besides aggressive tax avoidance and/or illegal tax evasion. And this is the chief executive of HSBC doing this, in his post. What a bank.


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## Bevdeforges

Ho hum - you can say much the same thing for, oh, let's say USB, Goldman Sachs, probably any Swiss or Luxembourgish bank that does business internationally, Credit Lyonnais, BNP Paribas (which still holds the record for the biggest fine paid to the US), B of A. It's just a matter of how much in fines the US can hold them up for.

Once we start getting hard jail time for the officers of the banks, then maybe we'll see some changes in the system.
Cheers,
Bev


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## BBCWatcher

About that prison time idea, the Independent has an important bit of new reporting.


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## BBCWatcher

Via the BBC, "Stuart Gulliver says he has never paid below the highest rate of UK tax on all his earnings since becoming CEO." That sounds great, except that Gulliver himself points out that most of his HSBC compensation is deferred in the form of stock (and various stock-related vehicles) into the far, far future. The way he's structured his affairs means he may never pay U.K. tax rates on that deferred compensation. He also doesn't pay U.K. tax rates on any of his investment income, or at least he doesn't have to. Gulliver conspicuously did not use the words "worldwide income" in his statement. Hong Kong has a zero tax rate on passive income (interest, dividends, capital gains).

The point is that the chief executive of (by some measures) the world's second largest bank, headquartered and based in the U.K., who obviously works in the U.K., is a U.K. non-dom. As so many people have now pointed out in the press reports relating to this story, U.K. non-dom status is ridiculous and full of abuse. Gulliver is now its poster child.

The BBC also offers this gem: "Mr Gulliver gives a fascinating insight into his own tax affairs. Back in the 1990s HSBC's computer system in Hong Kong let everyone in the bank access the accounts of every other member of staff. So he opened a bank account in Switzerland for privacy reasons. 'To protect me from the HK staff,' he says. And the Panama account was then opened 'to protect me from the Swiss staff.'"

So, even if we take Gulliver's explanation at face value, HSBC's internal business controls and systems were so decrepit, and its staff so untrustworthy, and its compensation policies so unfair, that HSBC's own executives had to double-hide their compensation and bonuses from fellow employees.

OK then. What a bank.


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## Nononymous

In all honesty, HSBC sounds like the kind of bank I'd want to do business with. I expect they'll do a much better job than RBC at keeping my information away from FATCA. If tax evasion is built into their DNA, then they are my kind of bank. There's one down the street - I'll go see them this week.


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## maz57

BBCWatcher said:


> .....is deferred in the form of stock (and various stock-related vehicles) into the far, far future.


Hmmmm. That sounds very much like what all the rest of us are also doing with our own tax-deferred savings schemes. There's nothing very sinister about that, except if a big newspaper or politician gets hold of the story, of course. I'll believe it when there is an actual prosecution. (But not when some politician says he thinks there should be a prosecution.)

These bigwigs know the rules very well and follow them optimally to their best advantage. Some time ago the CBC obtained some stolen personal financial records of wealthy Canadian individuals. Some of these people had (horror of horrors!) foreign trusts and the CBC made a big stink and publicly named them instead of doing what they were legally obligated to do; turn the info over to the CRA. They figured they had the scoop of the century. It never went anywhere because no laws had been broken. (Although I suspect the CBC quietly had to pay a lot of money to settle the lawsuits that resulted from the laws that THEY broke.)

Good grief, in the eyes of the IRS all of our garden variety "alphabet soup" Canadian "foreign" trusts were illegal tax evasion vehicles until very recently. So again, show me some illegal tax evasion, not legal tax avoidance. The proof of that will be prosecutions, not sensational newspaper articles.


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## BBCWatcher

Here's some more HSBC fallout: HSBC account holders in Jersey are getting "invitations" to chat. HSBC will no longer maintain ordinary Jersey-based accounts for non-Jersey residents. ("Expat" HSBC accounts are still possible, though that's not a "Jersey" product, really. The only thing Jersey about HSBC's expat accounts is where the particular HSBC subsidiary that manages those accounts is based. They're not "Jersey" to the expat banking customers.)

Jersey has at least traditionally been a major tax haven, including especially for U.K. residents engaged in illegal tax evasion and other illegal or questionable financial activities. Not so much any more.

Meanwhile, Commerzbank, Germany's second largest bank, settled with U.S. authorities for $1.45 billion. Commerzbank violated international sanctions against businesses in Iran and Sudan, and the bank also facilitated Japanese firm Olympus's money laundering scheme.


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## maz57

BBCWatcher said:


> Meanwhile, Commerzbank, Germany's second largest bank, settled with U.S. authorities for $1.45 billion. Commerzbank violated international sanctions against businesses in Iran and Sudan, and the bank also facilitated Japanese firm Olympus's money laundering scheme.


What I would like to know is, if they are able to squeeze $1.45 billion out of the likes of Commerzbank for disobeying US orders, why are they bothering with all of us expats? Surely there must be lots of other big banks around the world which also disobey the US government. 

That seems like a much more effective way to raise revenue than bothering people who who owe no tax.


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## cuerna1

It is my understanding that most (if not all) of the activities that HSBC is getting in trouble for occurred years ago.


