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HSBC settles tax allegations with French prosecutors

Chris Hamblin, Editor, London, 17 November 2017

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HSBC Holdings has agreed to pay €300 million (£267 million) to ward off any criminal charges that the government of France might press against it for allegedly helping its French HNW private banking customers to evade taxes through offshore jurisdictions.

A judge in Paris has reportedly decided upon a penalty of about €158 million and damages and interest of about €142 million. The terms of such an agreement do not provide for an admission of guilt on the part of the payer. HSBC has stated that this agreement is the first of its kind to be made in accordance with the Judicial Convention of Public Interest. This innovation stems from the Sapin II Law that France enacted on 9 December last year and provides for the French equivalent of an American-style non-prosecution agreement between a potential defendant and the prosecutors.

As usual, nobody is going to gaol except the 'whistleblower.' The investigation that HSBC has just laid to rest with its payment began against it after Hervé Falciani, an IT man at its offices in Geneva, replicated information about clients' accounts and passed it to the French government.

Although France has been making use of the trove of incriminating data about 130,000 potential tax evaders contained in the so-called Falciani List, others have not. The French Government obtained the data by raiding Falciani's home and then gave it to the British Government in 2010 in the erroneous expectation that it would use it to apprehend and prosecute tax evaders. By the beginning of this year it had prosecuted only one out of 6,800 UK-related accounts.

More trouble seems to be looming on HSBC's horizon, with the BBC stating that Lord Peter Hain believes the bank to be embroiled in South Africa's developing Gupta scandal. On a lighter note, Stuart Gulliver, 58, the head of HSBC since January 2011, has been awarded the Order of the Aztec Eagle by the Government of Mexico, the country where HSBC (according to the US Government, which fined the bank $1.9 billion in 2012) moved billions of dollars of cash around in armoured vehicles, cleared suspicious travellers' cheques worth billions and allowed drug lords buy to aeroplanes with money laundered through Cayman Islands accounts. Mexico's foreign secretary, Luis Videgaray Caso, and finance secretary, José Antonio Meade, decorated Gulliver for his contribution to the national and international financial system and his commitment to Mexico.

In 2015 HSBC issued a communiqué in which it justified its conduct in this area with reference to bygone secrecy laws and standards of practice. At the very beginning were the words 'in the past.' It stated: "Private banks, including HSBC’s Swiss private bank, assumed that responsibility for payment of taxes rested with individual clients, rather than the institutions that banked them [and] in some cases individuals took advantage of bank secrecy to hold undeclared accounts. We acknowledge and are accountable for past compliance and control failures.

"We have taken significant steps over the past several years to implement reforms and exit clients who did not meet strict new HSBC standards. HSBC’s Swiss private bank has reduced its client base by almost 70% since 2007. [HSBC acquired] the Republic National Bank of New York and Safra Republic Holdings SA, a US private bank in 1999. The Swiss private bank was largely acquired through this transaction. The Republic/Safra business 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. Too many small and high-risk accounts were maintained. 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.

"In January 2011, new group management fundamentally changed the way HSBC is structured, managed and controlled. HSBC completely overhauled its entire private banking business. Beginning in 2012, Global Private Banking [GPB] developed a tax transparency policy, stating that it will close accounts and refuse any new business where it has reason to believe the client or potential client is not in full compliance with relevant tax obligations. We also enhanced both our “know-your-customer” procedures, including an independent validation by auditors, and our anti-money laundering procedures. We discontinued the hold mail service and we implemented a new policy to remediate [register the owners of] any bearer shares in non-individual accounts. We review all Politically Exposed Persons annually at the highest levels within the group."

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