Secret HSBC 'tax dodger' files cause global shock waves

GENEVA — Secret documents published online alleging banking giant HSBC helped wealthy customers dodge millions of dollars in taxes caused global shockwaves Monday and spotlighted the financial dealings of the world's ultra-rich.

The cache of files made public in the so-called SwissLeaks case included the names of celebrities, alleged arms dealers and politicians, though inclusion on the list does not necessarily imply wrongdoing.

The documents published at the weekend claim the London-based bank's Swiss division helped clients in more than 200 countries evade taxes on accounts containing $119 billion (104 billion euros).

The huge cache of files from Europe's biggest bank was stolen by an IT worker in 2007 and passed to French authorities, but had not been previously made public.

The International Consortium of Investigative Journalists (ICIJ) obtained the files via French newspaper Le Monde and shared them with more than 45 other media organisations worldwide.

The documents showed that HSBC opened Swiss accounts for international criminals, businessmen, politicians and celebrities, according to the ICIJ.

The revelations renewed calls for a crackdown on sophisticated tax avoidance by the wealthy and multinational companies. Tax avoidance is legal, but tax evasion is not.

"HSBC profited from doing business with arms dealers who channelled mortar bombs to child soldiers in Africa, bag men for Third World dictators, traffickers in blood diamonds and other international outlaws," ICIJ reported.

Famous names 

A range of current and former politicians from Russia, India and various African and Middle Eastern countries, and the late Australian press magnate Kerry Packer were named in the files.

According to the ICIJ, the list included football and tennis professionals, rock stars and Hollywood actors.

Reuters could not independently verify any of the names listed by the ICIJ. Having a Swiss bank account is not illegal and many are held for legitimate purposes.

The client list included royalty such as Morocco's King Mohammed, politicians, corporate executives including former Santander chairman Emilio Botin, who died last year, and wealthy families, the ICIJ said. A spokesman for the Moroccan royal palace declined to comment.

It also listed arms dealers, people linked to former dictators and traffickers in blood diamonds, and several individuals on the current US sanctions list.

Following the bombshell disclosure, there were calls for a Swiss probe against the bank, which is already facing prosecution in France and Belgium.

"I am angry," former Swiss foreign minister Micheline Calmy-Rey told public broadcaster RTS.

Global fallout on Monday included a Belgian judge said to be considering international arrest warrants for directors of HSBC's Swiss division, while in Britain a political row was triggered, with the main parties blaming each other for not taking action.

Shares in HSBC, whose reputation has been tarnished in recent years by a string of high-profile controversies, were down 1.64 per cent to 610.60 pence at the close of trading in London.

So far, Switzerland has only launched an investigation against HSBC employee-turned-whistle-blower Herve Falciani, who stole the files at the heart of the scandal.

The files were used by the French government to track down tax evaders and shared with other states in 2010, leading to a series of prosecutions.

British tax authorities said Monday they had brought in more than £135 million (181 million euros, $206 million) on the basis of the files.

The Guardian asserted that the files showed HSBC's Swiss bank routinely allowed clients to withdraw "bricks" of cash, often in foreign currencies which were of little use in Switzerland.

HSBC also marketed schemes which were likely to enable wealthy clients to avoid European taxes and colluded with some to conceal undeclared accounts from domestic tax authorities, The Guardian said.

The reports triggered political debate in Britain ahead of a parliamentary election in May. Margaret Hodge, a senior opposition Labour Party lawmaker, said UK tax authorities had done too little.

"All the other countries have collected much more," she told BBC Radio on Monday. "We are never assertive enough, aggressive enough to protect the taxpayer."

David Gauke, a Conservative lawmaker and a junior minister in the finance ministry, criticised HSBC and said the case lifted the lid on poor banking behaviour at the time.

"Clearly HSBC have got questions to answer. Clearly the behaviour that is set out in these disclosures reveal behaviour in 2005 to 2007 that is not what we would expect from a major bank," he said, calling tax evasion "completely unacceptable”.

John Mann, a Labour politician, said HSBC and UK revenue office bosses should be called before lawmakers.

"We acknowledge and are accountable for past compliance and control failures," HSBC said late on Sunday after news outlets published the allegations about its Swiss private bank.

HSBC said that its Swiss arm had not been fully integrated into HSBC after its purchase in 1999, allowing "significantly lower" standards of compliance and due diligence to persist.

HSBC's Swiss banking arm insisted it has since undergone a "radical transformation".

"HSBC's Swiss Private Bank began a radical transformation in 2008 to prevent its services from being used to evade taxes or launder money," Franco Morra, the head of HSBC's Swiss unit, told AFP in an email.

He said the bank had closed the accounts of clients "who did not meet our high standards" and had "strong compliance controls in place", adding that the disclosures were "a reminder that the old business model of Swiss private banking is no longer acceptable".

The Swiss Banking Association said the country's banks had worked hard in recent years to clean up shop and ensure conformity with tax laws.

French Finance Minister Michel Sapin demanded Monday that no mercy be shown to the bank or its tax-cheating clients.

Hidden money? 

Notes in the leaked files indicate HSBC workers were aware of clients' intentions to keep money hidden from national authorities.

Of one Danish account holder collecting cash bundles of kroner, an employee wrote: "All contacts through one of her 3 daughters living in London. Account holder living in Denmark, ie critical as it is a criminal act having an account abroad non declared." 

The files provide details on over 100,000 HSBC clients, including people targeted by US sanctions, such as Turkish businessman Selim Alguadis and Gennady Timchenko, an associate of Russian President Vladimir Putin. 

Alguadis told the ICIJ it was prudent to keep savings offshore, while a spokesman for Timchenko said he was fully compliant with tax matters.

Other individuals named on the list include Rami Makhlouf, cousin of Syrian President Bashar Al Assad, designer Diane von Furstenberg, who told the ICIJ the accounts were inherited from her parents, and model Elle Macpherson, whose lawyers told the ICIJ she was fully in compliance with UK tax law.

Motorcycle racer Valentino Rossi, listed as having $23.9 million in two accounts, said he had regularised his tax situation with Italian authorities.

Switzerland has charged Falciani with industrial espionage and breaching the country's secrecy laws. Falciani could not be reached for comment on Monday but has previously told Reuters he is a whistleblower trying to help governments track down citizens who used Swiss accounts to evade tax.

HSBC said the Swiss private banking industry, long known for its secrecy, operated differently in the past and this may have resulted in HSBC having had "a number of clients that may not have been fully compliant with their applicable tax obligations".

HSBC's Swiss private bank was largely acquired as part of its purchase of Republic National Bank of New York and Safra Republic Holdings, a US private bank.

The ICIJ said details of more than 100,000 clients had been obtained from more than 200 countries. It said 11,235 were based in Switzerland, 9,187 were in France, 8,844 were in Britain, 8,667 were in Brazil and 7,499 were from Italy.

The clients' accounts held more than $100 billion, including $31.2 billion from clients based in Switzerland, $21.7 billion from Britain, $14.8 billion from Venezuela and $13.4 billion from US clients, the ICIJ said. 

HSBC said the number of accounts in its Swiss private bank was much lower, however. It could not explain the difference. HSBC said its Swiss private bank had 30,412 accounts in 2007, which had fallen to 10,343 at the end of last year.

HSBC said it was cooperating with authorities investigating tax matters. Authorities in France, Belgium and Argentina have said they are investigating.