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## Bevdeforges

maz57 said:


> What I would like to know is, if they are able to squeeze $1.45 billion out of the likes of Commerzbank for disobeying US orders, why are they bothering with all of us expats? Surely there must be lots of other big banks around the world which also disobey the US government.
> 
> That seems like a much more effective way to raise revenue than bothering people who who owe no tax.


They're working their way through all the big banks, I guess. But who knows what they wind up using the "fines" for?
Cheers,
Bev


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## maz57

Bevdeforges said:


> They're working their way through all the big banks, I guess. But who knows what they wind up using the "fines" for?
> Cheers,
> Bev


It doesn't really matter; the money all winds up in the US Treasury. 

By the way, after the UK decided to join the AIIB (Asia Infrastructure Investment Bank) as a founding member, the US government was very critical of the UK move. The US didn't like it because this new bank is totally independent of the US system and doesn't use US dollars but rather allows member countries to settle payments with each other's currencies. In other words, the chickens are coming to roost; the US is losing its grip.

Now, the news is out that France, Germany, and Italy have signed on as well:

European giants side with UK in Chinese World Bank row with US - Telegraph 

Naturally this whole alternate system is beyond the reach of FATCA. Guess which countries' big banks have gotten wacked by the US recently? As Arsenio Hall used to say: hmmmmm...


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## BBCWatcher

maz57 said:


> What I would like to know is, if they are able to squeeze $1.45 billion out of the likes of Commerzbank for disobeying US orders....


This isn't only "disobeying US orders." Far from it. Commerzbank violated U.S. law in the U.S., but the U.S. laws they violated relate to U.N. international sanctions.

Violations of international sanctions are domestic crimes in practically every country around the world -- certainly in every developed country where a major bank is likely to have some operations, including Germany of course. The $1.45 billion penalty is just the U.S. share because that's where a major portion of Commerzbank's illegal activities occurred. Other governments can and presumably will impose their own penalties against Commerzbank, and those penalties will be based on those countries' laws and the scope of Commerzbank's illegal activities in those countries.


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## maz57

Cost of doing business.


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## BBCWatcher

It is, but that figure seems high enough to deter banks from violating international sanctions. Also keep in mind that the U.S. criminal justice system features probation, and probation, at least on paper, is very dangerous. If Commerzbank screws up and commits any other criminal violation within X years (the probation period), the settlement is void. The $1.45 billion settlement penalty then becomes the minimum.

Various major banks, including HSBC, face exactly that problem now. A number of banks committed criminal violations during their probationary periods, so they face not only the new penalties but also reassessment (increase) of the old settlement penalties.

That said, this nonsense probably isn't going to stop unless and until authorities in several countries start throwing individuals responsible for committing criminal acts into prison. Financial penalties clearly aren't effective enough in changing banks' bad behaviors.


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## BBCWatcher

Hervé Falciani, the whistleblower who discovered HSBC's Swiss branch aided and abetted, received a five year prison sentence in absentia in a Swiss court. The court convicted him of only one charge: "a violation of economic intelligence." Falciani lives in France, and he is a citizen of France. The French government will not extradite Falciani to Switzerland, so his sentence in absentia serves only to bar him from Switzerland, something that was already true.

Falciani provided details concerning about 130,000 individuals in several countries who almost certainly illegally evaded taxes. Several governments' tax agencies have already recovered large sums thanks to Falciani's information now known as the "Lagarde list" since Falciani first provided the information to Christine Lagarde, previously France's Finance Minister and now head of the International Monetary Fund. Spain also refused to extradite Falciani to Switzerland when he spent some time there under protection. Spain has few bank secrecy laws, and, regardless, in Spain bank secrecy is no defense against illegal activities.

Falciani's revelations, along with those of Bradley Birkenfeld and other whistleblowers, have busted wide open the secret, unsavory, infamous world of Swiss private banking where illegal tax evaders, kleptocrats, drug runners, weapons merchants, and, yes, Nazis (still, a few) have all parked their funds for decades. As Switzerland's banking industry is getting cleaned up, will it be attractive? Probably not. Switzerland's banking services have never really had to compete head-to-head with efficient global rivals. HSBC, for example, is winding down most of its Swiss operations after paying hefty fines (with more to come probably). The Swiss watch industry is also suffering, in part because of the Apple Watch. Switzerland is going to have its challenges in the months and years ahead.

In other tax-related news, the Netherlands has "competed" for many years to be the country of choice for global multinational firms to "domicile" in order to reduce their effective rates of corporate tax. The European Commission is cracking down on that practice and has ordered the Dutch government to recover as much as 30 million euro from Starbucks. The EU considers the Dutch government's tax favoritism to be a form of illegal state aid under EU competition rules. The Dutch government is filing an appeal. The appeal will determine whether _thousands_ of tax rulings the Dutch government has made will stand. Starbucks is only the first domino.

The tax schemes that the Dutch, Irish, and other "tax friendly" governments promote is for global or regional multinational companies to "domicile" in their countries and use aggressive accounting techniques to allocate revenue and profit as much as possible to the low tax jurisdiction. Consequently Starbucks magically "loses" money in, for example, the United Kingdom via license fees, franchise fees, etc. but makes a vast fortune (taxed at very low rates) in the Netherlands. In some cases the corporate tax abuses are so egregious that certain companies are not domiciled anywhere, truly, and pay no tax to anyone. Well, the EU, U.S., OECD, etc. think these practices are ripoffs, and they're starting to crack down.


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