Financial regulators in Jersey have launched an inquiry into HSBC, one of the biggest banks on the island, following a leak of the names of thousands of bank account holders said to include individuals with a history of links to drug and gun crime.
The move follows confirmation that UK tax authorities had also begun eagerly working through the list looking for possible evidence of discrepancies in British offshore depositors' tax affairs.
The leak is highly embarrassing for Jersey, which claims to have comparatively tough regulations for its licensed banks, requiring them to know who their customers are and where their funds come from.
"Jersey has got some of the toughest anti-money laundering regulations in the world, as assessed by the IMF [International Monetary Fund]," said Jersey treasury minister Philip Ozouf. "There are many jurisdictions with banking secrecy and much lower standards than we have. We are a global leader in this area."
Geoff Cook, chief executive of the island's powerful lobby group Jersey Finance, said: "This is a serious matter and we note HSBC's immediate commitment to co-operating with any investigations carried out by the relevant authorities and welcome the clear position taken by the JFSC [Jersey Financial Services Commission, the island's financial regulator] that any failure to adhere to Jersey's clear standards will be robustly investigated and acted upon."
Before joining the financial lobby group Cook was head of wealth management for HSBC and before that worked as deputy chief executive of the bank's operations in Jersey.
HSBC has come in for sharp criticism over failures in its scrutiny of depositors, particularly in relation to organised crime. This week the company said it was braced to receive a fine which could be more than $1.5bn (£938m) from the US authorities. This penalty follows a finding by a Senate committee that the bank had exposed the US financial system to "a wide array of money laundering, drug trafficking and terrorist financing risks due to poor anti-money laundering controls".
Friday's disclosures in the The Telegraph added to the bank's woes as the newspaper named a handful of individuals, with a history of criminal links, who it said were on the leaked list of HSBC Jersey clients.
The paper reported that the onetime owner of a farm near Lewes in East Sussex, where an outbuilding had been used as a £600,000 cannabis farm four years ago, held an account with HSBC Jersey in which more than £250,000 was held. Daniel Bayes' account was said to have been registered to the same address.
It was widely reported in 2009 that Bayes have played a leading role in the cannabis farm – though it was his father, Brian Bayes, who was convicted of managing the operation and of laundering £66,000. Daniel was said to be in Venezuela during the trial and could not attend court because his wife was ill. In sentencing, the judge said: "It is a matter for your son's conscience, not yours. To expose his parents like this is monstrous."
Jersey politicians and regulators point to high-profile convictions, such as that of drugs baron Curtis Warren three years ago, as evidence of their uncompromising approach to organised crime.
HSBC is one of the biggest banks on Jersey, its headquarters on the esplanade dominating the seafront skyline. It routinely caters to many British expats working overseas, notably in the far east, where the bank also has strong ties and there is a substantial British workforce. Many expats use offshore bank accounts at HSBC and elsewhere to legitimately hold their overseas earnings without exposing them to UK tax.
The leaked list of HSBC clients is reported to include names from the oil and mining industries as well as doctors and some celebrities – all groups which typically have significant overseas earnings. "Types and rates of tax vary between countries, so you'll need to understand your tax obligations (at home and abroad) and how to make the most of potential tax efficiencies," the bank advises potential customers moving overseas on its website.
The leaked list of clients has only very recently been sent to Revenue & Customs, where investigators are looking to check that leaked details correspond with the declared tax affairs of the individuals concerned. It is not yet clear whether the information will provide as much evidence of large-scale evasion as the leaking of the so-called "Lagarde list" of HSBC's Swiss clients, some 2,000 of which were British.
That leak, in 2008, is said to have led to hundreds of private settlements with HMRC, but only one prosecution. Tax authorities have argued a pragmatic approach to settling provides the best value for the taxpayer.
The latest leak from Jersey is said to list the identities of 4,388 people giving addresses in Britain who together hold £699m in offshore current accounts. These people may also hold other offshore investments which remain beyond the view of UK tax authorities; however, most are unlikely to be super-rich clients of the kind known to have large fortunes stored in offshore trusts.
Nevertheless, Phil Berwick, a director at law firm Pinsent Masons said it was "inevitable" that HMRC would be looking to use its criminal powers against some of people named on the list. "If people with offshore accounts suspect that they might have a problem, they need to be pro-active. They need to approach HMRC before HMRC approaches them – possibly in the form of a raid of their home or business. HMRC has taken a very interventionist approach in the past year, more than doubling the number of raids they carry out."
A statement from the JFSC suggested the regulator was most urgently seeking to establish that HSBC had not breached rules on who can hold a bank account and where funds can come from. John Harris, chief executive of the regulator, said "The commission is unable to discuss individual licence holder matters but any concerns regarding the use of the banking system in Jersey involving money of criminal origin and failures to follow Jersey's well-known and clearly documented reporting obligations will be robustly investigated with any necessary follow-up action taken in consequence."
HMRC said in a statement: "Clamping down on those who try to cheat the system through evading taxes and over-claiming benefits is a top priority for us, and we value the information we receive from the public and business community."
The information is the latest in a string of illegal leaks of private offshore financial details from some of Europe's most controversial tax haven jurisdictions. HMRC is reported not to have paid for the information on HSBC accounts, though that could not be confirmed.
The bank insisted on Friday morning it had not been notified of any HMRC investigation. "Should we receive notification, we will co-operate fully with the authorities," HSBC said. "We are investigating the reports of an alleged loss of certain client data in Jersey as a matter of urgency."
The latest leaked information follows HMRC's receipt two years ago of the so-called "Lagarde list". Meanwhile, in 2007 the German authorities paid to get hold of stolen trust company details from Liechtenstein relating to tens of thousands of secret structures. US and UK counterparts also paid for the information later. The offshore world reacted with outrage at these payments, describing them as illegal.
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